Today’s the day. After two years of negotiations, and an arduous approval process, the United States-Mexico-Canada Agreement went into effect. Its predecessor, NAFTA, created the world’s largest free trade bloc and reduced or removed most tariffs on goods that flowed between North American countries.
The USMCA mostly builds on NAFTA. It continues to keep import taxes out, but addresses non-tariff barriers, such as tariff rate quotas. It also touches on topics that weren’t relevant when NAFTA was negotiated, such as digital trade and e-commerce.
You may have heard about some of the other changes that the USMCA makes already. The biggest one will involve rules of origin for steel and aluminum products, and for North American automakers. Now, products using steel must source 70% of the metal from within North American borders. That number increases for auto producers. While NAFTA required 62.5% of parts to be manufactured domestically, the USMCA raises that level to 70% to qualify for duty free treatment. The new agreement also requires that 40-45% of automotive content be produced by workers making at least $16 per hour.
There are other notable changes. Canada will increase tariff rate quotas in their agricultural sector, giving the United States access to 3.6% more of their dairy market. Historically, Canada has taxed imports that exceed their quota at upwards of 300%.
Intellectual property laws are getting a facelift too. Copyright on intellectual property will extend for 70 years after an author’s death, exceeding NAFTA’s provision by 20 years. New digital trade laws will prevent import taxes from being applied to digital products, such as e-books. Finally, de minimis thresholds (the dollar amount below which tariffs are not applied) will rise in both Mexico and Canada. This should be a boon to e-commerce, and stimulate cross-border commerce slightly.
Overall, the USMCA will have a menial impact on United States GDP, according to most predictions. The USMCA has been endorsed by the American Trucking Association and the Owner Operator Independent Drivers Association.