When it comes to interest rates and tax rates, you can’t go lower than zero. The same thing is true of free trade. When there are no tariffs, it’s impossible to lower tariffs any further. Still, if you want to maintain the benefits of free trade, it’s important to maintain low tariffs.
On April 19, the U.S. International Trade Commission (ITC) is expected to publish an assessment of the USMCA, the free trade deal with Canada and Mexico that the Trump administration negotiated last year to replace NAFTA. The ITC is a nonpartisan federal agency that exists to study trade agreements and provide advice to the legislative and executive branches.
Lawmakers want the report to “assess the likely impact of the United States‐Mexico‐Canada Agreement (USMCA) on the U.S. economy as a whole, on selected industry sectors, and on U.S. consumer interests.” To be fair, the report is not likely to promise massive benefits, although it is expected to show it would boost the American economy at least a bit. As several trade experts explained to Politico, NAFTA eliminated almost all trade barriers among the U.S., Mexico and Canada. So our three economies have been benefiting from free trade for years now; there’s not much more juice to squeeze.
Trade with Canada and Mexico already supports 12 million American jobs, according to the Business Roundtable. Furthermore, those two nations purchase about a third of all American exports. Free trade is valuable to the Canadian economy, as well, with one out of every six Canadian jobs related to exports. So it is crucial to maintain the tripartite policy of free and fair trade.
USMCA does seem to be a step in the right direction; it would update NAFTA in some important ways. For example, it would give better protections to intellectual property, the force that is driving the 21st-century economy. It would also provide new enforcement mechanisms if a country violates the agreement. That should please House Speaker Nancy Pelosi. “We need to see enforcement,” she told The Washington Post. “Unless you have enforcement you’re just going down a path that isn’t going to be helpful to America’s workers.” As the Democratic leader in the House, she could bring the agreement to the floor.
NAFTA launched in 1994 with the goal of reducing trade barriers within North America. It worked. According to the International Trade Administration, “Jobs supported by exports increased to 9.7 million in 2011, up 0.6 million from 2010 and 1.2 million from 2009.”
One thing that is slowing up ratification, though, is that President Donald Trump imposed 25 percent tariffs on steel and 10 percent tariffs on aluminum last year, and Canada retaliated with tariffs of its own on American products. These tariffs, put into place even as negotiators were in the final weeks of hammering out the USMCA, are unpopular on both sides of the border.
For example, Treasury Secretary Steven Mnuchin recently told the Senate Finance Committee, “We’d like to pass the USMCA as quickly as we can. As part of that, we’d like to reach a resolution on the steel and aluminum tariffs with Canada and Mexico.”
Lawmakers also want repeal. “The tariffs are going to come off because the president has a good agreement,” Sen. Chuck Grassley (R-Iowa) told The Washington Post. “It’s just a matter of his realizing that nothing’s going to happen until the tariffs go off.” Grassley’s support of this issue is important, because he chairs the Senate committee which must evaluate the USMCA.
It’s not clear how quickly lawmakers will move on USMCA. Supporters are reportedly hoping for a vote before August, but no specific action is scheduled yet. Until the new agreement is ratified, NAFTA will remain in effect, but the uncertainty is causing some to doubt the future of free trade. “The actual impact of tariffs themselves is not the worst. It’s the symbolism, the idea that trade relations might be getting worse,” David Detomasi of Queen’s University in Kingston, Ontario told the Toronto Globe and Mail.
So there’s no time to waste. The story of NAFTA is a story of success, and the USMCA is the next logical chapter.
Rich Tucker is Director of Public Policy Communications at NAIOP, where he develops and executes communication strategies to raise the visibility of NAIOP’s advocacy work on behalf of the industry