USMCA’s acronym, which scraps NAFTA’s “F” and “T” standing for “Free Trade,” is more telling than its drafters likely intended.
Regarding the “F,” USMCA preserves NAFTA’s near-zero tariffs between its members, but it raises several non-tariff barriers, from export quotas to sourcing requirements to monetary policy, which is supposed to be set by politically independent central banks. USMCA’s new non-tariff barriers make trade overall less free among Canada, Mexico, and the United States.
Regarding the “T,” USMCA is filled with trade-unrelated provisions that do not belong in a trade agreement. Energy and environmental provisions will narrowly benefit politically-connected companies and activists but raise consumer prices and limit their choices. Regulatory obstacles for automobile parts will dismantle supply chains that have taken decades to build and make new cars even more expensive. USMCA contains labor provisions, aimed at buying union political support, that will reduce access to Mexican products for U.S. producers and consumers.
CEI opposed the original NAFTA in 1995 because we feared its non-tariff barriers and trade-unrelated provisions would become entrenched in future trade agreements. These fears largely came true.
The problems go beyond USMCA itself. USMCA negotiations will influence how upcoming agreements are made with China, the United Kingdom, and the European Union. Trade negotiations should:
- Free trade, not manage it.
- Set economic precedents, not political ones.
- Allow countries to compete with one another on setting least-onerous regulations, not standardize a one-size-fits-all regulatory regime for all countries.
- Focus on trade, not include more than 2,000 pages of campaign bragging points and payoffs to political constituencies.
Trade is a long-term proposition with great potential to benefit all economies. Unfortunately, the USMCA drafters’ time horizon goes no further than the next election cycle.