The United States-Mexico-Canada Agreement (USMCA) takes effect today after two years of tough negotiations.
While the new agreement retains a majority of the existing NAFTA agreement, it includes significant changes to labour standards, dispute resolutions mechanisms and market access across the three countries. The most notable changes, however, affect the automotive industry, where new rules stipulate that 75% of a vehicle’s components must be sourced from North America in order to qualify as tariff-free. Furthermore, 40-45% of components in tariff-free vehicles must come from “high-wage factories” where workers earn at least $16 an hour. These changes are seen as an attempt to boost jobs in Canada and the US.
However, hopes for a smooth implementation were shaken by reports that the Trump administration plans today to re-impose tariffs on Canadian aluminium, a sore point throughout the negotiations. While this will not affect the composition of the USMCA, it illustrates the Trump administration’s determination to retaliate against perceived wrongdoing, even while the economy struggles to recover. Expect these confrontations over aluminium and steel to continue moving forward, even as the USMCA facilitates closer economic cooperation.
Wake up smarter with an assessment of the stories that will make headlines in the next 24 hours. Download The Daily Brief.
Julian is a Research Analyst for The Daily Brief where he is a regular contributor. As a researcher and writer, Julian specializes in the political economy of East Asia and global macroeconomic developments.