Benefits and Drawbacks of the United States-Mexico-Canada Agreement (Research Paper Sample)

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Benefits and Drawbacks of the United States-Mexico-Canada Agreement
In November 2018, the trade representatives of The United States, Canada, and Mexico renegotiated the terms and agreements under the North American Free Trade Agreement (NAFTA), which led to a new agreement, the United States-Mexico-Canada Agreement (USMCA). The USMCA is a modern and more modified version of the NAFTA, which was enacted to govern the economic ties between the North American countries. The primary purpose for which NAFTA had been negotiated and ratified was to increase and maintain North America's competitiveness within the global market. However, a time had reached where the three countries needed a renegotiation in order to have an agreement that reflected the current realities of the global market. Termination of NAFTA was not feasible and would have had devastating effects on all three countries, especially the U.S. As a result, it became imperative to modify instead of terminate NAFTA. The USMCA preserved most of the NAFTA terms allowing manufacturers in the three countries to establish effective competition among themselves, as well as with Asian, European, and foreign markets. Since its enactment and ratification by all three countries, the USMCA has had some positive and negative effects on the U.S. economy. This paper seeks to identify and analyze these effects as well as determine the overall usefulness of the Agreement to the U.S. economy.Benefits of USMCA One of the most controversial and detrimental terms of NAFTA was that it allowed U.S. corporations to relocate production to other countries. The result of this term was a massive loss of jobs as many companies relocated production to Mexico. Also, U.S. workers were forced to accept low wages and benefits due to the relocation of production to Mexico. One of the benefits of the USMCA to the U.S. economy is the provision on rules of origin. According to the Congressional Research Service (17), The USMCA's rules of origin provides that 75% of automobile components must be manufactured in either of the three countries for them to be eligible for the zero tariffs. The NAFTA had set the percentage at 62.5. The effect of the rules of origin is the incentivization of production or automotive components in the U.S., thus increasing jobs. The rules of origin are set to remedy the low wage problem by encouraging companies to use parts manufactured within the country. The result is that U.S. workers would have more bargaining power and be on equal ground with the producers (Gantz 128-129). The USMCA would also allow the U.S. economy to benefit in the agricultural sector. NAFTA had numerous provisions on agriculture that included the elimination of quotas and tariffs. The negotiations made in the USMCA would allow U.S. farmers to have wider access to Canadian dairy markets as well as a wider export market for egg, poultry, and dairy producers in the U.S.. The USMCA would also remedy tariff barriers that prevented the U.S. producers from exporting wine and wheat from Canada. Some trade barriers were also detrimental to the U.S. trade and economy that were disguised as safety and health measures and prevented the U.S. from exporting and importing goods with the region. The USMCA remedied this problem by making it mandatory that such barriers be based on sound science (Stewart et al., 6).  The USMCA would also be beneficial to the U.S economy when it comes to the facilitation of customs and trade. The Trump administration negotiated terms of the USMCA that would facilitate a reduction of bureaucracies at the borders, make it easier for the U.S. to predict transactions across the border, and as a result, reduce costs of trade. The USMCA also increased the de minimis thresholds, which would allow businesses in the U.S. to export goods to Mexico and Canada easily. The higher de minimis threshold would ensure that companies in the U.S., especially the SME's incur lower costs in the Canadian market. They would also ensure e-commerce directly translates to consumer sales and that growing firms in the U.S. would have ready access to the market (Stewart et al., 6). In the case of South Dakota v Wayfair, Inc. 585 U.S. ____ (2018), the U.S. Supreme Court remedied a situation in which the individual states in the U.S. could not collect taxes accruing from retail sales from online sellers operating out of state. The U.S. does not have a federal VAT, which made this collection of taxes difficult. In the case, the Supreme Court held that states had the authority to tax sellers from out-of-state. The holding in the South Dakota case was in line with the provisions of the USMCA to the effect that raising the de minimis threshold would spare online retailers from charging taxes due to domestic retailers. The USMCA would also ensure transparency on policies relating to currencies and exchange rates in addition to addressing any unfair practices regarding currencies. The Agreement would also expand the market to allow U.S. corporations to export portfolio management, investment advice, and electronic payment services to the North American region. The USMCA also improved and secured intellectual property protections for American creators. According to Papovich (253), the IP protections contained in the NAFTA were much more pronounced with regards to relations between the U.S. and Mexico. Canada has more respect for IP rights, but there are still some violations, and a refinement of these protections was necessary. The USMCA ensured improved protections for both IP rights and trade secrets in addition to a ten-year biologic drug protection.Drawbacks of the USMCA As with all other trade agreements, the USMCA is likely to have some adverse effects on the U.S. economy. In an effort to renegotiate the NAFTA effectively, the Trump administration had threatened to terminate the Agreement altogether, implying the U.S. would no longer participate in it. This threat led to a weakening of trade relations between the U.S. and its North American trade partners. As a result, Mexico opted for other trade partners to shield its economy from such withdrawal. Alliances were made with both the European Union and the Pacific Alliance, which created free trade zones and the expected removal of tariffs, which will improve trade between Mexico and these new trade partners and reduce its reliance on trade with the U.S. (Lester). In essence, due to the renegotiations and the Trump Administration's stance on the terms of the USMCA, future trade between the two countries would likely subside as Mexico would have other trade partners they can engage with if it deems the terms with America and Canada are unfavorable. In as much as the USMCA would is projected to increase manufacturing jobs in American states such as Texas, New York, Michigan, and California, the terms of the Agreement could also increase the prices of automotive imports for U.S. consumers. The result of this phenomenon would be an increase in inflation. Also, the rules of origin contained in the USMCA predicted that there would be a higher percentage of the level of production for American automotive parts. The projected result is an increase in jobs and wages. However, it is also likely that an increase in production would lead to a rise in prices for the automotive components leading to a decrease in motor vehicle purchases in the country (Lester). A reduction in the rate of competitiveness and an increase in prices is also likely to lead to increased costs of exportation to countries such as China, which import U.S. vehicles. As a result, the USMCA is likely to cause a reduction in trade, whereas the NAFTA facilitated increases in trade of up to $1.1 trillion in 2016. The U.S. is not likely to experience similar numbers from the USMCA in the near future, especially with the detrimental effects of Covid-19 on the economy and its disruptions of manufacturing and trade. The Trump administration also negotiated for trade protectionist measures with regards to textiles, investment, automotive trade, and contracts relating to government procurement that are likely to limit economic growth in the U.S.. According to the U.S. International Trade Commission (USITC), an assessment is made that any gains brought about by the USMCA to the U.S. economy would be minimal, if any. Actually, the report assesses that the Agreements between the North American countries are likely to hurt the U.S. economy as opposed to helping it. According to the report, the provisions on agriculture are not likely to benefit the U.S. farmers in the long run. Also, the country of origin rules would occasion a loss in competitivene