North American Trade Deal on Track Despite Last Minute HiccupsAfter months of difficult negotiations, the USMCA is on the verge of replacing the NAFTA accord, which has regulated free trade between the U.S., Canada and Mexico. The new free-trade agreement is a major achievement for U.S. President Trump.
The headlines across financial pages blared ‘Trade Deal Reached’, as the U.S .and China concluded a limited trade agreement. There is another trade deal, however, which has lurked in the shadows, namely, the US-Mexico-Canada Agreement (USMCA). This agreement, which replaces the 26-year old NAFTA deal, is on the verge of becoming a reality, after months of acrimonious negotiations. There was a last-minute snag on the weekend, as congressional Democrats introduced a provision to allow for U.S. labor inspectors to be stationed in Mexico. The Mexican government protested that it wasn’t consulted about this addition, and the U.S. government quickly clarified that the U.S. personnel would not act as labor inspectors and would be subject to Mexican law.
The USMCA trade bloc is the largest trade bloc in the world, based on the combined GDP totals of the U.S, Canada and Mexico. Trilateral trade between the three nations hit $1.2 trillion in 2017. President Trump insisted on renegotiating the NAFTA accord, and the new USMCA was signed by the three parties in 2018. The agreement has already been ratified by the Canadian and Mexican governments but has yet to be ratified into law in the U.S. The House of Representatives will vote on the deal later this week, with the Senate expected to follow in January. The USMCA is similar to NAFTA, with two key differences – it provides U.S. farmers with greater access to Canadian dairy markets and requires a greater percentage of a car’s parts to be manufactured in North America in order to be tariff-free.
The USMCA marks a major victory for President Trump and the timing couldn’t be better, with less than a year to the 2020 election. Investors are also pleased that the U.S. is about to ratify the deal – the Mexican peso continues to gain ground, and is currently below 19, its highest level against the U.S. dollar since July.