“Sometimes, the biggest victories are the bad things prevented, rather than new things built.”
In an interview with CBC News on June 27, Scotiabank’s deputy chief economist Brett House used the term “bullet dodged” to describe the ratification of the new NAFTA deal, or USMCA, ahead of the chaos wrought by COVID-19.
“Sometimes, the biggest victories are the bad things prevented, rather than new things built,” he said.
Let’s be clear: the USMCA doesn’t substantially liberalize more trade between Canada and its North American partners. Most tariffs had already been eliminated. Some parts even add more protectionism, such as requiring automotive manufacturers to use more local components. Instead, the intention was to “modernize NAFTA for the 21st century.” Yet a threat by the Trump administration to reimpose aluminum tariffs in late June shows that the White House remains highly unpredictable in its dealings with Canada.
Good and bad
With one eye on the November election, the Trump administration insisted on a June 1 implementation date for the USMCA, which was later pushed back to July 1. Canada and Mexico agreed, paving the way for the Canada Day starting line. In a paper released on June 30 by the C.D. Howe Institute, consultant trade economist Dan Ciuriak tried to make sense of how the landscape for the USMCA looks now—amid a pandemic that’s disrupted international supply chains, barred all but essential cross-border travel, and introduced the possibility of governments constricting trade on national security grounds.
“There are many sources of uncertainty that at present do not lend themselves to a robust quantification,” Ciuriak concluded. “The known knowns promise to be negative on balance; as for the known unknowns, time will tell.” For example, carmakers, faced with dormant supply chains and factories, have more urgent priorities right now than the new protectionist manufacturing policy on components. Elsewhere, one key change to the new-look deal is the abolition of the investor-state dispute system (ISDS) which enabled companies to bypass regular courts and challenge the regulatory decisions of Canadian governments through NAFTA arbitration.
The big question in the long term is whether the revised agreement will eventually succeed in fulfilling Trump’s pledge of returning more automotive jobs and investment to the U.S. and Canada, or whether manufacturers will instead choose to pay Mexican workers more. Under the new agreement, it’s now possible for claims of labor violations to be pursued against Mexico through a now-revised state-to-state dispute resolution process.
Yet as it reworks its supply chain strategy, Mexico may also collaborate with other countries — especially other Latin American countries that also have free trade agreements with the U.S., such as Colombia. Over the long term, it is hard not to see the price of cars going up as the necessity of buying North American components and new labor regulations will be more expensive.
For most everyday consumers, however, the changes to the new NAFTA will be almost unnoticeable—and may even produce a few gains. Goods shipped from by U.S. by courier services will no longer face customs duties if they’re valued under $150, and won’t incur sales taxes if they’re worth less than $40. If purchases are shipped by mail, however, the previous threshold of $20 will still apply. Elsewhere, while the market access conceded to the U.S. for supply-managed agricultural products like dairy, eggs, and poultry should spur more competitive pricing and allow for more consumer choice, it’s not a given, mainly because the pandemic has dramatically disrupted food supplies.
While the implementation of the USMCA should have been an opportunity for celebration, the Trump administration’s attempt to prevent 3M from shipping N95 masks to Canada is an example of how quickly relations between the two countries could turn sour, even with the deal in place.
Hassan Yussuff, the president of the Canadian Labour Council who also served on Canada’s NAFTA advisory council during the negotiations, has said he hopes the deal brings positive changes to the lives of working people in Mexico and makes employers think twice about leaving Canada in the first place—easing the resentment workers felt about the original NAFTA. Let’s hope so. COVID-19 is encouraging countries all over the world to rethink how much they can get away with on trade, and to reconsider the importance of making certain products at home.