US trade

New North America trade pact to have ‘moderate’ positive effect

The North American trade pact signed last year will have a “moderate” positive impact on the US economy, an independent US government report said Thursday, an underwhelming endorsement as it confronts an uncertain approach to ratification. And the trade deal could actually dent the US auto field, slightly growing employment but raising prices while reducing sales and manufacturing output, according to the US International Trade Commission.

US Trade Representative Robert Lighthizer said Thursday that the report showed there was “no doubt” the trade deal was “a big win” for the US economy – due to the fact the predicted gain was greater than that for Trans-Pacific Partnership, from which Trump withdrew in 2017.

After a year of tough negotiations, Washington, Ottawa and Mexico City in November signed a new continent-wide trade deal to replace the 1994 North American Free Trade Agreement and revamp rules on manufacturing, digital commerce, and labor rights, among other locations.

But the rise to the US economy “is likely to be moderate,” given that the majority of tariffs were already dropped region-wide 25 years ago and because the United States economy is a lot larger than those of Mexico and Canada, based on the ITC report.

Under the model used by the US ITC, total US GDP would increase because of the agreement by just 0.35 percent, or around $68 billion and the US should gain 176,000 new jobs compared to a scenario in which the current North American trade agreement stays in place, the report said.

“The model estimates that the agreement would likely have a positive impact on all broad industry sectors within the US economy,” the report found.

Trade between the United States, Mexico and Canada is also likely to improve, according to the report – with US exports rising by about the same amount as its imports from the 2 partners.

“It’s positive,” Jack Caporal, a trade policy expert at Center for Strategic and International Studies, told AFP. “It won’t have a huge impact.”

But in the auto industry, outcomes are not so upbeat.

The US auto workforce would increase by a net 28,000 workers yet prices would also grow somewhat – actually cutting auto sales by 140,000. Automakers would likely cease providing some vehicles as they become more expensive to produce, “which would ultimately decrease consumer choice.”

Signed by the three North American countries in November, the USMCA makes sweeping changes to how autos must be generated in order to enjoy duty-free access within North America.

Particularly, the share of a motor vehicle’s content that must be produced in North America was raised to 75 percent and between 40 and 45 percent of the content must be made by workers earning at least $16 per hour – a rule supposed to boost wages in Mexico.

US imports of autos from outside the area would actually increase, it said.

But, in a separate report released hours earlier on Thursday, Lighthizer’s office said auto manufacturers would instead make investments $34 billion in the United States and add 76,0000 jobs within five years of the date the deal takes effect.