President Donald Trump’s new trade deal made between his administration, Mexico and Canada is meant to replace NAFTA entirely with an agreement he has named USMCA. So what do you need to know about this new deal?
All of the statistics that were supplied need to be examined in light of their more significant socioeconomic impacts. It is said that the deal is the most balanced trade agreement ever made between the United States and other countries, but Democrats are still fighting it. Claims by the President’s Administration state that the deal solves issues currently in NAFTA, opens the markets more to American manufacturers and farmers, while simultaneously reducing trade barriers to the United States. What many people don’t realize is that each of the improvements made to the new deal may result in higher costs for things like automobiles for those purchasing and shipping within the United States.
Trump states that the new deal will impose standards that require 75% of an automobile’s value to be manufactured in North America. This is an increase from the current NAFTA level of 62.5%. Another aspect of this deal requires that 40% of car parts be built by workers who earn a minimum wage of $16 per hour. This will likely increase the cost of cars.
On the note of manufacturing, it was stated that this new document would transform North America into a manufacturing powerhouse. What is important to understand here is that this statement and those like it are meant to imply that improving U.S. based manufacturing means more jobs, which means more disposable income for the middle class. This is what voters want. However, there is a chance that this will not create more jobs, but more machines. Improving the amount of work done locally means improving the number of machines to increase productivity, not jobs.
Farmers were mentioned in the new deal, and dairy, slightly more specifically. Dairy was called a “deal breaker,” and the new agreement opens up American farmers to better access in the dairy industry. However, dairy accounts for only 0.1% of trade between Canada and America. The tariffs for dairy imports in Canada are upwards of 30%. There were past complaints by U.S. farmers that Canadian policies priced them out of the market for dairy powders, something this new agreement would end. However, it will expand access by U.S. farmers such that it moves from the previous 3.25% to 3.75%.
Overall, NAFTA signed into law by President Clinton is now being repealed and replaced by something that is touted as significantly better, with improvements and access that was previously denied to American farmers and manufacturing industries. Unfortunately, these changes may not produce a statistically significant improvement and may increase the prices that shippers, and eventually consumers, will have to pay.