USMCA to have limited but positive impact on US economy

The U.S. International Trade Commission April 18 released its long-anticipated analysis of the proposed U.S.-Mexico-Canada Trade Agreement.

The commission used a combination of detailed quantitative and qualitative industry analyses and an economy-wide computable general equilibrium model to assess the likely impact of USMCA on the U.S. economy and industry sectors. The model estimates that, if fully implemented and enforced, USMCA would have a positive impact on U.S. real GDP and employment.

The elements of the agreement that would have the most significant effects on the U.S. economy are as follows:

• Provisions that reduce policy uncertainty about digital trade, and
• Certain new rules of origin applicable to the automotive sector.

Because the North American Free Trade Agreement has already eliminated duties on most qualifying goods and significantly reduced nontariff measures, USMCA’s emphasis is on reducing remaining nontariff measures on trade and the U.S. economy; addressing other issues that affect trade, such as workers’ rights; harmonizing regulations from country to country; and deterring certain potential future trade and investment barriers.

USMCA would reduce the scope of the investor-state dispute settlement mechanism, a change that, based on modeling results, would reduce U.S. investment in Mexico and would lead to a small increase in U.S. domestic investment and output in the manufacturing and mining sectors, the report said.

“The agreement, if enforced, would strengthen labor standards and rights, including those related to collective bargaining in Mexico, which would promote higher wages and better labor conditions in that country,” the report said. “New intellectual property rights provisions would increase protections for U.S. firms that rely on intellectual property. These changes are estimated to increase U.S. trade in certain industries.”

The commission’s model estimates that USMCA would raise U.S. real GDP by $68.2 billion (0.35 percent) and U.S. employment by 176,000 jobs (0.12 percent). The model estimates that USMCA would likely have a positive impact on U.S. trade, both with USMCA partners and with the rest of the world. U.S. exports to Canada and Mexico would increase by $19.1 billion (5.9 percent) and $14.2 billion (6.7 percent), respectively. U.S. imports from Canada and Mexico would increase by $19.1 billion (4.8 percent) and $12.4 billion (3.8 percent), respectively.

The model estimates that the agreement would likely have a positive impact on all broad industry sectors within the U.S. economy. Manufacturing would experience the largest percentage gains in output, exports, wages, and employment, while in absolute terms, services would experience the largest gains in output and employment.

Agriculture sector report

Most trade in agricultural products between the United States, Canada and Mexico is duty free under NAFTA and would continue to be duty free under USMCA. However, some restrictions on agricultural trade remain. Canada maintains a supply management system including tariff-rate quotas that protect its domestic producers of dairy products and poultry and egg-containing products from imports, the report said.

At the same time, the U.S. maintains TRQs on sugar and sugar-containing products and dairy products. Restrictions on trade in these products would be slightly eased under USMCA.

“According to the commission’s economy-wide modeling results, USMCA is likely to lead to slight increases in U.S. exports of dairy products, poultry meat, eggs, and egg-containing products to Canada, and to a slight increase in Canada’s exports of dairy products to the United States and a minimal increase in Canada’s exports of sugar and SCPs to the United States,” the report said.

“Additionally, USMCA provisions address nontariff measures that will likely increase exports of U.S. wheat and alcoholic beverages to Canada. Overall, USMCA will likely increase annual U.S. agricultural and food exports to the world by $2.2 billion (1.1 percent) when fully implemented. A Commission simulation that considered only the effects of the agriculture market access provisions in USMCA showed increased U.S. agriculture and food exports to the world of $435 million.

USMCA provisions affecting trade in agricultural goods with Canada and Mexico include provisions that provide additional market access for the dairy, poultry, and sugar sectors; provisions that reduce nontariff measures affecting alcoholic beverages and wheat trade; and crosscutting provisions affecting sanitary and phytosanitary measures, TRQ administration, and biotechnology.

Estimates of increased trade in dairy, in poultry and eggs, and in sugar resulting from the market access provisions for those products were generated from sectoral results of the commission’s economy-wide model. Effects of the other USMCA provisions for agriculture presented in this chapter are based on qualitative analysis. 

Reactions

The agricultural sector had lots of opinions on the report. Sen. Chuck Grassley, R-IA, issued a statement, saying, “I appreciate the professional staff at the ITC for the enormous amount of hard work that went into this report. This is part of the TPA process mandated by Congress and is an important step for USMCA to become law. This is the first time the ITC has analyzed a renegotiated trade deal, let alone one of this size.

“I’m glad to see the report recognized USMCA’s new economic benefits. Many of the significant improvements in USMCA are reducing non-tariff barriers and implementing rules and fair practices that will help U.S. workers, jobs and businesses tremendously over the coming years. The USMCA makes critical updates to rules on intellectual property, currency practices, digital trade, customs, state-owned enterprises, sanitary and phytosanitary measures and technical barriers to trade that will be valuable to many American farmers and businesses, even though their impact on GDP has historically been inherently difficult for economists to measure.

