The End of NAFTA? What You Need to Know About Trump’s New Trade Deal with Mexico and Canada

Donald Trump infamously called NAFTA “the worst trade deal maybe ever signed anywhere” when he was running for president in 2016. He’s made renegotiating the historic trade agreement between the U.S., Canada, and Mexico a centerpiece of his presidency. Now, he’s one step closer to reaching his goal.

A “brand new deal”

Donald Trump
Donald Trump speaks during a press conference to discuss a revised U.S. trade agreement with Mexico and Canada on October 1, 2018. | Chip Somodevilla/Getty Images

On September 30, the Trump administration announced it had reached a deal with Canada to revamp the North American Free Trade Agreement, which President Bill Clinton signed into law in 1994. Canada will join the U.S. and Mexico in the new United States-Mexico-Canada Agreement (USMCA), which will replace NAFTA.

Trump bragged about the new agreement in a White House press conference on October 1. “It’s not NAFTA re-done. It’s a brand new deal,” he said.

“[R]est in peace NAFTA,” said Commerce Secretary Wilbur Ross during an interview with Fox Business.

The new agreement “will result in freer markets, fairer trade and robust economic growth in our region,” said United States Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland in a joint statement. They also promised that the new agreement would “strengthen the middle class, and create good, well-paying jobs.”

What is NAFTA, and why does Trump hate it?

NAFTA critics – including Donald Trump – have longed criticized the trade deal, blaming it for decimating U.S. manufacturing and costing many workers their jobs.

The 1994 agreement eliminated virtually all tariffs between the U.S., Mexico, and Canada. That made it much easier – and cheaper – to move goods across borders. Some companies shifted manufacturing jobs from the U.S. to Mexico, where labor was less expensive. By 2010, the U.S. had lost an estimated 682,900 jobs because of its growing post-NAFTA trade deficit with Mexico, according to the Economic Policy Institute. The U.S. was also able to sell its heavily subsidized corn south of the border, which hurt Mexican farmers.

At the same time, NAFTA supporters argue that the agreement lowered prices on many items for U.S. consumers. They also argue that it increased U.S. GDP, helping to grow the U.S. economy.

What’s different about the new deal

Cars on a truck
Trucks drive near the Volkswagen plant in Puebla, Mexico, on August 27, 2018. | Jose Castanares/AFP/Getty Images

While the USMCA is a new deal, it’s not as radically different from NAFTA as you might expect. But the countries have agreed on a few big changes.

Under the USMCA, U.S. dairy farmers will get expanded access to the Canadian market. Canada and Mexico have also agreed to cap automobile exports to the U.S., with exports above that number being subject to a 25% tariff. A higher percentage of vehicle parts will also be required to come from North American manufacturers. Automakers will have to pay some workers who make cars at least $16 an hour to avoid tariffs, a change that will particularly affect Mexico, where wages are low. Mexico has also agreed to allow workers the right to collectively bargain.

New provisions on digital trade and intellectual property have also been added. Canada and the U.S. agreed to keep a special process for trade disputes, which the U.S. wanted to eliminate. The trade deal will be in effect for 16 years, unless all three countries agree to renew it, and it will be reviewed after 6 years. 

Not a done deal just yet

While the three countries have reached a trade agreement, it’s not a done deal just yet. Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Pena Nieto still need to officially sign the deal, which should happen at the G20 meeting in Buenos Aires on November 29.

The U.S. Congress also needs to approve the deal. That could be a stumbling block, particularly if Democrats take control of the House in November’s mid-term elections.

How the USMCA will help – or hurt – the U.S. economy remains to be seen. Some are predicting that car prices will rise because of the new rules. The deal may also encourage Trump to be even tough on China on future trade issues, according to some.

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