The United States-Mexico-Canada Agreement, or USMCA, will be implemented on July 1st of this year, according to a press release from the U.S. Trade Representative’s office. The new trade agreement will govern trade relations between the United States, Canada, and Mexico. All three countries have completed domestic preparations necessary to implement the law. The United States and Canada exchanged $718.5 billion USD in 2018, the latest figures according to the U.S. Trade Representative. In the same year, the United States and Mexico traded $671.1 billion USD in goods and services.
President Trump signed the USMCA into law on January 29, 2020. Mexico had already ratified it at that point, and Canada would follow suit in March.
The new trade agreement aims to update its predecessor, the North American Free Trade Agreement, or NAFTA. Signed in 1993, NAFTA is estimated to have increased commerce between the three countries from $290 billion USD in 1993, to more than $1.1 trillion USD in 2016. Now, the USMCA aims to update the agreement, and addresses sectors such as intellectual property and digital trade. It also contains new regulations regarding labor rights and the environment.
One of the biggest changes will be with the auto industry. NAFTA allowed for cars to pass, tariff free, between borders as long as at least 62.5% of components were manufactured in one of the three signing countries. The USMCA raises that requirement to 75% of an automobile’s components. In addition, between 40 and 45% of parts must be made in a factory that pays workers at least $16 USD per hour. While wages in the United States already average well above that, Mexican workers currently earn under $8 USD per hour. This will force car manufacturers operating in Mexico to either raise wages considerably, pay an import tax on each car, or relocate their operation – to the United States or Canada, or outside of North America altogether.
The Trade Representative announcement didn’t come without some opposition. Mexico has asked for a longer transition period for automakers. In addition, the American Automotive Policy Council, American International Automobile Dealers Association, Motor and Equipment Manufacturers Association, National Automobile Dealers Association, and Here For America released a joint statement, that ‘We are in the midst of a global pandemic that is significantly disrupting our supply chains, and the industry is throwing all available resources into managing production through this crisis for our employees and for the broader US economy.’
Trucking can expect to benefit from the added certainty that this new legislation will bring. American Trucking Association president Chris Spear said in a press release that, ‘[expected economic growth] will be a boon to the American trucking industry – which already moves 82% of the freight that crosses the Mexican border and 68% that crosses our border with Canada – as well as to consumers in all three countries.’
The USMCA is expected to add $68.2 billion, or 0.35%, to US GDP.