On the heels of a new trade deal with China, President Trump has now signed a the United States Mexico Canada trade agreement, USMCA. It’s an update to the North American Free Trade Agreement, NAFTA, and is being hailed as a big win for businesses, farmers and other workers. Peter Morici, emeritus professor of business at the University of Maryland, breaks it down for us.
Sharyl: If you don't mind: USMCA 101?
Peter Morici: USMCA 101: The old NAFTA, needed to be brought up to date.
Sharyl: Okay, let me stop you right there. What is NAFTA in a few sentences?
Peter Morici: The old North American Free Trade Agreement with Canada and Mexico was in need of update because we've got a whole technology sector that didn't exist before and we've got the problem of China. China can send steel into Mexico. It finds its way into cars and comes into the United States. And it's not like it's fairly traded steel, it's subsidized steel and the same thing goes on with a lot of other components. So the USMCA deals with that by requiring more of the content of the vehicles be made in North America to qualify for duty-free trade.
President Trump: Everybody said this was a deal that could not be done. Too complicated, too big, but we got it done. And today we're finally ending the NAFTA nightmare and signing into law the brand new US Mexico Canada agreement. Very special. Very, very special.
Peter Morici: It also addresses the China problem in another regard. If either Mexico or Canada signs a free trade deal or if we do with China, then they're out of the deal. And so my feeling is that it creates a North American block similar to the European Union without all the excess baggage of the European Union.
Sharyl: What specifically do we get in our relationship with Mexico that we didn't have before with the USMCA?
Peter Morici: We get higher content in the automobiles that cross the border. There'll be more American components in them.
Sharyl: And that helps promote businesses and factories here in the United States?
Peter Morici: Absolutely. If there's more North American components, there's more jobs in the United States. There are more businesses, dry cleaners, restaurants. When a factory is humming, there's that dinette down the street.
Sharyl: What is it we get in the part of the deal with Canada that we didn't have before?
Peter Morici: Better market access in agriculture. The original NAFTA, the original deal with Canada gave us more market access than we've had in the past, but it limited it. This improves it further.
Sharyl: Can you explain in very simple terms to people why trade agreements are necessary?
Peter Morici: Well, the reality is that we would have tariffs at the border. The goods would be stopped at the border and checked and so forth. The amount of two way trade between the United States and Canada is so intense that the economies of Michigan, Ontario and New York would be severely impaired if we didn't have an arrangement that erased the border. Likewise, we have an interest in Mexico developing economically so that we don't have an immigration problem. We either take their goods that we get, or we take their people, is what it comes down to. And this permits Mexico to integrate itself into the US economy, learn American practices. It improves the labor environment in Mexico. And all those things are good things from the point of view of having a more prosperous neighbor. You know, do you want a prosperous neighbor living next door or one that's not prosperous? If you want a prosperous neighbor, you want the USMCA.
Canada has not yet ratified USMCA and due to political upheaval there, it will be months before it takes effect.