BY: YAELA COLLINS
In 1994, the United States, Mexico and Canada signed the North American Free Trade Agreement, popularly known as NAFTA. The deal, meant to facilitate economic activity between the three countries, led to the phasing out of various tariffs associated with agriculture, textiles and automobiles between 1994 and 2008. Shaping North American trade relations for the last 24 years, the agreement was highly impactful since approximately 25% of all U.S. imports are from Canada and Mexico; America’s continental neighbors also serve as markets for approximately 30% of U.S. exports.
Throughout the 2016 American presidential election campaign, Donald Trump campaigned on a platform that included a repeal of NAFTA and other “unfair” trade agreements, which he believed had been hampering the economic growth of the United States. In August, Trump announced a new deal- the U.S.-Mexico Trade Agreement, which allowed for duty-free access to agricultural goods on both sides of the border, removed non-tariff barriers and encouraged further agricultural trade. This bilateral deal threatened to leave Canada behind if the government did not agree to Trump’s terms. This weekend, just before the desired deadline to make the text of the treaty public, the U.S. and Canada reached an agreement.
Though the “new NAFTA” is very similar to the “old NAFTA,” there will be several changes to regional trade and economic practice if the deal is enacted. As part of the new agreement, vehicles imported duty-free to a NAFTA country need 75% North American content. The deal additionally requires two-fifths of vehicles to be produced by workers earning at least $16 an hour in order to be eligible for duty-free trade, an indication that the deal will subject all those involved to higher labor standards. Moreover, the new deal requires a 16-year sunset clause with renewal meetings between the parties every six years along with restrictions on exchange rate manipulation and greater American access to the Canadian dairy market. The new NAFTA also calls for a name change to the United States-Mexico-Canada Agreement, or U.S.M.C.A.
Additional changes to intellectual property regulations, e-commerce and dispute resolution processes are expected to restore “North America as a manufacturing powerhouse,” according to Peter Navarro. Already, the Canadian dollar gained a half percent against the U.S. dollar as investors moved to purchase riskier assets in light of the new deal.
The U.S.M.C.A. is considered a milestone for the Trump administration, though prospects of congressional support for NAFTA’s new terms remain unclear as disputes over aluminum and steel tariffs remain unresolved while the midterm elections loom. Despite political uncertainty in the U.S. and in Mexico, as President-elect López Obrador prepares to take office, all parties seem content and remain hopeful that the U.S.M.C.A will bring continued partnership and economic growth.
Yaela Collins is currently working at The Bassiouni Group where she engages in security and development research and business management consulting focused on sustainability. She received her BA in International Relations with a focus on Developing World from the State University of New York College at Geneseo and a M.S. in Global Affairs from New York University.
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