The most common sentiment from Canadian comments appears to be “meh, it could have been much worse”. That doesn’t mean it’s particularly good, either:
All that cross-border yelling, a solid year of bluster and petulance, dire rhetoric about “stabs in the back” and “special places in hell,” fake deadlines and all-night negotiations, and we end up with pretty much the agreement we started with? All that was required to fix NAFTA, that destroyer of American jobs and pox on its prosperity, the deal Donald Trump memorably complained was “the worst agreement in history,” was to change its name — from North American Free Trade Agreement to US-Mexico-Canada Agreement? Seriously?
Not quite. The result is certainly a far heave from some of the more apocalyptic scenarios we had been entertaining ourselves with. But neither is it the largely unaltered “NAFTA 2.0” of much initial comment. There are substantive changes in there, most of them bad, and not all of them imposed by an overbearing U.S. on an unwilling Canada.
Still, it’s not quite the conflagration we’d been banking on, is it? Trump is the bully in middle school who threatens to take your lunch money, only to settle for a half a slice of your pizza. Or, in this case, 3.6 per cent of it.
That’s the share of the Canadian dairy market to which the U.S. will now have tariff-free access, a slight advance on the 3.25 per cent market share the U.S. had negotiated under the Trans Pacific Partnership — before Trump withdrew from it. (Oh, and “milk price classes 6 and 7” are eliminated, for fans of that dispute. It involves skim milk solids.) There are also some minor increases in tariff-free imports in the other supply-managed sectors: eggs, chicken, cheese and so on. Everything else will face the same triple-digit tariffs, as before.
That’s unfortunate. Supply management is a blight on the Canadian political and economic landscape we could well do without. The NAFTA re-negotiations were an ideal opportunity to bargain it away, as it should have been in the original NAFTA. That it remains more or less intact — even the dairy lobby could manage only a half-hearted jeremiad of imminent lacto-doom in response — is one of the chief disappointments in this agreement.
Still, what did you expect? There was never any chance of these negotiations resulting in a deepening and broadening of NAFTA — not with protectionists on both sides of the table. The only question was whether the status quo protectionists on this side — who wished to preserve all of NAFTA’s existing exemptions — could hold out against the expansionist protectionists on the other, who wished to cut NAFTA into little mercantilist pieces. As it turns out the answer is: surprisingly well.
A quick summary of the winners and losers in this agreement:
Is this a free trade agreement?
No. Unlike NAFTA, this latest agreement makes no pretense to be about free trade (or even freer trade). It’s a protectionist agreement imposed by the U.S. on the other two countries.
Who benefits from the agreement?
The primary beneficiaries of the agreement are labor unions, U.S. dairy farmers, U.S. drug manufacturers, and companies that provide automation for manufacturers (e.g., robot makers).
The agreement will require at least 30 percent of cars (rising to 40 percent by 2023) to be made by workers earning $16 an hour. This will force more cars to be produced in the U.S. and Canada since the typical manufacturing wage in Mexico is only about $5 per hour. The agreement also requires Mexico to make it easier for workers to form unions, which will make them less competitive against more productive unionized workers in the U.S. and Canada.
U.S. dairy farmers will also gain greater access to the Canadian market. Because of new restrictions on how much dairy Canada can export, there is the potential for U.S. dairy to gain a greater market share in foreign countries.
U.S. drug companies will also be able to sell pharmaceuticals in Canada for 10 years (rather than eight) before facing generic competition.
Because the agreement makes human labor in the three countries somewhat more costly, companies that create robots and other automation will likely be the long-term beneficiaries.
Who are the biggest losers in this agreement?
As with almost all protectionist trade agreements, consumers are the ones who will be hurt the most.
As the Washington Post notes, economists and auto experts think USMCA is going to cause car prices in the U.S. to “rise and the selection to go down, especially on small cars that used to be produced in Mexico but may not be able to be brought across the border duty-free anymore.”
Because the restrictions on Canadian steel and aluminum also remain in place, businesses that use those materials in manufacturing will pay inflated prices, and their products will be less competitive on the global market.
