Donald Trump has one trade deal that's coming together: The new NAFTA

The North American Free Trade Agreement (NAFTA) was a result of years-long negotiations,

driven by the success of US-Canada Free Trade Agreement in 1988. It was negotiated between United

States Presidents George H.W. Bush and Bill Clinton, Mexican President Carlos Salinas de Gortari, and

Canadian Prime Minister Brian Mulroney. At that time of the draft signing in 1992, Canada and Mexico

were US’s largest and third-largest trading partners, with US$191.4B and US$76.37B worth of goods

traded in each respective country (World Bank Group, 2019). However, given that each country needed

to ratify the trade deal, it was not until 1993 that NAFTA was signed by Clinton and took effect a year

later.

However, the trade deal has always been met with criticism, especially coming from the

President of the United States, Donald Trump. As a result, these three countries have come up with the

US-Mexico Canada Agreement (USMCA), a trade deal which is, according to sources familiar with the

negotiations between the White House and the US Congress, “coming together” (Leonard, 2019). For

this discussion, three points are discussed: What are NAFTA’s effects on the US economy1; its

downsides and opposition; and an overview to the current USMCA deal.

EFFECTS OF NAFTA IN CERTAIN INDUSTRIES

NAFTA removed most trade and investment barriers that existed between North American

countries, making most products in the region free of any tariffs, and promoting economic integration.

While most of its stipulations took effect immediately, most tariff restrictions were fully removed only

on 1 January 2008. Clinton claimed that NAFTA would generate jobs of as much as one million in five

years (Kessler, 2018). However, the trade deal was not as encompassing as Export.gov (2011) reported;

it did not cover aviation transport, maritime, and basic telecommunications. At least three services were

heavily covered by NAFTA: automotive manufacturing, agriculture, and intellectual property (IP). A

summary of its key provisions on key industries is provided below:

Automotive manufacturing—Cars in North America are slapped with a 2.50% tariff unless

62.5% of its parts, usually 28,000-30,000 in number, are made in either US, Canada or Mexico.

1
This article focused on the United States given that (1) the Newsbreak article discussed USMCA’s ratification
in the US; and (2) USMCA’s raison d’ etre was President Donald Trump’s calls to renegotiate said trade pact.
 Agriculture—This was the only industry not agreed trilaterally but on three different

agreements. Under NAFTA, lots of agricultural products still have tariffs and taxes on them, but most

of them were removed slowly by 2008.

Intellectual property—NAFTA stipulated the copyright terms to extend 50 years after the death

of the author.

NAFTA was able to foster trade with the three North American countries, increasing imports

and exports dramatically. US trade with Canada and Mexico has tripled since NAFTA’s ratification,

reaching $1 trillion in 2011 (Fergusson et al., 2017). It became the largest trade bloc in the world in

terms of GDP. In 2017, Canada and Mexico were US’s second and third biggest trading partners, with

US$588.12B and US$560.52B worth of goods traded with US, respectively. It also lowered costs and

prices, since it removed trade barriers and provided more offerings for consumers.

NAFTA was also a big deal for the US industries heavily covered by it. In agriculture, US

agriculture exports to Canada and Mexico have increased from $8B in 1994 to almost $38B a year in

2016; 39% of the total agricultural US exports can be accounted for by those two countries alone.

It also made easier for manufacturing companies to do businesses to and from the United States;

as a result, it made companies to produce cars cheaper due to the eliminations of Mexico’s trade barriers

which was, at its peak, was at 20%.

Others also claim that NAFTA was able to generate jobs like it promised. Five million jobs

were generated as a result of NAFTA, with 800,000 manufacturing jobs created in the first four years

of its ratification (US Chamber of Commerce, 2010). A Washington Post report also stated that for

every $1B in exports of goods, 5,300 jobs were generated, meaning that 1.8 million jobs were supported

from increase of trade in Mexico and Canada since 1994.

OPPOSITION TO NAFTA AND DONALD TRUMP

Politics has a lot to do with the opposition surrounding NAFTA. For example, 1992 US

presidential candidate Ross Perot notoriously discussed NAFTA with a “giant sucking sound” to

describe the potential loss of US jobs in Mexico, saying that most companies will take advantage of

Mexico’s lack of labor regulations, as well as lower wages. Meanwhile, an Economic Policy Institute

article claimed that the number of manufacturing job losses due to NAFTA were at 700,000,
concentrated in the states of Michigan, California, and Texas. Some people have disputed such number,

given that (1) such jobs are not entirely lost but changed in industry by trade (e.g. from manufacturing

to other industries); and (2) the bigger culprit on these job losses is automation.

