News of President Donald Trump’s historic renegotiation of NAFTA ramped up business confidence as the Dow Jones pushed toward 27,000 and the S&P traded at historic highs.
Investors, business owners and workers alike were comforted by the fact that Canada had re-entered the agreement under the name “United States-Mexico-Canada-Agreement,” or USMCA. Pres. Trump had vowed during his 2016 campaign to either rework the deal to the benefit of American workers and businesses or scrap NAFTA altogether.
The USMCA has been touted as delivering improved access to dairy farmers into the restrictive Canada markets. The northern neighbor reportedly underwrites dairy farmers and products while charging excessive tariffs on U.S. imports. Canada has effectively blocked American dairy farmers from selling north of the border. The trade win comes on the heels of a reported new deal moving forward with South Korea, the EU agreeing to steadily reduce trade barriers and the U.S. gaining leverage in the tariff war with China.
“Since NAFTA’s adoption, the United States has racked up trade deficits totaling more than $2 trillion. With Canada and Mexico, it lost vast amounts of money and lost 4.1 million manufacturing jobs and 1-in-4 auto jobs,” Pres. Trump reportedly said. “This landmark agreement will send cash and jobs pouring into the United States and into North America. Good for Canada, good for Mexico. It’s not NAFTA redone, it’s a brand new deal.”
Although left-wing media has already begun attempts to downplay the benefits of the USMCA deal, it appears to improve the business and jobs climate for working class Americans. These are two key items that have raised American confidence about the USMCA.
Blue Collar Americans Get a Win
An uptick in the auto industry may be the greatest benefit included in the USMCA. Both car manufacturers and auto workers in all three countries are expected to profit.
The USMCA includes a provision that requires all three signatories to produce 75 percent of parts that go into vehicles within the three countries. That figure increases from the previous 62.5 percent. The move will likely increase North American productivity, increase the number of auto industry jobs and also serve as a deterrent to China and other countries that attempt to bypass North American workers by utilizing cheap labor abroad. In other words, Pres Trump successfully increased jobs for all three countries by taking them back from China and others.
The second provision that is expected to increase American auto jobs and benefit the poorest Americans stems from the minimum wage threshold. Although Mexico has been criticized for underpaying workers, the USMCA mandates that all employees earn at least $16 per hour. While the U.S. averages $22 per hour in the auto industry, car-makers will now have to balance the $22 against $16 plus transportation and shipping costs. Companies will no longer be able to undercut American workers by paying pennies on the dollar to exploited Mexican workers. The provision has been hailed as a win for blue-collar workers across the continent.
American Dairy Farmers Make Gains
Perhaps the most hotly contested area of negotiations between the U.S. and Canada was improved access for American dairy farmers. Pres. Trump made reasonable gains in this area.
Canada has long protected its dairy farmers from American producers. The common wisdom is that Canadians simply cannot compete on a level playing field due to climate, technology, and American tenacity. That being said, Canada was placed in a position in which its negotiators had to offer a positive step into this sector or risk a tariff war.
Under the USMCA, American dairy farmers reportedly gain 3.9-percent of the Canadian market. The northern neighbor will also stop its unethical milk-pricing policy designed to create a trade barrier. American dairy farmers have been angered by the practice and their concerns became a cornerstone of the Trump Administration’s negotiations.
“Any time we can improve our market access, and gain new market access with a new agreement, that’s what we need to be doing for our dairy industry,” International Dairy Foods Association CEO Michael Dykes reportedly said. “We’re pleased to see President Trump follow through on his commitments to dairy.”
Many believe that Canada Prime Minister Justin Trudeau effectively sacrificed the industry to avert a damaging trade war. The industry organization known as the Dairy Farmers of Canada are calling it a loss for their once protected class. American dairy organizations are calling it a win.
The USMCA includes a side agreement that further discussions will be held to negotiate a trade deal on steel and aluminum. The current tariffs imposed by the Trump Administration will reportedly remain in place until an accord is reached.
