COMMENTARY:
The trade community has been waiting for July to arrive, as the formal review of the U.S.-Mexico-Canada-Agreement (USMCA) was slated to begin between the three North American trade partners. Last year, the total trade in the USMCA zone reached approximately $2 trillion. Trade between the U.S. and Mexico was $873 billion, and U.S. trade with Canada was $719 billion. So, the stakes were high as to the direction the three partners, particularly the U.S., would take in this formal review.
Three paths were evident. One, the partners could quickly renew the USMCA in its present form for 16 years, as is set forth in its bylaws. Two, the partners could review the USMCA, make some tweaks in specific areas, and renew the agreement for another 16 years. Three, one or more of the partners could refuse to renew the agreement in its present form, thus setting forth an unknown course of action.
On July 1, U.S. Trade Representative Jamieson Greer announced that the U.S. would not be renewing the USMCA in its present form, and that the agreement would be “in force pending resolution of these issues or until the Agreement’s termination.” This does not mean that the USMCA is immediately terminated. What it does mean is that the partners will have annual reviews of the agreement for the next 10 years until its possible termination when one or more partners opt out of the agreement. The mechanics of the USMCA remain the same: reduced or zero tariffs will be granted to products that comply with North American content requirements and standards.
Anytime during the next 10 years, all three parties could reach an agreement to extend the USMCA for 16 years. The U.S. Trade Representative’s office has announced that it will continue to be engaged in trade negotiations with both Mexico and Canada. This is a positive sign that the U.S. is not totally abandoning trade efforts with its North American partners.
However, the effects of the U.S. action on the USMCA renewal are damaging to our trade and diplomatic relations with both Mexico and Canada. In January 2020, when President Trump held a press conference touting the creation and signing of the USMCA, he stated that “The USMCA is the largest, fairest, most balanced, and modern trade agreement ever achieved. There’s never been anything like it,” and “This is a colossal victory for our farmers, ranchers, energy workers, factory workers, and American workers in all 50 states and, you could almost say, beyond, because it’s all beyond.” A short time after these statements, it appears from the U.S. standpoint that the agreement is not worth the paper it was written on.
The U.S. choice to not renew the agreement in its present form creates confusion of the U.S.’s intentions on behalf of our trade partners. It is also a refusal of the Trump Administration to acknowledge the importance of North American trade for the U.S., facilitated by the USMCA. It signals to our North American neighbors that we are an unreliable trade partner.
Going forward, we can expect the U.S. to use tariffs and bullying as our trade policy, not only with our North American partners, but with the world, at least during the remaining years of the Trump Administration. Trump’s position on the USMCA and trade agreements in general seems to hinge on trade deficits that the U.S. runs with other countries. Americans have been content to import more cheap foreign products than the exports we send to other countries.
Imposing tariffs on foreign imports will make everyday products Americans use, such as auto parts, agricultural products, and consumer electronics more expensive. This will also continue to put pressure on inflation to edge up, the burden being shouldered by average Americans. In their very basic form, tariffs are a tax that Americans pay in order to purchase foreign goods.
We can expect the trade community, especially the automotive and agricultural industries, to increase their voices in support of the USMCA’s renewal. Millions of U.S. jobs depend on trade with Mexico and Canada. If tariffs and bullying will be the trade policy for the U.S. going forward, we can expect the same treatment from our trade partners. This will mean that they will impose tariffs on U.S. imports to their countries, thus making U.S. goods more expensive and less attractive in foreign markets.
The current U.S. approach to trade will not automatically be cast upon future presidential administrations. It is likely that future presidents and their trade policy advisors will see the value of increased North American trade through the elimination of tariffs and trade barriers. The goal of the North American Free Trade Agreement and its USMCA successor was to create a North American trade bloc in order for our continent to be more competitive against countries and regions such as China and Europe. This goal remains relevant, even if the current federal government ignores it.
Jerry Pacheco is the president of the Border Industrial Association.
Jerry Pacheco's opinions are his own and do not necessarily reflect the views of KRWG Public Media or NMSU.