Trump's New Trade Deal: An Improved NAFTA
During the 2016 campaign, Trump labeled the North American Free Trade Agreement (NAFTA), signed by President Clinton in 1994, as the “worst trade deal ever” and made a campaign promise to replace it. Over the last year, the Trump administration has been engaged in trade negotiations with Canada and Mexico with the goal of agreeing on a replacement, and they finally reached a deal at the end of last month.
If passed, the new trilateral trade deal, called the United States-Mexico-Canada-Agreement (USMCA), could have critical implications for the dairy, automobile, and pharmaceutical industries. Here are some of the major changes slated to arrive under the new agreement:
Canada has agreed to ease up on its protectionist dairy policies and open up 3.6% of its dairy market to American dairy farmers. This is expected to increase US exports to Canada by $70 million, or .0003% of GDP.
The percentage of automobile components that must be produced in the US, Canada, or Mexico in order to not pay tariffs has been raised from 62.5% to 75%.
By 2023, 40% of the work done on vehicles must be completed by workers earning at least $16 an hour. This is well above the current average pay for Mexican auto workers.
Pharmaceutical companies are granted stronger protections for biologic drugs, which are usually the most expensive on the market. The length of time that these drugs can be protected from cheaper generic competition has been extended to 10 years.
These changes are likely to spur economic growth and create more well-paying jobs in the US, especially in the automobile and dairy industries. However, the deal may also cause a significant hike in consumer prices for automobiles because car companies will no longer be able to rely on cheap labor from Mexico.
But before any of these changes can be implemented, the USMCA must be approved by Congress. The vote will likely take place in 2019, after the midterm elections. Because the agreement promotes American interests while essentially maintaining the same structure as NAFTA, it is possible for it to pass with bipartisan support. However, this might not be the case if Democrats take control of the House and are hesitant to let Trump fulfill one of his central campaign promises. After all, placing party over country unfortunately seems to be the new norm on both sides of the aisle.
In the meantime, however, President Trump will probably travel the country touting the success of the trade negotiations in order to boost Republican candidates before the upcoming midterm elections. His message will be most impactful on close House races in Wisconsin, Minnesota, and upstate New York, areas where dairy farming is a larger industry. It remains to be seen if the USMCA will actually have a substantial impact on the outcome of the midterms, but it is undoubtedly a useful talking point for the President and his party to possess.