How the USMCA trade deal differs from NAFTA -- and how it doesn't

Summary

The USMCA trade agreement, which replaces NAFTA, brings key updates to North American trade, focusing on labor reforms, manufacturing, and agricultural stability. While retaining most of NAFTA's provisions, the deal aims to raise wages in Mexico through better labor representation and increase U.S. manufacturing, especially in the auto industry. However, this could lead to higher car prices. For U.S. farmers, the agreement provides market certainty, especially in exports to Mexico and Canada, and opens new dairy market access. Additionally, the removal of biologic drug protections could lower drug prices in the future.

Takeaways

• 😀 The USMCA replaces NAFTA, retaining 90% of the provisions but introducing important updates.
• 😀 The agreement aims to bring manufacturing jobs back to the U.S., especially in the auto industry.
• 😀 A significant change is the labor reform in Mexico, which will give workers better representation and improve wages.
• 😀 The USMCA includes tougher labor enforcement, with inspections in Mexican factories to ensure compliance.
• 😀 The auto industry will see changes, such as requiring more car parts to be made in North America by better-paid workers.
• 😀 While the USMCA could bring some auto jobs back, it may also result in higher car prices due to new production rules.
• 😀 The agreement stabilizes trade for U.S. farmers, ensuring continued access to key markets in Mexico and Canada.
• 😀 USMCA provides a boost to U.S. agricultural exports, including expanded access to Canada's dairy market.
• 😀 The agreement alters protections for biologic drugs, reducing the period of protection from 12 to 10 years, potentially lowering prices.
• 😀 The full impact of the USMCA will depend on future political events, including the 2020 U.S. elections.
• 😀 Overall, the USMCA creates a more predictable trade environment, reassuring companies and investors involved in North American manufacturing.

Q & A

What is the USMCA, and how does it relate to NAFTA?

The USMCA, or United States-Mexico-Canada Agreement, is a trade agreement that replaces the 25-year-old North American Free Trade Agreement (NAFTA). While the USMCA updates many provisions of NAFTA, it retains much of the original agreement, with changes designed to address modern trade issues such as labor enforcement, manufacturing jobs, and pharmaceutical protections.

How does the USMCA aim to improve manufacturing in North America?

The USMCA includes provisions that require a larger percentage of a car's components to be produced in North America. Additionally, workers involved in production must receive higher wages. These changes are intended to incentivize the return of some manufacturing jobs to the U.S., though the impact will be limited by factors like automation.

What changes in labor law are introduced by the USMCA, particularly for Mexico?

Under the USMCA, Mexico agreed to major labor reforms, including the establishment of real, independent unions that represent workers. This change aims to address the issue of employer-dominated unions, which previously suppressed wages and labor rights, particularly in Mexico's manufacturing sector.

Will the USMCA lead to a significant return of manufacturing jobs to the United States?

While the USMCA includes provisions that could bring some manufacturing jobs back to the U.S., especially in the auto industry, experts suggest that most manufacturing jobs have been lost due to automation. As a result, the return of jobs may be limited and come at the cost of higher prices for certain goods, such as cars.

How does the USMCA impact U.S. farmers, particularly those exporting agricultural products?

The USMCA provides U.S. farmers with trade certainty, especially with Mexico and Canada, which are key markets for U.S. agricultural exports. The agreement also offers some new access to the Canadian dairy market and stabilizes trade relations in the face of other global challenges, like the trade war with China.

What is the potential impact of the USMCA on U.S. drug prices?

The USMCA removes a provision that would have extended protections for biologic drugs, which are typically expensive and not easily replicated by generic manufacturers. This change could lead to lower drug prices in the future, but the exact effects remain uncertain and will depend on future policy decisions and elections.

How does the USMCA address trade uncertainty between the U.S., Mexico, and Canada?

One of the main benefits of the USMCA is that it reduces trade uncertainty. Prior to the agreement, there were concerns that President Trump might withdraw the U.S. from NAFTA. With the new deal, businesses can feel more secure in their investments and trade practices, which have been critical to the North American manufacturing system.

What is the stance of the Wilson Center on the USMCA, particularly regarding the labor reforms in Mexico?

Christopher Wilson from the Wilson Center believes that the labor reforms in Mexico, which aim to create independent unions and improve workers' rights, were a necessary change. These reforms are expected to address long-standing issues of labor exploitation and wage suppression in Mexico's manufacturing sector.

What are some of the specific provisions in the USMCA that aim to benefit the auto industry?

The USMCA includes rules that require a larger portion of automobile components to be made in North America, as well as provisions ensuring that workers who produce these components receive higher wages. While this is expected to bring some jobs back to the U.S. auto industry, it may also result in higher prices for vehicles due to the increased production costs.

What role does the USMCA play in reducing the impact of global trade wars on U.S. agriculture?

The USMCA helps to shield U.S. agriculture from the negative effects of global trade wars, particularly with China. By restoring stable trade relationships with Canada and Mexico, two of the U.S.'s largest agricultural markets, the agreement provides farmers with more certainty and reduces the risks posed by tariffs and retaliatory measures.