The New USMCA vs. the Old NAFTA – It’s Just Tinkering Around the Edges – Here’s Why

Lorimer Wilson October 6, 2018 Comments Off on The New USMCA vs. the Old NAFTA – It’s Just Tinkering Around the Edges – Here’s Why 2,044 Views

NAFTA is gone, replaced by largely the same agreement with a different name, the United States-Mexico-Canada Agreement (USMCA). Talk about tinkering around the edges.

The original article has been edited here by munKNEE.com for length (…) and clarity ([ ])

First, the table stakes. Figure 1 shows each nation’s respective annual trade with the others, a sum of $1.24 trillion.

Figure 1: Annual North American Exports (in US$ Millions)

Tweaks

One of the big sticking points for Trump was the requirement to increase the percentage of each automobile coming from one of the three nations.

The rate will rise from 5/8th of the car to 75% under the USMCA. The net effect is that the three countries can “stick it” to China. That is a political winner for all three, so long as auto inflation is tame. Some minimum wages for auto workers were also added, a burden shouldered by Mexico.

Canada was the wild card because Mexico and the U.S. agreed in principle to terms several weeks ago. As we get into the numbers, use U.S. and Canadian GDP of $20.4 trillion and $1.74 trillion, respectively, for context.

That gives reason to collectively yawn at the new allowance for 3.5% U.S. market share in the $16 billion to $20 billion Canadian dairy industry. This is a commercial opportunity worth less than $1 billion, frankly.
The much-maligned steel and aluminum export tariffs remain. This too is an afterthought. With steel equal to 1.5% of Canada’s export total, and with 91% of it going to the United States, about $4.5 billion worth of Canadian steel will be affected…Levying a tariff does not make all cross-border trade disappear, however. Even if the 25% levy causes half of Canadian steel exports to the U.S. to completely evaporate, we are talking about $2.25 billion. Also, from a global perspective, presumably most or all of the disappeared Canadian steel would shift someplace else, seemingly the U.S. Again, we are talking about two economies collectively worth about $22 trillion, yet the news cycle is harping on a few billion dollars.
As for aluminum, Trading Economics puts Canadian exports at $9.82 billion in 2017, with 87% headed to the U.S. How much of that $8.54 billion of U.S. sales is going to totally disappear because of a 10% tariff? $1 billion? $2 billion?

Add up the dairy, steel and aluminum hit to Canada, and we are talking about numbers that are Big Picture insignificant—for all parties…