In 1994, the North American Free Trade Agreement took effect after being ratified by the United States, Mexico and Canada. With the passage of this revolutionary measure, these three countries formed the largest free market in the world and have since enjoyed low barriers to trade, limited tariffs, improved investment opportunities and intellectual property rights.
However, while many of the benefits of NAFTA are still readily apparent today, noticeable issues have emerged for all three nations. Though the reduced trade barriers proved to be beneficial in many respects, NAFTA is routinely blamed for a rising trade deficit between the U.S. and Mexico. Between 1994 and 2010, corporations moved nearly 700,000 jobs south to Mexico in order to take advantage of low production costs, with manufacturing jobs being hit hardest. In addition to paving the road to both job outsourcing and lower U.S. wages, NAFTA has also precipitated a cascade of labor and environmental issues across Mexico that have truly called key parts of this 20th century agreement into question.
But the truth is that the U.S., Mexico and Canada need a trade agreement, and NAFTA has, on the whole, not been a failure. As of September 2019, Mexico and Canada together account for nearly 30 percent of total U.S. trade, according to U.S. Census Bureau data, a fact that highlights the great necessity of free trade with our two closest neighbors.
As a whole, free trade is one of the greatest, most powerful elements of our modern economic system, and it is crucial we work to preserve it. We really can do more, and be far more productive, working together than individually. “Free trade increases prosperity for Americans — and the citizens of all participating nations — by allowing consumers to buy more, better-quality products at lower costs. It drives economic growth, enhanced efficiency, increased innovation, and the greater fairness that accompanies a rules-based system. These benefits increase as overall trade — exports and imports — increases,” according to Donald J. Boudreaux and Nita Ghei writing for the Mercatus Center at George Mason University.
There is some way to preserve and build on the many strong parts of NAFTA while also addressing its most pressing weaknesses. Thankfully, a new proposal is already in the works that does just this: The United States-Mexico-Canada Agreement, known as the USMCA.
Surprisingly, in our divisive political age, the USMCA has received bipartisan political support in our nation, with both Republicans — led by President Donald Trump — and Democrats, including House Speaker Nancy Pelosi, pushing for its passage. Pelosi has on multiple occasions indicated that the final passage of the USMCA in Congress is not far off, calling it “imminent” at one point.
Described as “NAFTA 2.0” in a June 2019 Vox article, the USMCA actively works to eliminate underlying issues and inefficiencies with the current, outdated trade agreement. “The pact has been tweaked to include changes for automakers, stricter labor and environmental standards, intellectual property protections and digital trade provisions,” according to Jen Kirby, foreign and national security reporter at Vox.
Take the automotive industry for example. The USMCA mandates that automobiles must have 75 percent of their components originate from the U.S., Mexico or Canada in order to be subject to no tariffs, an increase from the current level of 62.5 percent under NAFTA. Moreover, the USMCA moves to protect workers, requiring that approximately 40 percent of automobile parts be manufactured by individuals earning at least $16 per hour by 2023. Finally, among other much-needed features of this plan, the agreement provides greater access to the Canadian dairy market for U.S. farmers.
While the U.S., Mexico and Canada have all signed the USMCA agreement, recognizing it as the powerful catalyst for change that it is, the proposal has yet to be ratified by all three nations and officially introduced into the North American economic landscape. And it is truly saddening that our Congress, preoccupied by an impeachment inquiry into Trump, has been unable to put suffering American workers first and make a conscious effort toward the passage of the USMCA. Luckily, new developments suggest that the USMCA could pass before the end of this calendar year.
True, some politicians — mostly Democrats — have expressed doubts and concerns about the USMCA plan, which is also likely to blame for the delay. As Miriam Sapiro writes for CNN Business, however, it is imperative that we all recognize the strengths of the USMCA plan and move toward its ultimate ratification, regardless of our individual misgivings. “No trade agreement is ever perfect. But the United States-Mexico-Canada Agreement (USMCA), the trade deal that could replace the North American Free Trade Agreement (NAFTA), is an improvement over NAFTA in several respects, especially when it comes to workers’ rights and the environment.”
Sapiro went on to warn that if we fail to pass the USMCA, American workers may face dangerous circumstances, especially given Trump’s dislike for NAFTA. “If Congress decides to reject the deal, there is a real risk that President Trump may withdraw from NAFTA altogether. That would upend supply chains established over the past 25 years and devastate portions of the U.S. economy. With a growing number of economists predicting a slowdown or recession, now is not the time to put millions of U.S. jobs at risk.”
Putting aside its small imperfections, the USMCA is clearly a victory for not only the U.S., but all of North America. While we continue to enjoy an unprecedented level of support for such a strong agreement, we must move to ratify this plan immediately.
Evan Stern can be reached at erstern@umich.edu.