The official impact assessment of NAFTA’s replacement is out

“USMCA WILL boost economic growth and create jobs.” This was the triumphant headline from the White House’s media machine summarising an official assessment of the impact of America’s new trade deal with Mexico and Canada. According to the United States International Trade Commission (USITC), an independent government agency, the deal will increase American GDP by 0.35% and employment by 0.12%.

Since the North American Free Trade Agreement (NAFTA), which the USMCA replaced, had already slashed most tariffs between the three countries, it would be unfair to expect the impact to be large. But two aspects of the analysis offer fairer grounds for scepticism. One concerns trade in cars; the other the way the assessment accounts for policy stability in the future.

New rules of origin for cars were intended to push up wages and bring more production to North America. For a car to move from Mexico to America tariff-free, a much higher share of its parts must now be sourced in the region than had been required under NAFTA. Car manufacturers could have opted to ignore the deal, pay the 2.5% tariff for non-USMCA imports and source parts wherever made business sense. Instead, most seem to be reworking supply chains to meet the new requirements. The USITC predicted that employment in America in car parts would increase by nearly 30,...



via The Economist: Finance and economics Business Feeds

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