On July 1, a new trade agreement between Mexico, the United States, and Canada took effect and it opened a fresh era in the free trade in North America.
A new phase for trading
The new agreement contains new rules of origin on cars, which uses high-wage labor into car manufacturing and make Canadian and American workers more competitive than Mexican workers.
The USMCA or the U.S-Mexico-Canada Agreement comes at a crucial time because it encourages businesses to bring their production closer to home.
The coronavirus pandemic has caused supply disruptions around the world, and it forced companies to diversify the supply chain. Because of the coronavirus pandemic, the USMCA is expected to help boost investment activity and trade in North American for the next few years.
This move can help decrease the reliance of North America on China and other countries. USMCA replaces NAFTA or the North American Free Trade Agreement, which entered into force under President Bill Clinton back in 1994.
The USMCA maintains most chapters of NAFTA but it makes changes in the areas of market access for agriculture and car manufacturing as well as government procurement, investment, labor, intellectual property rights, and the environment. It also addresses new issues such as state-owned enterprises, digital trade, and currency devaluation.
The USMCA is known as the T-MEC in Mexico and the CUSMA in Canada. It has strong labor provisions that make the whole deal an important milestone or international trade. USMCA is expected to help increase work production in the United States and Canada, as it got affected by the cheap labor in Mexico for years.
NAFTA may have integrated the United States, Mexico, and Canada and increased trade in the whole region but it resulted in lower wages and net job losses for thousands of American workers.
According to the Economic Policy Institute stated that the United States lost around 682,900 jobs from 1994 to 2010 because of NAFTA.
A win for American workers
The USMCA is expected to have a massive effect on the manufacturing industry in America, especially in car manufacturing.
Under the USMCA agreement, 75% of the auto content must come from North America, which is an increase from the original threshold of 62.5%. Also, car producers must certify that 70% of the aluminum and steel purchases are from North America.
The higher thresholds are also expected to help the employment and car production in North America. The USMCA agreement requires 40% of each vehicle and 45% of each truck to be manufactured by the employees that should earn at least $16 an hour for it to qualify for duty-free treatment.
In April 2019, a study was released by the U.S International Trade Commission and it showed that the trade pact would raise the real gross domestic product of the United States by $68.2 billion, or 0.35%, and create 176,000 new jobs.
The Office of the U.S Trade Representative also released a report that the USMCA would help increase the car manufacturing investments in the country by at least $34 billion in just five years. The deal could help create 76,000 jobs in the car manufacturing industry.