First, for those who have fought for decades against the baseline flaws within the NAFTA trade agreement, today is a very memorable day. Today the USMCA officially goes into effect and the trade brokerage system exploited by Mexico and Canada is officially ended.
NAFTA is DEAD! …This has been one hell of a decades-long battle.
Effective today the manufacturing of North American products must originate in North America. No longer will Canada and Mexico be allowed to “assemble” component goods from Asia and transport them as finished North American goods into the U.S. market.
The immediate impacts from this trade-loophole closure will be felt over the next several months and years. Yes, things are rapidly about to change… and when you understand the details you also understand why the Democrats need to exploit a fictitious COVID fear to stop the explosion of U.S. economic growth that will follow.
Statement from U.S. Trade Representative Robert Lighthizer:
“Today marks the beginning of a new and better chapter for trade between the United States, Mexico and Canada – just as President Trump promised he would deliver for the American people.
“From day one of his Administration, President Trump has changed the focus of America’s trade policy away from what is best for big, multi-national corporations to instead what is best for America’s workers, farmers and ranchers. That’s a monumental change. His success in creating a bipartisan consensus on this new model for trade policy — in spite of the establishment critics who said it couldn’t be done — is truly remarkable.
“The USMCA contains significant improvements and modernized approaches that will deliver more jobs, stronger worker protections, expanded market access, and greater opportunities to trade for companies large and small. We have worked closely with the governments of Mexico and Canada to ensure that the obligations and responsibilities of all three nations under the agreement have been met, and we will continue to do so to ensure the USMCA is enforced.
“The recovery from the Covid-19 pandemic demonstrates that now, more than ever, the United States must stop the outsourcing of jobs and increase our manufacturing capacity and investment here at home. With the USMCA’s entry into force, we take another giant step forward in reaching this goal and advancing President Trump’s vision for pro-worker trade policies.” (link)
It is also important to recognize the team that put this together. USTR Robert Lighthizer did an exceptional job framing the agreement to the benefit of the American workforce. White House Trade and Manufacturing Advisor Peter Navarro; Commerce Secretary Wilbur Ross; Treasury Secretary Steven Mnuchin; and the teams of staff and negotiators who put the details together.
Additionally, it is worthwhile noting who was NOT permitted to write the trade agreement for the first time in the last three decades. The absence of the U.S. Chamber of Commerce influence is another big part of the victory that Americans will benefit from, yet almost no Americans will know about.
Statement from the White House:
Today, the United States-Mexico-Canada Agreement (USMCA) will go into effect. Thanks to the bold leadership of President Trump, the agreement will mean stronger economic growth, more jobs for American workers, and fairer trade for our country.
President Trump has delivered for American manufacturers, farmers, businesses, and workers.
The agreement will drive job creation and includes the strongest, most advanced, and comprehensive set of labor provisions of any United States trade agreement.
American farmers will have access to fairer markets in Canada and Mexico, opening up more opportunities to export their goods.
USMCA will strengthen American manufacturing, including incentivizing investment in high paying auto manufacturing jobs here in the United States.
Just as promised, President Trump is replacing the disastrous North American Free Trade Agreement, which drove American jobs overseas for years.
USMCA is a fair deal for American workers and finally brings our trade relationship with Canada and Mexico into the 21st century. (link)
Previously both Canada and Mexico structured key parts of their independent trade agreements to take advantage of their unique access to the U.S. market. Mexico and Canada generate billions in economic activity through exploiting the NAFTA loophole. China, Asia (writ large), and the EU enter into trade agreements with Mexico and Canada as back-doors into the U.S. market. So long as corporations can avoid U.S. tariffs by going through Canada and Mexico they would continue to exploit this approach.
By shipping parts to Mexico and/or Canada; and by deploying satellite manufacturing and assembly facilities in Canada and/or Mexico; China, Asia and to a lesser extent EU corporations exploited a loophole. Through a process of building, assembling or manufacturing their products in Mexico/Canada those foreign corporations can skirt U.S. trade tariffs and direct U.S. trade agreements. The finished foreign products entered the U.S. under NAFTA rules.
Why deal with the U.S. when they could just deal with Mexico, and use NAFTA rules to ship their product(s) directly into the U.S. market?
This exploitative approach, a backdoor to the U.S. market, was the primary reason for massive foreign investment in Canada and Mexico; it was also the primary reason why candidate Donald Trump, now President Donald Trump, wanted to shut down that loophole and renegotiate NAFTA.
This loophole was the primary reason for U.S. manufacturers to relocate operations to Mexico. Corporations within the U.S. Auto-Sector could enhance profits by building in Mexico or Canada using parts imported from Asia/China. The labor factor was not as big a part of the overall cost consideration as cheaper parts and imported raw materials.
Take away the market access and the ability for Mexico and Canada to broker themselves for economic benefit, and both nations would lose hundreds of billions in economic activity. This was always the NAFTA fatal flaw.