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Known as theUSMCA, the trade deal was negotiated by the first Trump administration and replaced the quarter-century-old North American Free Trade Agreement, or NAFTA, in 2020.
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But Trump’s proclamation has put Canada and Mexico – the US’ two biggest trading partners – on notice that he may pursue major changes. And the renegotiation could play a major role in the president-elect’s other policy priorities like national security, immigration and crime. While the USMCA may not directly deal with those issues, the trade pact could be used as leverage.
“It’s a very functional tool for Trump to achieve whatever it is he’s hoping to achieve by negotiating,” said Francisco Sanchez, who served as undersecretary of commerce for international trade under then-President Barack Obama and is currently a partner at the law firm Holland & Knight.
“The fact that there is a mechanism in place to discuss a review is, I think, to his advantage,” he said.
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One of the biggest focuses of the USMCA is the auto industry. The trade pact requires 75% of a vehicle’s parts to be made in one of the three countries – up from the previous 62.5% rule – to remain free from tariffs when moving within the region. It also requires more vehicle parts to be made by workers earning at least $16 an hour.
“I think it certainly preserves our ability to maintain a relatively robust car industry,” Sanchez said.
It’s difficult to isolate the impacts of the trade deal from other economic factors, but economists generally agree that free trade contributes to economic growth over the long term. But there are usually winners and losers.
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Carla Hills, a former US trade representative andone of the chief architects of NAFTA, recently said that free trade isn’t to blame for the loss of jobs. Rather, the US “did a poor job” of training those who lost jobs for the new opportunities made available, she said at a forum Wednesday in Washington sponsored by the Consumer Brands Association.
“NAFTA became a hate phrase,” said Gary Hufbauer, a nonresident seniorfellow at the Peterson Institute for International Economics.
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“It’s highly likely that the negotiators will be looking at how to deal with Chinese parts and components,” said Gregory Husisian, a partner at Foley & Lardner who chairs the law firm’s International Trade and National Security Practice.
“A lot of these wonky, behind-the-scenes things will have as big or bigger impact than the stuff you see in the news,” he said.
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But the trade deficit is affected by many economic factors, including the value of the dollar and consumer demand, and the USMCA did not lead to a reduction.
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