December 24, 2019

John Phipps: Why USMCA is Better Than No NAFTA

 |  By: John Phipps

Well, I was afraid of this. Because of the lead time between when I shoot my commentary and when it airs, events can overtake any analysis. Luckily my explanation last week of the relatively small differences between Nafta and the USMCA is still largely correct, especially for agriculture. The measure approved by Congress and the president, however, did have some notable changes for other industries. The House was able to add stronger enforcement provisions for automotive labor benchmarks, a key goal of organized labor in the US, although I agree with economists this is long-term slightly negative and will raise car prices. To my surprise the pharmaceutical industry did not get longer protection for biologics – it remains at 8 years. The administration also dropped opposition to independent panels for dispute resolution. The rest of the provisions are essentially the same, and the only possible snag as of 10:42 on 17 December, is a spat with Mexico over who will inspect auto plants.

Zeroing in on ag, it is important to remember that all the touted trade changes are in quotas. With both countries swimming in milk, it remains to be seen how much the dairy provisions, let alone poultry, eggs, and peanuts add to trade with Canada. Even less noticed is quotas on peanuts, sugar, produce, and dairy from Mexico and Canada to the US were raised slightly as well. Since trade has been well below existing quotas, this has little immediate impact.

The one thing worthy of notice for the bulk of US ag is approval of USMCA neutralizes the significant damage that withdrawal from NAFTA would have caused. Is has been forgotten that all this time, NAFTA has been chugging along, and for US corn farmers especially, it has been a huge market boost. The USMCA protects this market access. Cars and trucks will cost a little more. The US could have gotten all these minor revisions and many more important trade improvements and expansions by simply remaining in the TransPacific Partnership. The USMCA will be at best a marginal economic boost. It was estimated by the International Trade Commission that it will add about $70B to our 21 trillion dollar GDP, or a gain of 0.35%, almost all of which will benefit the manufacturing sector. This was not a big step forward for trade. It was a trade-killing bullet we dodged.