Investors, industry welcome new NAFTA, but with some caveats
It’s no longer the North American Free Trade Agreement—NAFTA—it’s now the United States-Mexico-Canada Agreement (USMCA). The name change is nothing more than a Trumpian rebranding of what’s been called the “old lady of FTAs.”
No question, NAFTA needed updating, and that’s exactly what USMCA does. But USMCA, contrary to what President Donald Trump says, is not something new under the sun, but represents a tweaking of the older agreement. It’s also worth noting that much of what was achieved with USMCA was already included in the Trans-Pacific Partnership (TPP), a twelve-nation agreement that included the three NAFTA partners, which Trump spurned as soon as he entered the presidency.
USMCA has Trump embracing globalism to a certain extent, but without the TPP, the United States squandered much of the leverage it had over China on trade, making it that much more difficult to achieve US goals on that front.
The merits of the agreement aside, investors and industries embraced USMCA, primarily because it removed a major element of uncertainty on the global stage, which could be described in two parts: whether Canada would be part of a new agreement and whether there would be a North American trade agreement at all.
“Wall Street clearly loves the US-Mexico-Canada Agreement,” said financial guru Hilary Kramer. “This is great for North American energy independence. Oil can keep flowing, which is part of why” there have been surges in oil stocks in both Canada and the US.
“And the “green” stocks that have been driving the Canadian market may finally get crossborder clarity too,” Kramer said.
Auto dealers greeted the North American trade deal with relief. “Uncertainty is the enemy of business, large and small,” said Cody Lusk, CEO of the American International Automobile Dealers Association. The USMCA announcement “allows the entirety of the auto industry, from manufacturers to hometown dealers, to once again plan for the future.”
But Lusk continues to be concerned over the Department of Commerce’s ongoing Section 232 tariff investigation, “and the threat of massive new tariffs on imported autos and parts.” “Dealers will continue to urge the Trump administration and Congress to pursue positive trade policies that keep the American auto industry open, dynamic, and competitive,” said Lusk.
Another cautionary note was voiced by Nathan Nascimento, executive vice president of Freedom Partners. “We will closely examine the new agreement,” he said, which we hope will facilitate prosperity and opportunity for American families and businesses by reducing barriers to trade. We remain concerned, however, by quotas or other protectionist policies of any kind,” referring to the steel and aluminum tariffs, which remain in force, “that drive up costs for everyone, while protecting only a few jobs at the expense of many others.” Trade with Mexico and Canada, Nascimento also noted, supports 11 million US jobs and is responsible for half a trillion dollars in US exports.
Representatives of the recreational boating industry in the US and Canada also breathed a sigh of relief. “We welcome the USMCA, which includes cornerstone NAFTA principles,” said a statement from Thom Dammrich, President of the National Marine Manufacturers Association (NMMA), and Sara Anghel, President of NMMA Canada. “Anything less would have had debilitating consequences on all sectors of the North American economies. Now, it is time for all three countries to stay at the table and deal with Section 232 tariffs and retaliation. US boat exports” to Canada and Mexico “have all but dried up” as a result of retaliation to the 232 tariffs. “Negotiators should seize the opportunity and immediately resolve this issue.”
In the end, opined Duncan Wood, director of the Mexico Institute at The Wilson Center, a Washington think tank, “Reason and a mutually beneficial outcome have prevailed.” “The deal appears to take care of Canada’s most deeply- held concerns while opening its politically important dairy sector to competition,” he added. “There is going to be widespread celebration that the uncertainty is over, and that the three countries can move forward with the final text of the agreement. The new North American deal looks a lot more like an agreement for the 21st century.”
The new treaty could be signed by all countries within 60 days, and will need to be passed by Congress.