By Sabrina Wong
The US International Trade Commission (ITC) released a report last Thursday detailing the potential economic impacts of the Trump administration's new trade deal proposal, the US-Mexico-Canada Agreement (USMCA). Renegotiating and replacing the North American Free Trade Agreement (NAFTA) was a major campaign promise made by President Trump in his 2016 election. The White House Council of Economic Affairs (CEA) also released a report outlining its own findings for USMCA impacts. The two reports differ greatly in the extent to which the new deal will benefit the US economy.
The ITC’s report shows mainly modest projections, predicting that USMCA will boost US GDP by 0.35% and increase jobs in the overall US labor market by 176,000, with 28,000 of those jobs in the automobile industry. In addition, the report shows that North American trade volumes will increase, but the trade deficit with Mexico is unlikely to see much improvement. Finally, since the proposed USMCA would narrow the time window for investor-state dispute settlement, US investment to Mexico is expected to decrease while boosting US domestic investment. However, it is important to note that certain aspects of the proposed deal, such as new labor standards and regulations on government procurement, were not used in the economic modeling and thus were disregarded in the ITC’s analysis.
Meanwhile, the CEA’s report shows a much more optimistic projection for USMCA, projecting that it will result in a $34 billion increase in US auto industry investment and the addition of 76,000 auto sector jobs over five years. The positive projections result in part from the realization of benefits from proposed stronger intellectual property projections on research and development; the CEA notes that these protections could lift GDP by another $23 billion.
Trade experts argue that under the current NAFTA, there are essentially no existing tariffs between the US, Mexico, and Canada. Thus, their concern is that there is little room for major economic benefit to occur under USMCA. Regardless, the NAFTA overhaul is proving to be a highly politicized and hotly contested issue within Congress. House Speaker Nancy Pelosi holds the power to set a voting timeline, and is likely to leverage that power to further a Democratic agenda. Republicans are already concerned that the existing trade terms in President Trump’s USMCA are not conducive to pro-business policy, arguing that the proposed labor and environmental rules will increase operating costs for the private sector.
Outside of Washington, some economists suggest that companies may accept tariffs instead of adopting cost-raising rules. This, therefore, may undermine the Trump administration’s goal of moving production to the US while raising the prices of goods for consumers. Still, US trade officials have offered assurances, saying that North American manufacturers have agreed to comply with the new trade terms under USMCA.