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Two-Minute Take: NAFTA vs. USMCA

October 2, 2018 by Matthew Rooney
The United States-Mexico-Canada Agreement makes substantial changes to modernize trade rules in effect from 1994. What are these modifications and what do they mean for Americans?

What are the differences between the North America Free Trade Agreement (NAFTA) and the United States-Mexico-Canada Agreement (USMCA)? 

There are numerous differences, including many improvements that lock in market access for U.S. products equal to what the U.S. lost after withdrawing from the Trans-Pacific Partnership (TPP). Many provisions modernize and update NAFTA to cover sectors like digital commerce where the U.S. has a significant advantage. In the dairy area, farmers in the U.S. will receive a larger quota of the Canadian market, and the Canadians agreed to reverse a rule change that had excluded a specific milk by-product from Canada.  

However, other changes roll back the scope for consumers and entrepreneurs to make decisions, replacing it with rules and regulations that will be defined and enforced by government agencies. In the automotive sector, for example, duty-free car exports to the U.S. from Mexico and Canada are capped. Also in the auto sector, Mexico has agreed to a minimum wage of $16 per hour in plants producing exports to the U.S.  Both of these measures suggest a significant increase in government auditing and inspection of the industry. They also impose a burden of compliance on the industry that represent an increase in the cost of manufacturing autos in the U.S. 

How does USMCA impact Americans? 

The short term: The opening of additional market access for some U.S. agricultural products is welcome news in farm and dairy states. It will offset some of the pain that our agricultural sector is feeling as other markets, especially China, erect their own tariff barriers.  

The medium term: There may be some movement of auto and parts manufacturing – and jobs – back to the U.S. as the increased cost of importing cars and parts makes it appear more cost-effective to manufacture here. 

The long term: Those higher costs of auto and parts imports will create higher costs of production. Such that there is a real risk that our auto industry will lose global competitiveness, which could threaten jobs throughout the supply chain.

 


Author

Matthew Rooney
Matthew Rooney

Matthew Rooney joined the Bush Center in June 2015 following a career as a Foreign Service Officer with the U.S. Department of State. At postings in Washington and abroad, he focused on advocating market-driven solutions to economic policy challenges in both industrialized and developing countries, and on protecting the interests of U.S. companies abroad.

In Washington, Rooney was on loan to the U.S. Chamber of Commerce to create a high-level private sector advisory body for the Summits of the Americas, working closely with the U.S. private sector and with companies and business associations from throughout the Americas to negotiate an agenda to promote economic integration in the region.  Previously, he was Deputy Assistant Secretary responsible for relations with Canada and Mexico and for regional economic policy.  In prior Washington assignments, Rooney worked for then-Senator Fred Thompson, and supported negotiations to open global markets to U.S. airline services.

Abroad, Rooney was Consul General in Munich, a Consulate General providing a full range of Consular and export promotion services, supporting a permanent presence of 30,000 U.S. forces in two major base complexes, and carrying out a media and public relations initiative in support of U.S. diplomatic objectives in Germany. As Counselor for Economic and Commercial Affairs at the U.S. Embassy in San Salvador, El Salvador, he laid the groundwork for free trade negotiations between the United States and the five countries of Central America, and promoted market-based reforms for electrical power. Prior to this, he served in various posts in Germany, Gabon and Côte d’Ivoire.

Rooney studied Economics, German and French at the University of Texas at Austin and received his Master’s Degree in International Management at the University of Texas at Dallas.

Full Bio