ASG on the USMCA Agreement
Updated: Oct 24, 2022
JEFF BOLICHOWSKI, Media and Policy Analyst:
In terms of straight Canada-US dealing, Canada gave ground on a few things in order to save others - dairy access will get the most pushback, but the preserving of the dispute resolution mechanism verbatim represents a huge win. Auto workers, meanwhile, will like the new provisions around North American content and wage requirements. Mexico seems to have lost the most in the deal. This hands President Donald Trump and Prime Minister Justin Trudeau the power to tout a huge win going into important elections.
DON FRASER, Senior Associate:
A strange win for Trump, given it is also a strong reaffirmation of multilateral free trade — and a rejection of what he apparently wants — nation-to-nation trade deals ostensibly made to benefit the U.S. However, one wonders if he's entirely on top of this file-- or any trade file-- but is instead more desperate to show off a rare win in his deeply-troubled presidency. But we'll take it! And in a surprisingly little-revised NAFTA 2.0 agreement that supports Canada's auto sector, and keeps the dispute resolution mechanism intact, while delivering a minor hit to Canadian supply management. Next up, one hopes, is a cancellation of the totally-inappropriate U.S. steel and aluminium tariffs.
This is also an overall tonic for the Canadian economy, and we should see financial markets respond well in the short-term.
PHIL BAILEY, Senior Associate:
Canada was put in a tough spot on this one as they did not want to risk a deal with Mexico-US only. This would leave Canada blowing in the wind as trade matters were resolved. In some ways, Mexico has more power in the negotiation than Canada, given the security concerns with the Mexico-Canada border, even though the relationship is not as economically beneficial for the US. Dairy farmers are already coming out against the deal as it opens up the market more. Supply management will continue to be discussed.
DEAN IORFIDA, Senior Associate:
I agree with Don that from a Canadian perspective there appears to be little given away, other than the concessions to U.S. dairy farmers, which were not unexpected. The Canadian auto sector should be fine, the trade dispute mechanism remains in place and protection of cultural institutions has not changed.
It will be interesting to see how long the unified, political front remains. Premier Ford has already opined that the dairy farmers were "thrown under the bus". Will we see others employing similar rhetoric? In these increasingly partisan times, it was refreshing that the three Federal parties stuck to the playbook during the negotiations.
Finally, from a selfish standpoint, I live beside the border and occasionally purchase on-line from the U.S. From that point of view, good to see the duty free limits raised!
Probably the big win for Trump had nothing to do with Canada: This was mostly about Mexico and the auto sector. Trump got what he wanted by splitting Mexico off from Canada and forcing them to agree to a minimum wage provision for upwards of 40% of the industry; a common complaint with the existing NAFTA is that U.S. and Canadian manufacturers just cannot compete with Mexico on wages, and this new provision appears to move towards reducing Mexico's competitive advantage as a low-wage zone. He also got what he wanted in new rules of origin policies which will ensure that 75% of a car must be made in the USMCA zone in order to qualify for tariff-free sale. That alone is, I think, enough for him to carry Michigan, Pennsylvania and Wisconsin in 2020. Don't underestimate how much Midwestern auto workers hate NAFTA; Trump's platform on trade was almost identical to the UAW's, and he bragged in his Monday remarks about winning union votes. USMCA was aimed at them.
ADAM MOOTE, Senior Associate:
The trade deal seems to be favourable for Canada. There are some concerns that the dairy sector had to give up some concessions which may cause the federal government some grief in those ridings in the 2019 election but as it stands currently the House of Commons will have the time and support to ratify the deal.
But we must remember this agreement is also subject to US congressional approval. The President does not have the authority to unilaterally approve this deal. Should the ratification of this deal not make it through the US Congress before their mid-term elections I think this deal is in jeopardy. Should the Democrats regain control of the House of Representatives, there would be political purposes to delay and oppose the bill in order to not give Trump a win before 2020, especially with a Democratic-controlled House. Flip side, should the Republicans hold the House and Senate the bill will almost certainly get approved. If voter regret is true and people are unhappy with Trumpism then it is looking like a Congressional shake up is on the horizon.
I actually think the new USMCA deal might play surprisingly well with Democrats. In the aftermath of the deal we saw Democrat Chuck Schumer support the deal and Republican Pat Toomey critical of it. Trump actually has more in common with Democrats on the free trade file than he does with many Republicans, and even US Trade Representative Bob Lighthizer is suggesting the USMCA could get strong Democratic support. Again we see Trump tiptoeing into the traditional territory of the left in his stance on trade.
I think the politics of this is very important. In the US and even in Canada, we continue to hear about the political ramifications on the midterm elections as they are coming so soon, but this also has a huge impact on Canadian politics. The Prime Minister can stand up to President Trump, but if he came back empty-handed and the economy suffered, it would have had significant consequences even if it could theoretically all be blamed on Trump. The auto sector and supply-managed sectors are also going to be paying very close attention to see if this deal goes through. These folks have the ability to impact elections so careful attention is needed.
As an aside, I'm amazed at how little American politicians even think about Canada at all. We are tiny compared to them, and coming to the table trying to be an economic equal is not helpful. I think the Trudeau team learned that and glad to see there is a deal.
I appreciate that partisanship is even more heightened south of the border, but even if the Democrats can gain control of the House or Senate, I do not see them opposing the free trade deal.
JOHN ARMSTRONG, President:
It will be interesting to watch inflation and interest rates as a result of this deal. On the one side, we have new higher wages for many Mexicans on the auto sector side, which could likely cause the price of cars to increase in the future once the deal kicks in. That's good for Mexican auto workers, Canadian and US auto workers too, but it may trigger some inflation, especially when combined with very high employment numbers especially in the US. On the other side, the small losses for Canadian retailers as it relates to online shopping, and to Canadian Dairy farmers should result in some lower prices for Canadian consumers, which many Canadians won't mind.