The North American Free Trade Agreement is history.
Taking effect Wednesday is President Donald Trump’s new trade pact — essentially a revamped version of NAFTA, which was a crowning achievement during the Clinton presidency.
Trump’s version, called the U.S.-Mexico-Canada Agreement, or USMCA, keeps much of the old deal intact while maintaining $1.4 trillion of annual trade among the three countries.
The new agreement did not make any sweeping changes, however, and likely will not bring a momentous boost to the American economy, according to previous reporting.
The deal is expected to create 176,000 jobs after six years and increase U.S. GDP by 0.35%, CNN reported, citing a report released last year. By comparison, the United States added more than 152,000 jobs in January 2020 alone, the network reported.
And because trade is a relatively small part of the U.S. economy, experts are regarding the gains as blips in a $22 trillion economy with 152 million non-farm jobs.
USMCA still allows the free flow of trade across North American borders of the three countries, but the biggest change is to give bigger incentives to American companies that bring manufacturing back home.
What will change?
Where NAFTA encouraged U.S. manufacturers to move factories south of the border to take advantage of low-wage Mexican labor, USMCA requires American businesses — especially automakers — to manufacture primarily in the United States in order to receive tax benefits.
For companies, that means paying higher wages to American workers. Economists say this could translate into higher sticker prices on cars built in North America.
Like NAFTA, there will be no tariffs on farmers shipping most agricultural products among the three nations, and the U.S. will allow Canada to ship more of its products south of the border.
The pact was also updated to reflect the rise of e-commerce and other aspects of the digital economy that didn’t exist when NAFTA was negotiated in 1994 under President Bill Clinton.
Under Trump’s deal, Mexico is also required to formally authorize workers to form independent unions, freeing them from institutional control, which was one reason wages remained so low in the country and attractive to American business.
There is also a provision for $600 million to address environmental concerns at the U.S.-Mexico border.
Contentious negotiations for the new deal began in 2017 after the president repeatedly criticized the old deal as a job killer, which worried farmers that Trump would revoke the pact without replacing it. The leaders of the three nations remained in talks for a year and signed the agreement in 2018. It was approved by the House in December and the Senate in January.
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