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United States-Mexico-Canada Agreement (USMCA) allows for the US to influence how Canada and Mexico trade with non-market economies (i.e., China)
SUMMARY
Washington, DC – On September 30th, the United States, Canada, and Mexico renegotiated their free trade agreement, settling ongoing tension regarding economic relations among the three countries. Various analysts reacted to a specific clause in the agreement, claiming that it directly ‘targets’ and ‘isolates’ China. Article 32.10 of the United States-Mexico-Canada Agreement (USMCA) allows all three countries to be informed of and review any free trade deal among them started with a “non-market economy”. Observers noted this was a direct message to China and could significantly affect bilateral negations between China and Mexico in the future. Historically, China has made demands that it be classified as a market economy, but those demands have not been granted. Beijing has remained silent on the issue thus far, and very few Chinese media outlets are reporting on the possible effects of the new agreement. China is Canada’s second largest trading partner, so this clause does give the U.S. an increased level of negotiating power in future trade talks with China. Larry Kudlow, the director of US National Economic Council stated on Tuesday that, “We are sending China a message, and I hope they are listening.”
FAO GLOBAL ASSESSMENT
Speculation around the impacts of the new deal, specifically in the automotive industry and agriculture sectors has been prominent. US car manufacturers and buyers will most likely face higher costs because the deal enforces Canadian steel tariffs, increases quotas on North American parts, and raises wages for workers in the auto industry. US carmakers will likely see a decrease in sales to foreign car buyers and will have to be prepared to re-adjust profit margins or find different ways to cut costs. Increased investment in manufacturing automation by US carmakers is likely. This deal may also affect bilateral trade with China and create unforeseen supply chain issues if the US-China trade tensions drag on.
Related Links
- Washington Post – USMCA: Who are the winners and losers of the ‘new NAFTA’?
- South China Morning Post – Beijing stays silent on new US trade deal with Mexico and Canada
- South China Morning Post – China ‘threatened with isolation’ by veto written into US-Mexico-Canada trade deal
Analyst Bio
Levi Rasmussen – International Business Development
Levi is an International Business Development Intern, focusing on internal strategy and development of FAO’s consulting services. Levi Rasmussen studies International Business, Finance, and Mandarin at the University of South Carolina. At FAO Global and his studies, Levi puts particular interest in facilitating the connection and integration of U.S. and Chinese firms through consulting work and building understanding between culture in dealing with organizations from the East and West. Levi will continue his studies in International Business at the Hong Kong Polytechnic University in Spring 2019.
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