New North American trade deal modestly boosts US economy

WASHINGTON: The new North American free trade pact would modestly boost the US economy, especially auto parts production, but may curb vehicle assembly and limit consumer choice in cars, a hotly anticipated analysis from the US International Trade Commission showed on Thursday.
The ITC report is a crucial step in the push for Congress to consider ratification of the US-Mexico-Canada Agreement, which was signed by President Donald Trump and the leaders of the other two countries last year to replace the 25-year-old North American Free Trade Agreement.
The report estimates that annual US real gross domestic product would increase by 0.35 per cent, or $68.5 billion, on an annual basis compared to a Nafta baseline, and would add 176,000 US jobs, while raising US exports.
The ITC’s estimates are for year six of the trade deal, once it is fully implemented.
The trade deal’s success or failure in Congress could be determined by how it is expected to affect the US auto industry, a sector that steadily drained jobs to Mexico under Nafta. The USMCA deal contains much tighter regional content rules, requiring that 75 per cent of a vehicle’s value be sourced in North American versus 62.5 per cent currently, and 40-45 per cent produced in high-wage areas, namely the United States and Canada.
Auto industry employment would rise by 30,000 jobs for parts and engine production, but US vehicle assembly would decline. US vehicle prices would rise up to 1.6 per cent, causing consumption to fall by 140,000 units per year, or about 1.25 per cent of 2017 sales, the report said.
The report overall was more positive than initially anticipated by economists, who said the traditional economic models used by the ITC to measure previous trade deals would result in minimal gains for the United States.
White House economic adviser Kevin Hassett told Reuters that he was pleasantly surprised by the results, which used different modelling methods that he called “accurate and well done.”
“Their estimate is a lot closer to what we think USMCA will do than I expected,” Hassett in a telephone interview. “This is very strong argument for passing the USMCA.”
But some key Democrats were not swayed from their demands for improvements to the enforcement of new labour standards before they consider USMCA. Democrats control the US House of Representatives.
Representative Earl Blumenauer, chairman of the House Ways and Means trade subcommittee, said that he had already believed the trade deal needed changes before it could be considered by the House. “Nothing in this report alleviates those concerns,” he said.
Senator Ron Wyden, the top Democrat on the Senate Finance Committee said, “The administration shouldn’t squander the opportunity to lock in real, enforceable labour standards in Mexico.”
The ITC report said Mexican union wages would rise by 17.2 per cent if the labour provisions agreed in the USMCA are enforced. Even so, Mexican factory wages would remain far below those in the United States.
Republican Senator Chuck Grassley, chairman of the Senate Finance Committee, praised the report for highlighting benefits beyond tariff reductions.
“Many of the significant improvements in USMCA are reducing non-tariff barriers and implementing rules and fair practices that will help US workers, jobs and businesses tremendously over the coming years,” Grassley said in an emailed statement.
— Reuters