- President Donald Trump this month hailed his signature rewrite of North American commerce rules as the “best and most important trade deal ever made.”
- But economists are less optimistic the United States-Mexico-Canada Agreement will deliver the sweeping growth the president promised.
- In a new analysis, the Peterson Institute for International Economics estimated the agreement would instead cause US growth to decline by 0.12%.
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President Donald Trump this month hailed his signature rewrite of North American commerce rules as the “best and most important trade deal ever made,” saying it would benefit vast parts of the economy from the agricultural sector to factories.
After more than a year of heightened uncertainty, businesses welcomed the announcement last week that the White House and Democrats had reached the compromises necessary to replace a 25-year-old trade pact with Mexico and Canada.
But economists are less optimistic the United States-Mexico-Canada Agreement will deliver the sweeping growth the president promised. In a new analysis, the Peterson Institute for International Economics estimated the agreement would instead cause US growth to decline by 0.12%.
“The pact modernizes trading rules, and strengthens enforcement of labor and environmental rights, but is still a net negative for all three economies,” economists Mary Lovely and Jeffrey J. Schott wrote. “Its regulatory mandates, especially in autos, will restrict trade and hurt US industry.”
Under the new agreement, 75% of car components must be made in Canada, Mexico or the United States. While an increase from the previous requirement of 62.5% was meant to bolster the sector, it could actually raise input costs and slow activity.
“The outcome will be just the opposite,” Lovely and Schott wrote. “The new content requirements will raise production costs, resulting in higher auto prices, reduced US demand, lower auto exports, and more rapid substitution of machines for workers.”
USMCA won the endorsement of the powerful AFL-CIO last week, offering a green light for Democratic support. The agreement also toughens labor and environmental standards in North American trade.
“One reason is that it defuses the argument that they do not know how to do anything in Congress except impeachment, and another is that many moderate Democrats feared rejecting something promoted by Trump at this contentious time,” Lovely and Schott added.
In a congressionally mandated report released in April, the US International Trade Commission reached a similar conclusion. The independent panel estimated that without reduced policy uncertainty, which it found to be a central benefit of USMCA, domestic growth could actually fall under the trade agreement.
Gross domestic product would slip by 0.12% if the trade policy outlook remained the same, the ITC report predicted. Roughly 30,000 auto industry jobs would be created, but overall American consumption would fall because of higher prices.
“The increase in US auto parts production would draw resources away from other manufacturing sectors and the rest of the US economy, driving up production costs for other sectors,” the report said.