Impact of Trump’s NAFTA replacement, not a win-win situation for anyone
The terms of the new trade deal between the United States, Mexico and Canada were finalized last month after intense negotiations for more than a year. The regional free trade agreement looks to further strengthen the relations between the three North American countries. The new agreement, termed as USMCA, will come into effect from Jan 1 next year. The US President Donald Trump and the Canadian PM Justin Trudeau have been very buoyant about the impact of the new trade deal. It was a personal victory for both of them that the negotiations were successful and that the deal came into being.
It is pertinent to analyze the impact of Nafta: 2.0 in detail to see who profits from the deal and who doesn’t. Let’s see who is smiling and who is not.
Uncertainty for Mexico
How the trade deal will impact Mexico is very unclear. This is mainly because Mexico conceded several demands from Trump that might restrict the country’s growth. The most obvious example of this is the failure to regulate big multi-national corporations in the energy sector, which means they can still exert dominance over the domestic companies. The new regime in Mexico had plans of bringing in new energy policies but its hands are now tied by this deal.
The deal also lays down that thirty per cent of the cars are to be manufactured only by those workers who earn a minimum wage of US$ 16/hr. The current wage in Mexico is about three times less than this requirement. So it is highly unlikely that Mexico will increase the wage of its workers in the automobile industry given there is nothing in the agreement that obligates them to do so.
The supply of Cars in the US will be affected
According to the economic analysts there will be an increase in car prices in America. On top of that the range of options is also likely to go down. This is particularly true for small cars manufactured south of the border. The new wage standards means that labor will no more be cheap in Mexico. And thus Mexico will have to charge duty on the cars they send across the border.
The terms regulating automobile industry are being seen as a major pitfall in the USMCA If Mexico is not able to raise wages of automobile workers the manufacturing will shift to US and Canada where the stipulated wage can be afforded. The manufacturers will have to increase the cost of the cars and ultimately it will affect the car buyers.
Canada’s steel export to the US
The relation between the two has been very good for a long time now. But that didn’t make Trump soften his stand on the entry of Canada’s steel in the US. The existent tariff on the import of steel from Canada in the US will not be lifted for now. Trudeau has been very disappointed by this stand and stated that it is very “insulting”, given the relation between the two nations.