An agreement between the United States, Canada, and Mexico has finally come to fruition as the end of an era has been concluded. The USMCA agreement was approved by the Senate with an overwhelming majority. USMCA will maintain NAFTA’s tariff free status between the U.S.’s two largest trading partners along with other provisions that are meant to help boost jobs in the US. However, some critics believe that the main benefit is the end of the uncertainty now that this deal is complete. A few notable changes include dairy access, access for other agricultural goods, auto rules, and tariff side deals.
USMCA allows American dairy farmers more access to the Canadian market, especially for milk products like milk powder and proteins. U.S. farmers will be able to export the equivalent of 3.6% of Canada’s dairy market. This is an increase of about 2.6% over what was allowed previously. There have also been some restrictions put on how much dairy Canada can export. This is in hopes that American dairy farmers can use that as an advantage to edge into foreign markets.
Canada has also allowed more access to other goods such as chicken, turkey, and eggs, with the same thought in mind as with the dairy market. While British Columbia will now allow the sale of U.S. wines and Mexico has agreed to allow imports of certain U.S. cheese.
Auto markets are going to be affected as well. In order to be approved for tariff-free trade 75% of auto parts to come from within the three countries. This is another increase from the 62.5% that was in place with NAFTA. An additional requirement states that 40% of the auto content is to be made by workers earning $16 an hour. These measures are meant to limit Mexico’s advantage on labor costs, as $16 an hour is three times the wage in Mexico today.
There have been some side agreements regarding tariffs that have made their way into this agreement as well. This would largely protect the countries from tariff on imported autos and auto parts. One of the main benefits that is being seen is removing the uncertainty of pending decisions regarding trade. With this agreement in place it ends questions whether tariffs could be enacted on either country.
Many are wondering how much this will change and quite a few experts believe it will not be much. Initial projections from the International Trade Commission are that it will add 176,000 U.S. jobs although that is just an increase of 0.12%. There are projections that it will raise U.S. gross domestic product by $68 billion, about 0.35%. Other critics have pointed out that this bill doesn’t address climate change and it doesn’t go far enough to protect workers’ rights.
Whether you are for USMCA and the changes it brings or against it, it has been passed. After some additional procedural steps it is expected to enter into effect later this year so you better be prepared for it.