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Two-Minute Take: NAFTA vs. USMCA

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?

Article by Matthew Rooney October 2, 2018 //   3 minute read

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.