It was not until Donald Trump’s candidacy—and eventual presidency—that opposition to

NAFTA became more pronounced. He ran under the guise of protectionism; chanted America first;

criticized NAFTA as the “worst trade deal ever;” and promised to renegotiate it when he is president.

He was able to tap into a demographic—those who were heavily affected by NAFTA’s job losses—

fueling more hate for the two-decade-old trade deal. When he was elected, he became softer; he instead

agreed on renegotiating NAFTA than to permanently withdraw from it. And thus, the US-Mexico-

Canada Agreement was created.

USMCA: THE NAFTA 2.0

The USMCA is an update of the old NAFTA with some touting it as just the “new NAFTA.”

Main key provisions were changed in agriculture, automotive manufacturing, and intellectual property.

It opened the Canadian market for dairy products; it increased the automotive rule country of origin

rules from 62.5% to 75%; and increased the terms of copyright from original 50 years to 70 years after

the death of the author (Kirby, 2019). Stricter labor regulations were also introduced, in which 40-45%

of automobile parts must be made by North American workers who earn USD$16 per hour by 2023

(Kirby, 2019).

While some consider the new NAFTA to be beneficial for the US, some also consider its

implications. There are concerns that USMCA might raise prices for automobile cars sold in the United

States, given that many car models are not covered by the new country of origin rule. As a result, this

might mean lower sales, and in turn, further job losses in the US. The sudden increase in copyright rules

also mean that no works will enter the public domain 70 years after the death of its author, creating

devastating effects from digitization to scholarly work. While US agricultural exports might increase

by 1.1% should the USMCA be implemented fully, Canadian farmers might lose up to 3.6% of the

entire dairy market due to this (Nguyen, 2018).

Meanwhile, US Democrats want stricter regulations on labor and environmental safety,

something that USMCA still fails to do according to them. Politically, Democrats are wary of ratifying
the trade agreement quickly, as doing so will provide Trump a key victory that might be used in the

presidential trail. Simply put, they are careful about giving Trump a “win,” especially in this moment

when they aim on unseating him in 2020.

CONCLUSION

What does this mean for NAFTA and North American businesses? For now, nothing. As

negotiations between the White House and Democrats continue up to this day, nothing changes.

Businesses and workers must wait until they decide on something. At the end of the day, these three

countries need to put up a trade agreement that puts the best interest of all its citizens; something that

does not just foster growth and economic integration in a macroeconomic scale but also protects their

citizens’ welfare, safety, and productivity.

REFERENCES

1. Cassella, M and Rodriguez, S. (1 August 2019). 2020 Candidates Views on NAFTA/USMCA: A voter’s
guide. Politico. Retrieved from https://www.politico.com/2020-election/candidates-views-on-the-
issues/trade/nafta-usmca/
2. Export.gov (10 December 2011). The North American Free Trade Agreement. Retrieved from
https://2016.export.gov/FTA/nafta/index.asp
3. Faux, J. (9 December 2013). NAFTA’s Impact on U.S. Workers. Economic Policy Institute. Retrieved from
https://www.epi.org/blog/naftas-impact-workers/
4. Ford, A. (30 December 2008). A brief history of NAFTA. TIME. Retrieved from
http://content.time.com/time/nation/article/0,8599,1868997,00.html
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700,000 jobs lost by NAFTA. The Washington Post. Retrieved from
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Retrieved from https://finance.yahoo.com/news/bernie-sanders-message-trump-trade-130047451.html
10. Sraders, A. (22 August 2019). What is NAFTA? History, purpose, and what it means in 2019. The Street.
Retrieved from https://www.thestreet.com/politics/nafta-north-american-free-trade-agreement-14651970
11. US Chamber of Commerce. (2017). The facts on NAFTA: Assessing two decades of gains in trade, growth,
and jobs. Retrieved from https://www.uschamber.com/sites/default/files/the_facts_on_nafta_-_2017.pdf
12. Villareal, M and Fergusson, I. (24 May 2017). The North American Free Trade Agreement (NAFTA).
Congressional Research Service. Retrieved from https://fas.org/sgp/crs/row/R42965.pdf
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country#