Trump finds a new model of US trade relations
Here’s what new deal means after US president ripped up Nafta
There’s a lot to digest in the new trade agreement that the US, Mexico and Canada finalised in deadline-beating fashion, starting with a name change: If the new deal is adopted by all three countries, the North American Free Trade Agreement (Nafta) will give way to the United States-Mexico-Canada Agreement or USMCA.
Here is what it means for the US and its trade allies following the agreement:
Bring more car production to the US
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Nafta required automakers to produce 62.5 per cent of a vehicle’s content in North America to qualify for zero tariffs. The new agreement raises that threshold to 75 per cent. For the first time, the new agreement also mandates that an escalating percentage of parts for any tariff-free vehicle — topping out at 40 per cent in 2023 — must come from a “high wage” factory.
The agreement says those factories must pay a minimum of $16 (Dh58.7) an hour in average salaries for production workers. That’s about triple the average wage in a Mexican factory right now, and administration officials hope the provision will force automakers to shift suppliers from Mexico to Canada or the US.
The risk: Automotive analysts have warned that the provision could have a damaging effect for Americans, by raising costs for US car buyers and incentivising automakers to move production to low-cost countries outside the US, such as China.
Relief from future car tariffs for Canada and Mexico
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Trump has repeatedly threatened, over the last year, to impose tariffs on imported automobiles. The new agreement includes side letters that grant exemptions from any future US tariffs to 2.6 million imported passenger vehicles from Canada and Mexico.
The risk: The threat of car tariffs has clouded trade talks with several countries, including Japan and South Korea, which import cars and car parts into the US.
■ The pact includes major adjustments in several key areas of the countries’ trading relationships. The agreement sets new rules for automobile production. It reduces barriers for US dairy farmers to sell cheese, milk and other products to Canada. It retains a tribunal for resolving trade disputes that the US had sought to eliminate. It guarantees Canadian and Mexican manufacturers expanded access to some large US markets, such as cars and light trucks, but leaves lingering questions about their ability to avoid tariffs on steel and aluminum exports to the US.
Win for US cheese
Perhaps the biggest sticking point in negotiations over the last month was the issue of Canada’s protection of its dairy market, including limits on imported dairy products from the US and government support that gives Canadian products an advantage on international markets against US ones. The new agreement gives the US victories on both fronts.
The risk: Other concessions were made, as is typically the case in trade agreements. For one, the “supply management” system Canada uses to protect its farmers would remain largely intact.
Win for Canada on dispute resolution
■ Trade agreements typically come with enforcement mechanisms. As part of its renegotiation efforts, the US sought to eliminate one of those mechanisms in Nafta: the so-called Chapter 19 provision, which gives the three countries a sort of neutral playing site to challenge each other’s impositions of tariffs, and other actions.
Canada won the fight to keep that provision in the revised agreement.
It did agree to eliminate another form of enforcement between the US and Canada, which allows investors to sue for relief from foreign countries’ actions.
The risk: Consumer groups have long criticised the resolution mechanism, contending it allows large corporations too much power to challenge environmental and other regulations. The new deal leaves that mechanism in place for disputes between the US and Mexico, but not for Canada.