In With The New, Out With The Old!

October 5, 2018

Do you ever trade baseball cards, Pokemon cards, or other toys with your friends? Why do you offer or accept a trade? Perhaps you want something that your friend has and your friend wants something that you have, and for this reason, you’re both willing to trade. Now, hold that thought as we talk about global trade …

Trade is what makes the world go round, one might say. What do we mean by that? Well, a country might produce a lot of one thing but need to buy other things from other countries. For example, the United States produces a lot of cars, but the steel that’s used to produce these cars might be bought from Canada, a country that produces a lot of steel.

Via www.state.gov

So why are we talking about global trade? A little acronym called NAFTA, that’s why. NAFTA, or the North American Free Trade Agreement, was an agreement between the United States, Canada, and Mexico that allowed these countries to freely trade with each other with most tariffs removed. NAFTA was drafted and signed by then-President Bill Clinton in 1993 and launched in 1994. While some liked the agreement (trading with neighbors—hurrah!), others did not (what happens to the farmers and steel workers if it’s cheaper to buy and make things elsewhere?). It seems like NAFTA was always a source of debate. After all, was the agreement really benefitting the United States? President Trump has been a critic of the agreement and promised to get rid of NAFTA during his presidential campaign. Well, President Trump hasn’t gotten rid of NAFTA, but he did change things up and gave it a new name. Earlier this week, the new NAFTA, now called the United States-Mexico-Canada Agreement, was agreed upon by President Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto. What were some of the items that they negotiated?

Automobiles: Cars sold in the US, Mexico, or Canada must have at least seventy-five percent of its parts manufactured in one of the three countries in order to be free from tariffs. Why? Having most of a car’s parts manufactured in North America is a win for the auto industry. After all, more parts being manufactured in North America means more auto industry jobs remain on the continent.

Dairy: US farmers will have more access to Canada’s dairy market. What does this mean? With the old NAFTA, Canada restricted the amount of US dairy products from entering the country. In the new agreement, Canada will increase this amount, and the US will do the same with Canada’s dairy products and peanuts.

The Agreement: The timeframe of the agreement itself was also up for negotiation—the old NAFTA, after all, was around for nearly twenty-five years! The United States wanted to kill the USMCA after five years unless all three countries agreed to extend the agreement. While the United States didn’t get what it wanted, the three countries did agree to limit the agreement to sixteen years (unless all three countries decided to extend it) and the countries would review the agreement every six years.

What about steel? Yes, what about steel … Remember earlier this year when President Trump put a tariff on all steel imports? And despite Canada and Mexico being US allies, the tariff was imposed on them as well? Those tariffs were not a part of these negotiations. What will happen there? We’ll have to wait and see, but for now, the leaders of the three countries are prepared to sign the USMCA and pass it to their respective governments to sign and ratify (or legally approve).

Why do you think agreements like these are important?

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