Let's make a trade deal 1: USMCA

Now that all three countries have approved USMCA (US-Mexico-Canada agreement), what should we expect?  The best analysis I have seen to date comes from the Cato Institute's rating of which parts of USMCA will be helpful, which will be ho-hum and which will be dreadful.

Economically speaking, the best news is that the difference between USMCA and NAFTA is fairly modest.  President Trump did not terminate NAFTA, as he had threatened.  The one tangible gain from USMCA is that Canadian markets will be more open to US agricultural products, including wine.  This is great news for Wisconsin dairy farmers, who could have a large voice in whether the President will be around to make more trade agreements in 2021.  There also appear to be improvements in using regulations to create trade barriers, improving dispute settlement procedures and boosting digital trade.

The worst news is that automobiles are going to cost more.  To import a car from Canada or Mexico duty-free, 75% or more of its value must be created in North America, up from 62.5% under NAFTA.  That means fewer parts will come from Asia and manufacturers will have to shift to higher-cost suppliers in North America.  Also on the minus side, there is a sunset clause that could lead to the entire agreement being renegotiated or terminated in six years.

The International Trade Commission did an analysis last April that projected a 0.12 percent in US GDP as a result of the USMCA.  Based on my visits to Mexico over the last 30+ years, I think the biggest gain from NAFTA is that it has helped open up the Mexican economy which has in turn led to dramatic increases in well-being, at least in urban areas.  Having a more stable, more prosperous neighbor does not show up in the GDP statistics, but it might be the biggest gain from these trade agreements.