New CEI paper: Renewing and improving the USMCA

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Trade agreements are not as dramatic as trade wars, but they are essential to sound trade policy. President Trump’s tariffs have harmed the domestic economy and America’s foreign policy interests. While substantive reform will almost certainly have to wait until the next administration, the time to begin planning is now. A new CEI paper offers recommendations for what can be done with the United States-Mexico-Canada Agreement (USMCA) moving forward.

President Trump negotiated the USMCA during his first term to replace NAFTA. Both agreements maintained a nearly tariff-free environment among Canada, Mexico, and the US.

However, the USMCA has not stopped Trump from imposing numerous tariffs on Canadian and Mexican imports. He also declined to join Canada and Mexico in an agreement earlier this year to renew the USMCA. The USMCA will remain in place until 2036 regardless, but Trump’s decision has created uncertainty around the agreement’s future and sets off a series of annual renewal deadlines that Trump will also likely decline for the rest of his term.

Unlike many other Washington-based organizations, CEI’s loyalty is to principle, not party. Our policy recommendations do not change depending on who is in power or on changing political fashions. That consistency has served CEI well for more than 40 years. We argue that a similar approach would also serve America’s trade policy interests.

Our new paper examines five areas of the USMCA through three principles of sound trade policy:

  1. Producers and consumers are better off under free trade than under managed trade.
  2. Trade policy should be simple.
  3. Trade policy should be stable and predictable.

The USMCA has flaws, but keeping the agreement intact is preferable to Trump’s policy chaos on all three of those principles.

The five USMCA policy areas we cover are tariffs, labor and environmental provisions, rules of origin requirements, agricultural provisions, and trade remedies. The USMCA is more than 2,000 pages long, so this is only a sample. However, these examples should give readers an idea of how a principles-based approach to trade agreements would work.

This same approach can inform future trade agreements the US is likely to pursue with Europe, India, and other allies. Although a return to sound trade policy is unlikely under the current administration, the next administration will have an opportunity to change course, regardless of party. This paper provides a starting point for that process.

For more, read the whole paper here.