Last week Donald Trump, in his own estimation, succeeded in replacing what he claimed to be the “worst trade deal in history” with what he claims was “the best trade deal in history.” If true, this would not only make good on one of his central campaign promises, but it would be a genuinely significant development. In reality, the unveiling of the United States-Mexico-Canada (USMCA) trade deal is just the latest iteration of the President’s talent for branding. As is the case in other aspects of the president’s view of economic matters, the difference between then and now is almost purely semantic.
As originally written in 1994, the North American Free Trade agreement (NAFTA) comprised hundreds of pages organized into 22 chapters. As Canada and Mexico are the United States’ largest trading partners, the agreement covered countless industrial, agricultural, and service sectors. Since then it has gone through many updates and expansions, adding to its complexity and reach. But during his campaign, Trump continuously faulted NAFTA, which was drafted during the Bill Clinton Administration, as a primary source of America’s economic woes. He promised to scrap it and replace it with something better. In a Rose Garden ceremony he was careful to point out that the new deal was not “NAFTA 2.0” but an entirely new animal. But that is just not the case.
As far as anyone can tell there are only a few differences between the two agreements, focusing on autos, dairy, and intellectual property rights. And even those changes are not particularly significant.
For instance, automakers can qualify for zero tariffs if 75% of their vehicles’ components are manufactured in the U.S., Canada or Mexico, up from 62.5% under NAFTA. These changes amount to rounding errors in areas that are notoriously opaque to begin with.
USMCA’s provisions on wages for auto-workers are potentially a bigger deal. Starting in 2020, 30 percent of vehicle production must be done by workers earning at least $16 per hour. That’s about three times the wage of the average Mexican autoworker. The percentage rises to 40 percent in 2023. This may lead some to believe that big changes are afoot. But given the current rise in automation this may not make that big an impact. It also may mean that more cars made in Mexico will simply be shipped to other markets, thereby depriving U.S. consumers of inexpensive cars.