A recently completed report by the US International Trade Commission (ITC) has determined that the economic impact of the USMCA will result in inclusive growth of the economies of the three signatory nations.
On April 18, 2019, the United States International Trade Commission published its final report on the US-Mexico-Canada Treaty (USMCA). The ITC issued this document in compliance with the requirements placed upon the Executive Branch of the United States Government by Section 105c of the Trade and Responsibilities Act of the Congress of 2015, also known as the Trade Promotion Authority (TPA). The report’s findings indicate that the economic impact of the USMCA will be a positive one for the US and both its southern and northern neighbor.
For the elaboration of the report and the evaluation of the potential economic impact of the USMCA on the US and its industry, the ITC examined a combination of quantitative and qualitative industry analyses. The specific sectors that are considered in the report include automotive, agriculture, intellectual property, e-commerce, cross-border trade in services, data and investment, as well as the US labor market.
The ITC’s Economic Model Predicts the Economic Impact of the USMCA
The economic model developed by the International Trade Commission predicts that within a period of 6 years the economic impact of the USMCA will be moderate growth in the industries that were analyzed, as well as similarly modest growth of nation’s GDP, employment, wages, and production. The report also focuses on the competitive position of certain industries that are susceptible to being markedly affected by the agreement, as well as the effect of the USMCA on American consumers.
With regard to the USMCA’s impact on trade with Canada and Mexico, US exports are anticipated to increase by US $19.1 billion dollars (5.9%) and US $14.2 billion (6.7%), respectively. US imports from Canada and Mexico will increase by US $19.1 billion (4.8%) and US 12.4 billion (3.8%). The report points out that much of the trade in the region is already tariff-free as a result of the implementation of the North American Free Trade Agreement (NAFTA) since January 1, 1994.
In addition to the economic impact of the USMCA, the ITC report concludes that the agreement also will positively affect labor standards and workers’ rights in Mexico, including those related to collective bargaining. It is expected that this will result in higher wages and better working conditions for the Mexican workforce. The report projects that the collective bargaining provisions of the USMCA could have the impact of increasing average Mexican wages by 17.2%.
In the case of the automotive sector, the report identifies Mexico as a significant vehicle production and export platform in North America, and an important market for imports of auto parts originating in the United States. The report goes on to note that North American car manufacturers have created the most sophisticated and integrated supply chain in any manufacturing sector. It is also worthy to note, that in 2017, 62% of US automotive exports went to Canada and to Mexico. Because of changes in the automotive industry rules of origin under the USMCA, the report finds that there may be a resulting increase in the cost of production of cars in the region. This means that it is most likely that prices of passenger cars and other light vehicles will increase slightly in the United States, and that slightly higher prices will lead to a slight decrease in their consumption. The report also concludes that the economic impact of the USMCA will provide the conditions that will enable expanded opportunities for further trade and investment in North America. This will promote inclusive growth that will meet the needs of each nation’s majorities.
The Economic Impact of the USMCA will be to increase trade in North America
Additionally, the report points out that in 2018, North America made 17.9% of the world’s imports (US $3.56 trillion), while exports account for 13.2% (US $2.56 trillion) of the world’s total. In 2018, trade between the North American countries accounted for 15.6% of world trade. Canada and Mexico represented the first and second export markets for the United States (34%). Mexico was the second source of imports for the US and Canada was third for a combined 26%. The only country that the US imported more from was China.
As regards trade in services, in 2017, the three North American partners accounted for 17% of world service exports and 13% of imports. The US represented the majority of trade in services between the three partners. Canada was the second destination of U.S. service exports (US $58 billion) and Mexico was the seventh (US $33 billion). On the whole, both partners accounted for 11% total US service exports.