Does the United States-Mexico-Canada Agreement harbinger a new global trade order?

18 October 2018

After 12 months of negotiations, the US, Mexico and Canada have finally signed a new deal to replace the 25-year-old North America Free Trade Agreement (NAFTA) and many feel that it has significant implications.

US president, Donald Trump, who has long claimed that many overseas trade deals are unfair to the US, says the new deal, the United States-Mexico-Canada Agreement (USMCA), was necessary to provide fairer arrangements for American enterprises and workers as part of his Make America Great Again campaign.

The USMCA, which will still have to be ratified by the US Congress before coming into force from 2020, marks a significant milestone for the Trump administration as it is expected to become a template for all US future trade negotiations.

USMCA modifies core elements of NAFTA, which covered annual trade of $1.3tr, by placing new obligations in commercial sectors, such as cars and steel, and on regulations including rules of origin, intellectual property rights, labour rights, environmental policies, state-owned enterprises, exchange rate management and e-commerce.

USMCA is the first re-negotiated trade agreement of the Trump administration and one that aims to secure wider American interests by including provisions beyond trade, which are expected to exert pressure on other countries making new trade deals, particularly China.

As a likely template for all future US trade agreements, including with Asia and the Pacific, USMCA confirms the Trump administration’s aim to rebalance US trade relations with major partners by addressing new and emerging issues including digital trade, investments, environmental concerns and alleged unfair trade practices.

Some commentators also believe that the US may use USMCA as a format for multilateral trade negotiations at the World Trade Organisation (WTO) particularly in areas such as e-commerce, intellectual property rights, subsidies and dispute resolution, which Trump has said are unsatisfactory and need reforming.

Some trade commentators also believe that the USMCA’s stringent local content requirements will have far reaching consequences for global supply chains, particularly with regard to steel and aluminium, which may effect supplies from many Asian countries, including India,  which are linked to vehicle supply chains led by North American companies.

The USMCA also stipulates new minimum wage regulations, which it could extend to countries outside its free trade agreements, such as India, and which may have serious effects on their industries and wider economies.

USMCA demonstrates that US trade policy under Trump has shifted from multilateralism to bilateralism, as it believes that it can use its commercial clout to shape trade agreements to align with its own long-term economic interests.

There are clear indications that it will use this tougher approach to create trade deals which support its domestic economic goals. How well this work alongside its wider strategic objectives, particularly in the Indo-Pacific region, remains to be seen.

As a result it will be crucial for countries like India, with which Trump has said he would like to create a trade deal, to carefully study the structure and implications of the USMCA, and other bilateral trade agreements that the US is expected to initiate soon, as part of their preparations.

Follow Chamber International on Twitter @ChamberInt and on Facebook to learn about upcoming events.