The U.S. and Canada announced a major trade agreement today. This new trade agreement will replace NAFTA and will be call The US-Mexico-Canada Agreement (USMCA). Both President Trump and Prime Minister Trudeau held press conferences hailing the deal as positive for their respective countries. Many others have begun analyzing the various elements and implications of the agreement among the three countries. This article will explore the impacts to US farmers and beyond.
USMCA and NAFTA Differences
CNBC has created a terrific video outlining the differences between the old NAFTA agreement and the new USMCA. The video segment is titled, “Key differences between the new USMCA trade deal and NAFTA”.
In summary there are three key areas of difference.
- Autos – Must now have 75% regional content to be tariff free. This is up from 62.5%. Also a certain percentage of materials must be produced with workers earning at least $16/hr.
- Dairy Market – Approximately, 3.5% Canada’s dairy market will opened for U.S. dairy farmers.
- Modernization – Three key areas were modernized including: an Intellectual Property framework; a 10 year exclusive marketing for Biologics; and no tariffs on digital materials like e-books, software, and music videos.
One key area that remains unchanged is the dispute resolution mechanism.
Chris Clayton of DTN/PF in his piece titled, “New NAFTA Trade Deal: USMCA” highlighted that the single largest export market for U.S. agriculture is Canada. While Mexico is the third largest. Reaching a deal with Canada and preserving these critical markets should be of great relief to all U.S. producers.
More specifically, U.S. dairy farmers should be smiling today. While full unfettered access to the Canadian dairy market was not achieved, there were some noteworthy market access gains. Clayton highlighted a Toronto Star statement that the
“U.S. would be given access equal to 3.6% of the Canadian dairy market, slightly higher than access the U.S. would have gained under the Trans-Pacific Partnership, which is 3.25% for TPP suppliers.”
Clayton quotes a senior Trump administration official characterizing this aspect of the deal as
“better than what the prior administration negotiated in TPP.”
Also look for US dairy farmers to have greater access to the Class 7 dairy market. This market includes products such as milk powder and milk proteins.
In an interesting counter argument to Ag Nook’s recent piece titled, “Producers Face Long-Term Damage From Trade War“, it may be producers will end-up better off as a result of President Trump’s hard-line trade tactics.
In what can only be described as a victory for President Trump’s trade policy approach Brownfield Ag News offered this headline: “Trump announces U.S-Mexico-Canada trade deal”. While a number of media outlets have indicated that the USMCA is more like a NAFTA 2.0, the win for President Trump is undeniable.
Trump campaigned on re-negotiating NAFTA as he claimed it was an awful deal for the U.S. Moreover, he promised and delivered hard-line tactics to ensure a better deal. He has now successfully, reached an agreement with Canada and Mexico to replace NAFTA. Even if the tangible differences are small in scale, the promise kept will put wind in his political sail. Moreover, it will propel his argument for sticking with the tough trade negotiating tactics with China.
Brownfield quoted the President stating that Trump believes this new deal will be good for farmers.
“Our farmers have gone through a lot over the last fifteen years. They’ve been taken advantage of by everybody. Prices have gone way down and we’re working on some other deals that are going to make them very happy, also.”
North American Auto Workers
The bump in wages for some auto workers will be significant. Moreover, this agreement dictates that Mexico must make it easier for auto workers to unionize in that country. Auto workers in the U.S. and Canada may benefit as they will be less likely to lose their jobs to lower wage workers in Mexico.
The Washington Post authored a story titled, “USMCA: Who are the winners and losers of the ‘new NAFTA’?”
This piece called out three groups on the short end of the USMCA bargain.
- U.S. Car Buyers
- Canadian Steel
For China, the USMCA deal has validate the President’s trade strategy. The WP quoted a senior administration official that the process for reaching the USMCA agreement
“has become a playbook for future trade deals.”
As previously mentioned, Trump is
“now likely to go harder after China because his attention won’t be diverted elsewhere.”
Ag Nook’s article titled, “How Does USMCA Impact the U.S. China Trade War Timeline?“, explores this topic in-depth.
U.S. car buyers are likely to face higher prices due to greater labor costs. Additionally, there may be less selection, especially of small cars historically produced in Mexico.
Canadian steel is still facing tariffs. However, it would be remarkable if Canada reached this agreement without some assurances that this tariff would eventually go away.
New Political Battle Lines
In Ag Nook’s piece titled, “Three Hurdles to a U.S. and Canada NAFTA Agreement“, the argument was made that access to Canada’s dairy market was a likely outcome while any change in the dispute resolution mechanism was unlikely. This was an easy path to see from a political point of view.
Now with the USMCA tweaks outlined, new political lines were also more clearly drawn. The political win for President Trump cannot be underscored enough. Michigan (auto and dairy), Wisconsin (dairy), Ohio (auto), and Pennsylvania (steel) are all key states benefiting from USMCA. These states were also critical electoral college wins in President Trump’s 2016 victory.
The 2020 battle lines have been drawn with this agreement, regardless of the 2018 mid-term results. President Trump has given himself a powerful argument to make in his stump speech for re-election in each of these states. If the USMCA tactics and momentum can translate into a trade dispute victory over China, President Trump will be in a commanding position heading into his re-election bid. But regardless of political persuasion, U.S. producers should be quite pleased with the USMCA agreement.
The U.S. and Canada reached an historic trade agreement. The United States-Mexico-Canada Agreement (USMCA) will replace NAFTA. It is clear that U.S. producers are winners in this agreement, especially dairy farmers. The big losers in this agreement will be China, as hard-line tactics have validated President Trump’s trade strategy. Moreover, the President’s re-election stump speech in key states got a boost from this trade agreement as well.
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