The newly revised United States-Mexico-Canada Agreement (USMCA) represents “a net negative” for all three economies due to its regulatory mandates, especially concerning automobiles, said a report from the Washington-based financial thinktank Peterson Institute for International Economics (PIIE) released on Tuesday, Dec. 17.
The USMCA modernizes trading rules and strengthens enforcement of labor and environmental rights, but its restrictions on the auto trade and investment and on auto production “will hurt U.S. industry,” said PIIE trade economists Mary Lovely and Jeffrey Schott, authors of the analysis.
The central provision of the new accord, which is set to replace the 25-year-old North American Free Trade Agreement (NAFTA), strengthens rules of origins for autos, requiring that 75 percent of a vehicle be made in North America in order to qualify for reduced tariffs, up from 62.5 percent under NAFTA.
It also requires that at least 70 percent of an automaker’s steel and aluminum to be bought in North America.
“The (Donald) Trump administration’s stated goal was to ensure that more of the vehicles will be produced in North America. But the outcome will be just the opposite,” the economists argued.
“The new content requirements will raise production costs, resulting in higher auto prices, reduced U.S. demand, lower auto exports and more rapid substitution of machines for workers.”
While the leaders of the United States, Canada and Mexico signed the proposed USMCA more than a year ago, U.S. House Democrats have negotiated for months with Trump administration officials to resolve their concerns about enforcement tools for labor and environmental standards, as well as drug provisions in the new trilateral trade deal.
Earlier this month, the three countries signed an additional protocol to resolve these concerns.
“Overall, the protocol improves the USMCA, but not enough to offset the negative impact on national economies from the restrictive regulations that limit Canadian and Mexican auto plant access to the U.S. market,” the PIIE economists said.
U.S. House Democrats reached an agreement with the Trump administration over changes to the USMCA last week, and the Democratic-led House is expected to ratify the agreement later this week.
The Republican-controlled Senate is expected to consider it early next year.