A NAIT instructor weighs the pros and cons of the USMCA
According to U.S. President Donald Trump, the North American Free Trade Agreement “was perhaps the worst trade deal ever made.” It led, he said after renegotiations ended in October, to losses of “vast amounts of money” and jobs for his country, and that it economically disadvantaged the U.S. relative to Canada and Mexico.
In contrast, he called its successor, the United States-Mexico-Canada Agreement (in which the U.S. is listed first, and free trade not at all), “a wonderful new trade deal.”
Many analysts, however, are unconvinced of its newness, calling it instead an updated NAFTA. Among the significant changes are an increase in car parts that must be made in North America for vehicles to be free of tariffs, higher wages for Mexican auto workers (previously an advantage to companies based there) and greater U.S. access to the Canadian dairy market.
Regardless of how the changes are viewed, they disrupt the status quo. And that, says JR Shaw School of Business instructor Dr. Adam Cave, pushes Alberta and the rest of Canada to take stock of not just how to deal with the new deal, but how we think about all trade relationships in the future.
So, if things for the U.S. have gone from “worst” to “wonderful,” where does that leave us? Here, Cave considers what we learned in the wake of USMCA, regardless of whether it’s ratified by U.S. Congress, Mexico or Canada in the months to come.
There are no sacred cows
For Cave, the dairy component of USMCA is one of the ways in which Canada had to give in order to get.
Once heavily protected from U.S. competition, up to 3.6% of Canada’s dairy market would open to southern producers under the new agreement (a percentage of it is already open to other jurisdictions, such as the European Union). He knows family farms will feel the impact, but argues that there could be benefit for the industry as a whole.
“This is generally what gets me in trouble with farmers,” he says. But, “Competition breeds innovation, which creates efficiency, which creates potentially a competitive advantage.”
“Competition breeds innovation ... which creates potentially a competitive advantage.”
That requires support, he points out. For most farmers, adding any activities on top of actual production would require adding hours to the day. Instead, Cave asks how we can help them market milk better, or better resource agencies that do. How do we help them gain access to other markets as the domestic one shrinks
Ultimately, how do we make them more globally competitive and less vulnerable to local changes?
“You can't protect things indefinitely,” he says. “It's like being a parent. Eventually you have to let them go and compete on their own.”
How ‘Carmeggedon’ can bring us together
Regardless of whether or not they lived in Ontario, it's likely that very few Canadians shrugged off Trump’s threat this summer to impose a 25% tariff on cars made there. “Carmageddon,” as it was being called, would be felt by us all.
For Cave, this reminded of the need for Canada to be unified in the face of such challenges. “We are one nation. [Provinces and territories] help each other out and support industries that need the support and benefit from industries that are wonderfully over producing.”
("So, what about pipelines?" most Albertans may ask in light of that. Cave feels that remaining unified means respecting the need for, and outcome of, proper assessments and consultations.)
Providing “support” also reframes the concept of “buy local,” he adds, which can help mitigate the effects of localized economic disasters.
“If you take a bigger perspective, local is your country.” says Cave. “That's the mindset we need if we want to compete globally. Otherwise, we'll just be small players picked off one by one.”
Stability is a big win
Even if sealing a deal means giving up advantages, Cave believes it increased our attractiveness in the eyes of the international community. People are less inclined to come calling if your house isn’t in order.
Now that it is again, “That's makes us a less risky country to invest in,” says Cave. “But with a little bit of a volatile partner.”
Has Trump done us a favour?
If it was that he awakened us to the fact that we can’t continue to approach international trade with the belief that all parties want mutual benefit, then Cave would say yes. In Trump, Canada met a negotiator who acted as if he had nothing to lose, right or wrong.
Economic data, says Cave, supported the value of NAFTA. That didn’t matter in this case. Canada and Mexico may have been willing to accept tweaks to improve the old deal, but Trump was ready to walk away. “He continued to push the narrative that – and I don't want to give him too much credit – really did open everybody's eyes to the potential of this [deal] actually coming apart.”
While the resulting uncertainty rocked financial markets, “At the heart, what it did mean is that our negotiators and all of our representatives had to take this seriously,” says Cave. In a way, we had to look at how we make our way in the world economically, and perhaps how we work together, economically, as a country.
“Did we give up more than we were comfortable with? I don’t think so.”
“Did we give up more than we were comfortable with? I don’t think so,” says Cave. He believes we gave up what was necessary to keep our largest trading partner.
“It's a deal that, in the grand scheme of things, makes a lot of sense.”