USMCA, Trump’s new NAFTA deal, explained in 600 words

“The United States Mexico Canada Agreement (USMCA) is an updated version of the nearly 25-year-old, trillion-dollar North American Free Trade Agreement (NAFTA). It includes major changes on cars and new policies on labor and environmental standards, intellectual property protections, and some digital trade provisions.”

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“According to the Bureau of Labor Statistics, inflation-adjusted median weekly earnings for American workers have increased by 17 percent since 1995, when the WTO was founded. Meanwhile, American manufacturing has never been more valuable than it is now, as the country’s industrial production last year was 48 percent higher than in 1995, according to the Federal Reserve.”

“Withdrawing from the WTO would leave America cut off from the lower tariff rates that member nations grant to one another, effectively raising barriers to American exports and harming American manufacturing and farming. The global trade that’s possible because of America’s membership in the WTO boosts the U.S. economy by $2.1 trillion every year”

“the WTO did not simply materialize in the mid-1990s nor can it be easily replaced. It was the result of a decadeslong experiment in expanding the economic co-dependence of the world’s largest economies. That experiment increased prosperity and reduce major wars across the planet.”

Trump’s Trade Deal With China Is Better Than a Trade War With China. But a $200 Billion Question Remains.

“As the “Phase One” name would indicate, this isn’t really an end to the trade war—in fact, nearly all the tariffs imposed by both the United States and China since hostilities commenced in July 2018 will remain in effect. Still, after 18 months of escalation and retaliation, the signing of a partial trade deal is a welcome sign that cooler heads have prevailed in Washington and Beijing.”

“the Trump administration does deserve credit for getting stronger protections for intellectual property into the deal, though it remains unclear whether those provisions can be meaningfully enforced. China has also agreed to make a series of changes to its financial services regulations that should allow competition from U.S. banks. That’s potentially more important than it might appear because it reduces the odds that the world’s two largest economies will fully de-couple from one another in the future.”

“the biggest part of the trade deal—a promise that China will boost its purchases of U.S. exports by $200 million over the next two years—should be viewed with skepticism.”

“Forcing China to buy more U.S. goods “directly contradicts the negotiating demand that China liberalize its economy and relax centralized control over trade and investment,””

“trade happens in an incredible diffuse way. It is the result of millions of individual decisions made by consumers and businesses every day. When “America” trades with “China,” what’s really happening is that some individual within America is trading with some individual inside China.
Or at least that’s how it should be. It’s true, of course, that China’s communist government retains considerable control over markets inside the country. But requiring China to buy more American goods isn’t the way to encourage more liberalization.”

“It’s also not clear whether China buying $200 billion of additional U.S. exports will actually add to overall American economic growth. It’s possible that China could simply buy up exports that would have otherwise gone to other countries. That outcome might reduce America’s trade deficit with China, but it wouldn’t boost U.S. exports overall or help grow American farms or manufacturing—yet another reason why Trump’s fixation on the trade deficit is counterproductive.”

“as long as Trump’s tariffs remain in place—there are no plans to lift them right now—they will continue to harm American manufacturing and be a drag on exports. Because tariffs raise the cost of manufacturing in the United States by taxing imported component parts, they have the added effect of making finished products more expensive, and thus less competitive on the global market. The Institute of International Finance estimates that the trade war has cost the U.S. about $40 billion in “lost exports.”

China agreeing to buy more farm goods and energy from the United States won’t fix those underlying issues. Unless the tariffs are lifted, Trump’s “Phase One” trade deal could end up helping China’s socialist regime tighten its grip on free markets while providing little to no relief for Americans.”

Trump signed a “phase one” trade deal with China. Here’s what’s in it — and what’s not.

“This “phase one” deal, which the US and China reached in December, will cool trade tensions between two economic superpowers that have rattled the globe.

But it stops short of the comprehensive trade and reform agreement the Trump administration wanted when it launched its trade war with China in 2018.

Instead, China has agreed to make purchases of about $200 billion worth of US goods over a two-year period, including almost doubling its agricultural purchases to $40 billion.

China also made concessions on intellectual property, currency, and access to financial services, and it’s promised to halt the practice of forcing companies to turn over their technology, according to the United States Trade Representative.

The US, in exchange, will call off and reduce some tariffs, though taxes on $360 billion in Chinese goods will stay in place.

President Donald Trump is selling this deal as an enormous win, but the administration did not get the structural changes to China’s economy that it wanted, including tackling things like Beijing’s huge subsidies to Chinese companies. It’s still not clear if China can or will totally fulfill this obligation to buy US products, and even if it does, the guarantee is only for two years.

Given all that, this partial trade deal might not be able to make up for the pain the trade war caused.”

“few experts think such a phase two is possible. It’s much more likely the US settled because this is all it could get out of China — and for Trump, it was worth it to have something he could brag about ahead of the 2020 election.”

3 Winners and 3 Losers From Today’s North America Trade Deal Announcement

“the USMCA is an agreement that will increase barriers to trade across North American borders and will impose more managed trade. All trade deals are a form of managed trade, of course, but relative to the standards set by NAFTA, the USMCA seems like a step backward.

The main way the USMCA reduces free trade is in the so-called “rules of origin” that will apply to cars built in North America. In order to cross borders tariff-free, 75 percent of the value of materials within a car or truck will have to be produced in North America. Additionally, 40 percent of the steel used in auto production will have to come from U.S. steel plants. The deal also gives the U.S. government the ability to impose quotas on imported cars from Canada and Mexico. That combination of protectionism and increased federal power over the decisions of private businesses is a major black mark against the deal.”

“The intended consequence of several components of the USMCA is to encourage businesses to shift production from Mexico into the United States.”

“the unintended consequence of those new rules might be a reduction in manufacturing across all of North America. When it comes to cars, for example, companies might find it cheaper to simply pay the 2.5 percent import tax rather than comply with the new standards to be able to trade duty-free.”