The North American Free Trade Agreement, or NAFTA, was instated in 1994 as a trilateral trade deal between the United States, Canada, and Mexico. The pact governed the trade of more than $1.2 trillion worth of goods and commodities and was seen as a gesture of amicable relations between the three largest democracies in North America. However, one of its harshest critics has been none other than the President of the U.S. – Donald Trump; who publicly showcased his disdain towards the agreement stating that it took unfair advantage of the United States. In 2017, he called upon the leaders of both nations to discuss the possibility of eliminating the outdated agreement and replacing it with a deal that encapsulated the present day market. On 30th September, 2018, his long-lasting wish became a reality, as NAFTA was scraped for the U.S.-Mexico-Canada Agreement (USMCA).
The deal was reached on the final day of a self-imposed deadline by the Trump Administration, as Canada’s representatives negotiated their terms and conditions in Washington D.C. Mexico had already agreed on a bilateral trade deal with the U.S. towards the end of October 2018 – so the ball was in Canada’s court to be swung at its southern neighbors. The new deal was ushered in to help North American workers, especially in the automobile sector. It strengthens made-in-North-America rules by increasing the percentage of car and truck parts, which must be manufactured in North America to qualify for zero tariffs, from 62.5% to 75%. The new deal also requires 40-45% of vehicle parts to be manufactured by workers earning at least $16 an hour, which could lead to jobs moving back to the United States and could be detrimental for Mexico – which pays lower than the mentioned amount to its car workers.
The new agreement also fulfills one of Trump’s primary goal – more access to the Canadian dairy market. The dairy industry is one of the largest agricultural sectors in Canada, and its government has previously restricted the import of dairy and dairy products from the U.S. in an attempt to safeguard Canadian dairy farmers. Now, the U.S. has access to around 3.6% of Canada’s dairy market. Moreover, the agreement also saw the abolishment of a domestic milk pricing class called Class 7 dairy products – which lowered the price of Canada’s dairy surplus such that domestic processors could buy them to boost protein content in cheese and yogurt while keeping U.S. diafiltered milk products out of Canadian market. With the new policy, U.S. farmers can export a lot more milk protein concentrate, skim milk powder and infant formula to Canada. Overall, opening up Canada’s dairy market is estimated to cost the industry at least $240 million in losses. The United States, on the other hand, is set to allow more Canadian dairy, peanuts and peanut products, and a limited amount of sugar across its borders.
According to representatives of the three countries, the USMCA promises to lead to “free and fairer markets’. While Canadian Prime Minister Justin Trudeau tweeted that USMCA will “enhance competitiveness & prosperity, while creating new jobs”, Mexican President Enrique Pena Nieto called the deal a “win-win-win”. Donald Trump, with a history of using superlatives to describe every single achievement, tweeted: “The USMCA is a historic transaction!”
While the new agreement also covered a myriad of environmental issues including biodiversity, air quality, and ship pollution – it failed to mention anthropogenic global warming and ways to mitigate it. However, unlike the indefinite lifespan of NAFTA, USMCA has an unset clause – meaning it would expire in 16 years unless extended by representatives of the three countries. While the new trade agreement benefits all of the three nations involved in it – it definitely has an added advantage for the United States.