US-Mexico-Canada Trade Deal is Historic Accomplishment

While most Democrats have kept up their never-ending crusade to remove President Trump from office, Republicans and a handful of Democrats are helping the president fulfill yet another promise to the American people – the United States-Mexico-Canada Trade Agreement (USMCA) – which passed overwhelmingly (89 to 10) in the Senate last week.

The USMCA will replace the 26-year-old North American Free Trade Agreement (NAFTA) and will update trading rules in the continent to address 21st-century technology, safeguard environmental and labor standards in Mexico and toughen requirements for auto-industry trade among the three countries.

Actually the USMCA was tentatively signed by the three countries in late 2018, but trade deals such as this have to be ratified by Congress. In this case, House Speaker Nancy Pelosi, backed by labor unions, threatened to block passage without stronger enforcement provisions to ensure Mexican factories follow through with new labor requirements.

Changes were made accordingly and in December 2019, the House approved legislation to implement USMCA by a 385 to 41 vote, with 193 Democrats and 192 Republicans backing the pact. With the overwhelming vote in the Senate last week, the USMCA will finally go into effect.

 

 

While the USMCA is one of the most consequential deals ever negotiated on behalf of the American people, it received very little fanfare in the media as it was overshadowed by the start of the impeachment trial in the Senate. Yet the USMCA is a historic accomplishment. I’ll tell you why in just a minute.

But first I want to comment on the relatively small number of Democrats who opposed it. The few Democrat senators who voted against this landmark trade deal are largely ideologues and hardcore partisans such as Senator Bernie Sanders and Senate Minority Leader Chuck Schumer – both of whom defended their opposition to the USMCA by complaining that it failed to include more provisions for combating climate change. While the USMCA does include some new “environmental standards,” it did not go far enough to satisfy these liberal Democrats.

The USMCA corrects some of the most glaring deficiencies of NAFTA, eliminating or updating provisions that had placed American workers at an artificial competitive disadvantage for decades.  While the USMCA is not perfect, it is a huge improvement over NAFTA.

And here’s the best news: Once the new agreement takes effect, it is projected to boost US GDP by $70 billion annually and some say even more. It is also projected to support the creation of 175,000-200,000 new jobs across the United States.

Here is an article which breaks down the major components of the USMCA in more detail.

US/China “Phase One” Trade Deal Leaves Much to be Desired

Most trade experts agree that the new US/China trade deal the president signed last week is a “good first-start,” but also agree that there is much, much more to be done. And of course, it remains to be seen if President Trump will still be in office this time next year to spearhead the “Phase Two” negotiations.

The first focus in the agreement is on intellectual property disputes – patent infringement, forced technology transfers by US companies entering joint ventures in China and counterfeit goods. Experts hope the addition of this “hard law language” will make it more likely that China will comply with its commitments. We’ll see.

The good news is that China agreed to buy substantially more US goods in 2020 and 2021. US exports to China were $129.8 billion in 2017, which was a record. The new agreement calls for China to buy $206.5 billion in 2020 and $253 billion in 2021. Some experts warned that these numbers may not be realistic. Again, we’ll have to see.

Sales of US agricultural products to China fall into the same category. In 2007, China bought $19.6 billion, 14.2% of all US ag exports. Under the new deal, China is supposed to buy $32 billion this year and $39.1 billion in 2021. Some experts worry that if China has to reduce its imports from other countries to meet these new targets, both the US and China could face legal actions from some of these countries.

Finally, the new agreement doesn’t fully address the issue of US tariffs on Chinese goods. While some of the more recent tariffs will be cut, tariffs will remain on the bulk of Chinese goods. It remains to be seen what will happen to the tariffs in “Phase Two” negotiations, assuming that actually happens.

At the end of the day, the latest US/China trade deal is a good start – assuming China meets its commitments – but it leaves a LOT to be negotiated in future trade talks. At least the equity markets liked the deal, limited as it is, and soared to new record highs in the US. Now we’ll have to see if China performs. I wouldn’t bet either way!