Woe is the United States-Mexico-Canada Agreement

Woe is the United States-Mexico-Canada Agreement
© MARTIN BERNETTI/AFP/Getty Images

The absence of President Donald Trump and his acting chief of staff, Mick Mulvaney, at the White House’s annual Cinco de Mayo celebration may have signaled what many believe: the United States-Mexico-Canada Agreement (USMCA), a replacement for NAFTA, is doomed. The deal that could govern some $1 trillion in regional trade is not likely to pass any of the legislatures of the partner countries.  

President TrumpDonald John TrumpCould Donald Trump and Boris Johnson be this generation's Reagan-Thatcher? Merkel backs Democratic congresswomen over Trump How China's currency manipulation cheats America on trade MORE’s signature promise during his campaign for the presidency was the elimination of the North American Free Trade Agreement — “the worst trade deal in history,” as he put it. His U.S. trade representative, Robert Lighthizer, and son-in-law/adviser Jared Kushner spent months reworking the agreement to get all three countries on board by Sept. 30, 2018, a record-breaking time for trade negotiations.

ADVERTISEMENT

And while Trump has promised that the USMCA would bring about economic gains for U.S. farmers and return manufacturing jobs to the U.S. automobile sector, a recent report from the United States International Trade Commission confirmed the deal would bring about minimal economic gains for the United States. Only by the sixth year of the agreement would there be any noticeable benefit — a rise in gross domestic product of $62.8 billion, or 0.35 percent.   

But these estimates do not negate the overall positive results that NAFTA has brought about.

Since NAFTA went into force in 1994, trade among the three partner countries has quadrupled. The pact has worked so well with duty drawback provisions and harmonized customs procedures that companies have been able to take advantage of a truly integrated continent-wide supply chain. Some products, such as automobiles, may have components that cross the borders many times as the final product is assembled. This just-in-time inventory management system can make all the difference in making North American products competitive with like foreign products.

Notwithstanding these productivity gains, the NAFTA partners have been playing a dangerous game of “beggar thy neighbor” in escalating tit-for-tat tariff spats. Tariffs on steel and aluminum imports from Canada and Mexico remain in force as the United States and Mexico respond against U.S. products. For example, Canada has slapped retaliatory tariffs against orange juice, whiskey, toilet paper and maple syrup exports from the United States. Mexico is considering retaliatory tariffs against U.S. products for new U.S. measures to slow border transit times.  

Trump has threatened to slap tariffs on Mexican auto parts if our southern neighbor does not do more to stem illegal drug trafficking and immigration into the United States. He also has threatened to close the U.S.-Mexico border, but later acknowledged that’s unlikely to happen. A few weeks ago, in a speech in Wisconsin, the president criticized Canada for its policies to protect its dairy farmers, calling them a “disgrace.” So much for free trade.

Trump has warned that he will pull the United States out of NAFTA if the USMCA is not ratified. This would be a disaster, given that Mexico and Canada are among the top importers of U.S. exports, providing jobs stateside at small and medium-sized enterprises. An estimated 5 million jobs that depend on exports to Mexico are at risk if NAFTA is scrapped and no successor agreement implemented in its stead.

With Trump’s nationalist economic policies, it is no surprise that our trade partners are growing weary. It would have been much easier to pass a replacement for the impugned NAFTA — now 25 years old — last year when Republicans controlled both chambers in Congress and a more trade-friendly government was in power in Mexico. With elections in Canada in October, and next year’s elections in the United States, the window to get the deal ratified by all three partner countries is quickly closing.

Legislators from both sides of the aisle are increasingly skeptical that the impugned agreement does enough to protect U.S. workers and other interests. With the apparent breakdown in negotiations to end the simmering trade war with China, the Trump administration needs to secure the ratification of the USMCA in Congress. Our continent’s economic future may depend on it.

James M. Cooper is a professor of law and director of the International Legal Studies Program at California Western School of Law in San Diego. He has consulted for the U.S. Department of Justice, U.S. Department of State, the Organization of American States, and governments around Latin America. Follow on Twitter @CWSL_News.