U.S., Canada and Mexico Reach New Trade Deal

Just prior to the midnight deadline on September 30th, Canada agreed to the terms of a new trade agreement with the United States and Mexico. The new deal, which has been aptly named the United States-Mexico-Canada Agreement (USMCA), will replace the 25-year-old North American Free Trade Agreement (NAFTA).

The significant components of the agreement involve dairy, automotive, and Section 232 tariffs:

  • Dairy

Canada has agreed to significantly reduce their restrictions on highly-filtered dairy, granting American farmers access to a market that will allow them to export nearly USD 560 million per year.

  • New Auto Rules

Commencing in 2020, at least 30% of vehicles manufactured within the three countries must be produced by workers earning an average wage of USD 16 per hour, a wage which heavily favors U.S. production. Furthermore, automakers from around the globe can qualify for zero tariffs if at least 75% of their components are produced in the U.S., Canada or Mexico.

  • Continued Imposition of Tariffs

Section 232 tariffs will remain in effect on steel and aluminum imports from Canada and Mexico.  But there is an exception: The two countries are able to import up to 2.6 million passenger vehicles to the U.S. annually without facing any additional tariffs.

In a joint statement referencing the deal, the U.S. Trade Representative, Robert Lighthizer, and Canadian Foreign Affairs Minister, Chrystia Freeland, said the agreement “will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home.”

The majority of pundits are citing the USMCA as a significant win for President Trump, who has previously gone on record calling NAFTA the “worst deal in history.”

The leaders from each country are expected to sign the deal within the next 60 days, whereupon it will be sent to Congress for approval in 2019. If approved by Congress, the USMCA will commence in 2020 and last for 16 years, with mandatory reviews conducted every six years and an option to extend through 2052.

The transition plan from NAFTA to USMCA has not yet been provided.

Shapiro will continue to monitor the situation and provide updates as they become available.