The US Senate Finance Committee has voted 25 to 3 to support a draft of the new North American trade deal known as the US-Mexico-Canada Agreement or USMCA. The House of Representative already approved the draft deal in December 2018 after adding in sections that protected workers more.
USMCA: Best Deal Ever?
According to US President Donald Trump, the USMCA is going to be “the best and most important trade deal” in American history. On the campaign trail in 2015 and 2016, Trump repeatedly slammed the North American Free Trade Deal (NAFTA) as a destroyer of US jobs and the worst trade deal ever made. Trump also referred to the Trans Pacific Partnership which he withdrew from by executive order in 2017 as a “rape” of America and a “job killer.” Democratic House Speaker Nancy Pelosi also said the new deal is “much better than NAFTA.”
This can be properly understood as mainly political rhetoric. The USMCA is basically just an updated version of NAFTA with a few more protections for American interests. It is unlikely to significantly boost US job numbers or fundamentally change the way trade works in North America.
How Is The USMCA Different Than NAFTA?
There are some areas where the USMCA breaks new ground. One is on auto parts. The new deal stipulates that three-quarters of an automobile’s parts have to be made in the US, Canada or Mexico in order to be tariff-free when shipped. Workers also have to get paid over $16 USD per hour, which will mean Mexican companies paying workers low amounts will be overtaken by higher-paying US firms in some cases. The Trump Administration is betting this will have major payoffs in the auto industry and optimistically predicts over 76,000 new auto jobs in the United States by 2025.
Other updates include in the dairy industry, where US dairy, chicken and egg farmers will get access to Canada’s heavily-subsidized dairy industry with their exports. For its part, Canada’s farmers and nut and sugar industry will get better access to the massive US market.
On the tech side, the USMCA protects the ability of US tech companies to store their data on American servers and shields them from being prosecuted for many issues that could occur with their content in Mexico or Canada. It frees up and empowers American tech companies and could set a precedent for deals later on with China and other bigger players. Additionally, the new USMCA deal helps protect the environment somewhat with $600 million for dealing with environmental issues, although environmentalists say it is just a token and the deal basically does nothing to help the environment.
Politicians Weigh In On USMCA
Some American politicians are worried it doesn’t look after American workers and companies enough, especially Democratic presidential candidate Bernie Sanders of Vermont who said he will vote against the final bill. On the Republican side, Senator Pat Toomey of Pennsylvania is concerned for the opposite reason, saying the USMCA is “designed to restrict trade and investment” and would cut back on free trade growth, especially in the automobile sector where the USMCA puts tariffs on parts whose workers weren’t paid up to standards to stop one country from flooding the market and tariffs on origin companies whose products don’t meet certain standardized benchmarks. Others on the committee like Republican Senator Bill Cassidy of Lousiana and Democratic Senator Sheldon Whitehouse of Rhode Island expressed concern that businesses won’t have adequate ability to dispute deals and unfair treatment under the deal: therefore they voted no.
Senator Rob Portman called the deal a “big improvement” despite admitting it isn’t perfect, while Democratic Senator Sherrod Brown of Ohio, for example, particularly emphasized the deal’s enforcement of better work standards and wage protection for Mexican workers. If Mexico pays workers more and has to produce better products it will help slow down outsourcing and protect American jobs.
USMCA Expected To Become Law In Near Future
The USMCA faces the full US Senate vote for ratification next week, but this could be rescheduled depending on the timing of US President Donald Trump’s impeachment trial. It has a 16-year sunset clause meaning the deal will have to be renegotiated at that time. While some of the improvements and changes made in the new USMCA will undoubtedly help American workers and can also give various benefits to Mexican and Canadian companies and workers, the slow progress of the deal and its largely underwhelming advantages show just how slow trade negotiation and progress is in the real world once you cut through the political rhetoric.