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Say what you will about the new proposed North American trade pact, but you have to admit they got the name right.
The North American Free Trade Agreement - which President Donald Trump famously and wrongly calls the worst trade deal ever - is set to be replaced by the U.S.-Mexico-Canada Agreement, or USMCA. U.S. politicians last week announced an agreement over key changes in the proposed trade deal, with legislative ratification expected early next year.
It's an honest name, because it removes the term 'free trade” from the title. USMCA doesn't really make trade any freer than it has already been under NAFTA. In fact, major pieces of deal don't deal directly with trade, but instead restrict trade by imposing a host of restrictions on member nations' own commercial activities.
Trump calls USMCA a 'great deal” and 'historic transaction.” House Speaker Nancy Pelosi said the agreement as proposed was better than NAFTA, and newly announced changes secured by herself and other Democrats made it 'infinitely better.”
Iowa politicians mimicked their party leaders' comments. U.S. Sen. Chuck Grassley said it was 'long overdue but very welcome news.” U.S. Rep. Abby Finkenauer called it a 'historic update” but warned about the Trump administration's other policies affecting farmers.
Without a doubt, the best thing about USMCA is that it is mostly NAFTA. The new deal preserves the continental free trade zone and the commitment not to impose barriers on most international trade among the three nations. This makes the whole continent wealthier and more productive.
Aside from keeping the freedoms we already had, the one blockbuster improvement in the new deal is expanded access to Canadian markets for agricultural goods. Under the deal, American farmers expect to sell more products to Canada, including dairy, eggs and poultry, which is good for Canada and good for Iowa.
Instead of simply promoting exchange of goods between nations, USMCA does a lot to regulate the partner nations' business. That includes the creation of 'enforcement mechanisms” which basically give the United States and Canada more oversight on the Mexican economy.
The worst part of the proposed agreement may be burdensome restrictions on automobile production. In order to be traded duty-free, a higher portion of the production must take place in North America. It also effectively imposes a minimum wage on certain Mexican autoworkers, ostensibly in pursuit of fair labor practices. These updates are certain to increase the cost of producing cars in North America.
In addition to requiring more components sourced from North America, the newest draft of the agreement makes more stringent rules which steel is considered North American, requiring every part of the process to take place here. This is textbook protectionism, totally antithetical to free trade.
Another sign that the USMCA is not actually pursuant to free trade is that it explicitly discourages the countries from establishing free trade agreements with 'nonmarket” economies, which is meant to single out China. Without America looking out for our little siblings, Canada and Mexico might have tried to improve relations with the world's second-largest economy.
On the whole, USMCA is good because it provides some certainty in the U.S. economy.
Trump gets credit for making a deal, stopping him from erratically withdrawing from NAFTA as he has threatened to do. Much of the new language in USMCA is borrowed from the proposed Trans-Pacific Partnership, which Trump withdrew from in one of his first acts as president.
Don't let Republicans and Democrats fool you about the magnitude of the revamped USMCA. In a study conducted before the latest changes were announced, the U.S. International Trade Commission projected USMCA will raise the GDP by about .35 percent, and increase employment by .12 percent.
It's a win for America, at the rate of about one-third of a percentage point.
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