Long Term Effects of USMCA

Senior Fellow Raymond Robertson talked about what the new rules under the US-Mexico-Canada Agreement (USMCA) mean for Texas and its number one trading partner, Mexico. Trade is key for Texas’ economy, with exports totaling 17.8% of the state’s GDP and 35% of those exports reaching Mexico. In correlation with the implementation of NAFTA in 1995, there has been strong growth in trade between the U.S. and Mexico, with NAFTA having a much higher impact on trade than other RTAs. Dr. Robertson found that production workers in the United States and Mexico are complements, not competitors, which is contrary to findings from before the implementation of NAFTA. This positive result of NAFTA was due to the agreement’s dramatic restructuring of production that integrated the production chains of Mexico into the rest of the North American chains.

Negotiations over the USMCA concluded in September 2018, and the legislation was signed on January 29th, 2020. New provisions include digital trade, anticorruption, textile and apparel, small and medium enterprises, and competitiveness. The International Trade Commission predicts that the USMCA will add $62.8 billion to the U.S. economy and create 176,000 jobs. The changes in labor provisions from NAFTA to the USMCA are especially notable, with additions that include commitments to address violence and discrimination against workers and add protections for migrant workers. The USMCA also addresses the enforceability issue in NAFTA’s labor provisions, requiring governments to take action to promote compliance with labor laws through inspections and investigations. Mexican labor reform is a major section of the USMCA, committing Mexico to additional reforms that go beyond the scope of their 2017 constitutional reforms.

Dr. Robertson predicts that changes in trade flows will probably be modest, and impact on trade volume will depend largely on whether labor costs in Mexico rise or fall. Other factors relevant to changes in trade in the near future are the trade war with China, the Coronavirus in China, the shift in production to Texas, new forms of manufacturing, and the skills gap along the border and in Texas.

 

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