USMCA Flashcards
What is USMCA
Its a free trade agreement with US, Canada and mexico
It replaced Nafta implemented in 1994
USMCA stats
Population pf more than 510 million people and an economy of $30.997 trillion in nominal GDP
Almost 30% of the global economy
What is a free trade agreement
A pact between two or more nations to reduce barriers to imports and exports among them
What is USMCA differences tomNAFTA
Increased environmental and working regulations
Greater incentives for automobiles production in the US
More access to canadas dairy market
An increased duty free limit for Canadians who buy US goods online
Key criticisms
Potential infringements of national sovereignty
The nature of FTAs as public goods
The role of business, labour, environmental and consumer interests in shaping the language of trade deals
Why is it good for US business
Supports millions of jobs (Trade with Canada and Mexico support 12 million American jobs)
Drives export growth (Canada and Mexico account for 40% of the growth in overall US goods export and trade with the two countries reached nearly $1.4 trillion in 2018)
Vital for US manufactures
(Support 2 million American jobs)
Essential for farmers and ranchers
(US agricultural exports to canada and Mexico quadrupled from $8.9billion in 1993 to $39 billion in 2017)
Boosts American small businesses
Canada and Mexico are the top two export destinations for U.S. small and medium-sized enterprises, more than 120,000 of which sell their goods and services to our North American neighbours.
Powers the Service Economy
U.S. services exports to Canada and Mexico tripled from $27 billion in 1993 to $96 billion in 2018.
Car manufacture
More restrictive rules of origin
75% north American content
Wage requirements stipulating 40-45% of North American content where workers earn $16 an hour
70% of the steel and aluminium must originate (melted and poured)in North America
Two way investment
The United States is the largest single investor in Canada with stock of FDI reaching $438.8 billion in 2022, up from a stock of $96.6 billion in 1997
In Mexico, the United States is also the largest source of FDI. The stock of U.S. FDI in Mexico increased from $24.1 billion in 1997 to $130.3 billion in 2022.
Mexican FDI in the United States, while substantially lower than U.S. investment in Mexico, has also increased rapidly under NAFTA/USMCA, from $4.1 billion in 1997 to $54.0 billion in 2022 (by ultimate beneficial owner).
Rule of origin
In NAFTA, the required portion was 62.5 percent. The USMCA increases this requirement by 12.5 percentage points, to 75 percent of the automobile’s value.
Implications for world markets
Nearshoring
Multinational companies, particularly carmakers, have rejigged their supply chains to send more wares through Mexico or make them there – a process known as nearshoring.
The Inter-American Development Bank (IDB) estimates nearshoring, particularly in sectors such as the auto industry, textiles, pharmaceuticals, and renewable energy, which could result in Mexico increasing its exports by $35 billion in the coming years.
USMCA provisions designed to induce high-wage production in North America seem full of loopholes. To stop foreign carmakers sending finished vehicles into the United States via Mexico, the agreement stated that 75 percent of the content of a car, measured by value, must come from North America, and that 40 percent must come from manufacturing sites that pay workers $16 an hour or more.
The penalty for missing these thresholds, however, is just 2.5 percent,
