USCMCA vs. NAFTA: The Old Deal Mostly Gets New Letters

The report of the U.S International Trade Commission is in. In most respects, USMCA is a marginal improvement over NAFTA. Anyone who trumpets USMCA now has no choice but to admit that NAFTA was good for the United States.

President Trump’s most consistent talking point about NAFTA is it would bring auto production back to the United States (although it never really left.) But the ITC found otherwise. It determined that there would actually be a net job loss in auto production (although there would be an increase in auto parts production.) The ITC also estimated there would be a modest increase in U.S GDP of 0.35 percent. It would increase jobs in the United States by about 176,000 - about as much as an average month during Barack Obama’s presidency.

Trump described the agreement as truly groundbreaking, but what exactly was the United States saved from by reforming NAFTA? Say hello to the new deal; pretty much the same as the old deal - the one Trump called the “worst deal in history.”

In other words, President Trump slapped a new name on an old deal, gained in some respects, lost in others, and ended up a baby step from where things started.

In fact, it is hard to find anything in the new deal that wasn’t in the old one, or in the Trans Pacific Partnership that Trump summarily rejected. It takes into account economic changes over the past 25 years - changes such as new rules for governing financial services, digital service land and intellectual property as well as wage guarantees - all of which could be found in TPP.

The Administration has chosen to hang its hat on the impact the agreement would have on the auto industry. Again, there is little to see here. The new rules would indeed lead to a slight increase in U.S production of auto parts “but at the price of a similarly small increase in prices for consumers and a modest decrease in consumption.” The new rules governing the auto sector would also draw revenues away from other manufacturing sectors and the rest of the economy, dragging up production costs.

U.S exports to Canada would increase - by the same amount as Canada’s exports to the United States. The Increase in U.S exports to Mexico would be barely more than Ihe increase in Mexican exports to the United States.

Why would the USMCA fail to provide much of a boost to economic growth? The ITC concludes it is because NAFTA already eliminated tariffs among the three countries, leaving little room for growth. Quite simply, it just makes an already-good deal somewhat better.

The USMCA is indeed an improvement over NAFTA - a small one. What it proves more than anything else is that any free trade deal provide benefits to all countries involved.