Understanding the New Trade Agreement

The United States, Mexico, and Canada have agreed upon a new trade agreement, replacing NAFTA, the 25-year-old trade agreement that had initially reduced trade barriers and tariffs for the three countries. Once it is officially ratified by all three countries, certainty will be restored to the $1.4 trillion of annual trade that occurs between these nations. Trade with Canada and Mexico supports 12 million American jobs and 49 states count Mexico or Canada as one of their top three merchandise export markets, so the security of this trade deal for American businesses is quite significant. The following is a snapshot of some of the most important aspects of the deal, so for more information on specific issue agreements in the USMCA, follow this link to the Office of the United States Trade Representative’s Issue-Specific Fact Sheets.

Agreement between Trump and the House

The deal had been delayed by negotiations between President Trump and House Democrats, as they worked to come to an agreement on the trade pact. The Democrats wanted stronger enforcement mechanisms and a change in drug pricing by the administration, and got the following changes included for the final deal:

  • Language was removed that would have allowed countries or companies to avoid sanctions by refusing to participate in dispute-settlement panels
  • Closed loopholes that would have made it difficult to enforce provisions protecting workers from intimidation and violence
  • Formation of a committee that would monitor Mexico’s labor relations

In addition, Democrats and the Trump administration agreed upon a provision that offered expensive biologic drugs 10 years of protection from cheaper generic brand competition.

Manufacturing and Workers under the USMCA

This deal will include a boost for auto manufacturing in North America, as the USMCA requires 75% of a vehicles parts to be made in one of the three countries, instead of being imported cheaply from places like China. This must be done to remain tariff-free when moving between the three nations. Also, under the deal, at least 40% of vehicles would have to originate where workers earn at least $16 an hour, which will mainly benefit the United States and Canada. Looking at this locally, Wisconsin could benefit from this due to the number of manufacturers in the state that make auto parts. According to the International Trade Commission, overall impacts to the industry could be an additional 28,000 jobs, as well as a slight increase in the price of vehicles for consumers.

In addition, Mexico will be required to formally authorize workers to form independent unions. Unions in Mexico have typically done little for workers as they have mostly been beholden to employers and the government, leading to lower wages for workers and cheaper costs for manufacturers. This will likely change now that workers will be able to form independent unions.

Agricultural Trade

Nearly one-third of U.S. agricultural exports go to Canada and Mexico, so this pact is vital for United States farmers. The deal will keep tariffs on most agricultural products traded among the countries at zero, while opening the Canadian market even more to U.S. dairy, poultry, and eggs. In return, the U.S. will allow more Canadian dairy, peanuts and peanut products, and a limited amount of sugar to cross the border.

The Digital Age

The USMCA also includes a chapter on digital trade now that was not part of the original NAFTA agreement, reflecting technology advancements. Under the pact, Canada and Mexico are prohibited from forcing United States’ companies to store their data on in-country servers. The agreement also ensures that U.S. companies cannot be sued in Canada and Mexico for much of the content appearing on their platforms (this was a disagreement point for House Democrats, but it was included in the final deal).

Impact on Wisconsin

The USMCA deal is extremely important for Wisconsin, as Mexico and Canada are two of our biggest markets. According to the U.S. Census Bureau Economic Indicators Division, the total value of exports sent to Canada and Mexico from Wisconsin in 2018 was $10.9 billion. Wisconsin exports to Canada and Mexico in machinery, processed food, and transportation equipment totaled over $4 billion in 2018 as the state’s biggest exports. Wisconsin’s other major exports in 2018 included electrical equipment, appliances and components, chemicals, paper, plastics and rubber products, fabricated metal products, computer and electronic products, and waste and scrap. This deal secures the future of these exports out of Wisconsin, and is especially big for auto part manufacturers, of which there are many in the state that could benefit from the new manufacturing requirements.

Farmers in Wisconsin rely on the Canadian and Mexican markets, as they are large markets for our dairy exports as well. Wisconsin lost 773 dairy farms in 2019, so the industry is in dire need of help right now. It is important to note as well that Canada’s supply management dairy system has shut out U.S. farmers, including some from Wisconsin, from a segment of the Canadian dairy market in the past few years. The new USMCA has the potential to open farmers to newer markets, so it appears that the new USMCA could somewhat lessen the struggle of dairy farmers in the state of Wisconsin. Improvements for Wisconsin farmers under this agreement are expected to be modest ones, though.

Overall, securing the over $10 billion trade between Wisconsin and these two nations through the USMCA and potentially opening new markets is a benefit for business in Wisconsin. For more information on the USMCA’s impact on Wisconsin, follow this link to the Office of the United States Trade Representative’s Wisconsin Fact Sheet.

Next Steps

The House of Representatives passed the United States-Mexico-Canada Agreement on Thursday, December 19 in a 385-41 vote. On Tuesday, January 7, the Senate Finance Committee approved the USMCA with a 25-3 vote. It was then sent to the full Senate, which passed it with a vote of 89-10 on Thursday, January 16. Once it is signed by President Trump, the deal will be officially ratified by the United States.