“I’ll conduct a thorough and thoughtful review of this and other studies of the economic impact of USMCA in the coming days and will be briefed by ITC officials.”

Brian Kuehl, co-executive director of Farmers for Free Trade, the bipartisan coalition supported by American ag commodity groups, said, “The true benefit that USMCA delivers for American farmers is certainty and stability. Especially right now, American farmers need a victory. USMCA will guarantee that their most important export markets remain open for business and free from red tape.

“While the ITC report is an important step in the process of considering trade agreements, the benefits of North American trade are already well understood, particularly by farmers and ranchers. Under NAFTA, ag exports to Canada and Mexico, grew from $8 billion in 1993 to $40 billion last year.

“Over the course of the last week we have traveled across the Midwest talking to farmers, ranchers and businesses about USMCA. They are looking to Congress to deliver a trade victory for them that will safeguard North American access and send a signal to the world that we are ready to negotiate similar agreements that open markets to Made-in-America farm products.”

National Pork Producers Council vice president and counsel for global government affairs Nick Giordano said in a statement, “NPPC supports ratification of USMCA, an agreement that preserves zero-tariff access to markets that represent more than 30 percent of total U.S. pork exports.

“We are eager to see the removal of U.S. metal tariffs that prompted Mexico’s 20 percent retaliatory tariffs nearly a year ago. Members of Congress have said that ratification of USMCA will be delayed and the benefits of the agreement diluted as long as this trade dispute goes unresolved.

“The value of U.S. pork exports to Mexico are down 32 percent this year due to punitive tariffs. Our farmers need zero-tariff trade restored to our largest export market.”

NPPC has designated USMCA ratification as a “key vote” and will closely monitor support of the agreement among members of Congress. U.S. pork exports to Mexico and Canada support 16,000 U.S. jobs.

National Corn Growers Association President Lynn Chrisp said, “The release of the ITC report is an important step in moving USMCA toward Congressional action. ITC reports typically measure the economic impact of new trade agreements and focus on market access. USMCA is different—it’s an update to the North American Free Trade Agreement—which already eliminated most tariffs on exports of U.S. food and agriculture products.

“The ITC report doesn’t fully capture the economic benefits of trade with Canada and Mexico, nor the improvements to trade rules in USMCA that benefit agriculture. NAFTA has been a resounding success for agriculture. In 2016 alone, American corn growers exported $3.2 billion in corn and corn co-products to Mexico and Canada. USMCA secures and builds upon this important partnership, which is why ratifying USMCA is so important for agriculture.”

National Association of Wheat Growers President and Lavon, Texas, farmer Ben Scholz said, “It is critical for Congress to understand how substantial USMCA is for agriculture, especially the undervalued wheat market. As the International Trade Commission report just assesses the USMCA agreement as compared to the status quo, in which U.S. wheat farmers already have free market access, it doesn’t fully capture the importance of USMCA.

“Once NAFTA was implemented, U.S. wheat exports to Mexico shot up to an annual average of almost 3 million metric tons (more than 100 million bushels). This made Mexico the largest U.S. wheat importer in the world in the 2016-17 marketing year

“Additionally, USMCA captures the original intentions of NAFTA while improving some of the provisions for wheat growers. It retains tariff-free access to imported U.S. wheat for our long-time flour milling customers in Mexico. Furthermore, the USMCA makes important progress towards more open commerce for U.S. wheat farmers near the border with Canada by working to fix the broken grain grading system and making trade more reciprocal along the U.S.-Canadian border.

“The ITC report is not reflective of vast benefits USMCA will bring to agriculture. A vote for USMCA means more jobs for Americans, stronger export markets for farmers to sell their crop, and billions of dollars added to the economy.”

Davie Stephens, soy grower from Clinton, Kentucky, and American Soybean Association president said, “USMCA builds upon the strong foundation set by the original NAFTA. Under NAFTA, the value of agricultural exports to Canada and Mexico increased to roughly $43 billion each year. Soybean exports to Mexico quadrupled under NAFTA, making Mexico the number two market for U.S. soybeans, meal and oil. We also saw a doubling of soybean exports to Canada, making it the number four market for soybean meal and the number seven market for soybean oil.

“We know that the modernizations included in USMCA will make trade with our North American neighbors even smoother. These non-tariff enhancements include the highest enforceable sanitary and phytosanitary standards of any trade deal to date, an enforceable biotechnology chapter that supports 21st century innovations, and create a rapid response mechanism to address trade challenges. These provisions not only serve to update the North American agreement but set a paradigm for future free trade agreements.”