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October 2, 2018

Out With NAFTA, in With USMCA

Trump touts the new United States-Mexico-Canada Agreement as a campaign promise kept.

The United States and Canada reached a trade agreement moments before the Sept. 30 deadline, establishing a new North American trade pact between those countries and Mexico. The trade agreement will be renamed the United States-Mexico-Canada Agreement (USMCA), ditching the NAFTA title that has been used since 1994.

Renaming the agreement allows President Donald Trump to be able to say that he shredded NAFTA in favor of a better trade deal, and indeed the new pact looks to be a worthy if not really revolutionary replacement to its predecessor. So far, Mexico and Canada both seem to agree with Trump that this is an improvement on the old trade pact.

But how different is it? Investor’s Business Daily notes that markets reacted “with a sigh of relief,” adding that’s “not because it’s a radical shift from the flawed former North American Free Trade Agreement, but because it isn’t.”

That isn’t to say there aren’t good provisions. The USMCA will be reviewed every six years, which negotiators say will institute strict accountability among the three nations. The pact also includes provisions not seen in NAFTA that address intellectual property, digital assets, corruption, and regulatory practices.

Meanwhile, Canada will allow U.S. farmers more access to its dairy market, formerly a sticking point in negotiations. In return, Canada (and Mexico) will be protected from any current and future U.S. automotive tariffs. Earlier this year, Canadian Prime Minister Justin Trudeau had dug in his heels on Trump’s calls for a new trade deal, but he changed his tune when Trump pivoted and announced a bilateral trade deal with Mexico in late August.

“USMCA will give our workers, farmers, ranchers, and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region,” U.S. Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland said in a joint statement. “It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home.”

Leaders from the three nations are expected to sign the trade accord in the next 60 days. After that it goes to the U.S. Senate for approval, and it would take effect in 2020.

Trump’s opponents have railed against his economic policies, including his vow to scrap NAFTA and replace it with a better trade deal. Yet, once again, he’s done just what he said he would do. Trump took heat in the press for claiming that NAFTA destroyed millions of jobs and thousands of businesses in the U.S. While American jobs and companies took a lot of hits during the NAFTA era, it’s difficult to determine whether NAFTA was the cause of all the economic heartache that took place. In some ways yes, in some ways no.

Just the same, Trump’s dealmaking skills forced Mexico and Canada to rethink the old arrangement, and he has come up with something that, while not a game-changer, looks to be better for the U.S. and will make the North American trade bloc more competitive on the world stage.

“But wait,” says Gary Bauer. “There’s more! Lost in the Kavanaugh kerfuffle last week, President Trump signed a new trade agreement with South Korea. In addition, China just announced that it is slashing tariffs on more than 1,500 products, responding to pressure from the Trump administration to open its economy to more American goods.”

While much of the media misses this kind of chess, renegotiating NAFTA is only one move in Trump’s larger strategy to achieve fairer trade for the U.S. with North America, Europe, and China. It sure would seem that Trump’s practice of putting America first is paying off for the American worker.

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