USMCA trade agreement reaches third anniversary, optimism rising

To President Donald Trump, America’s trade relationship with Mexico was intolerable. He seethed over the U.S. trade deficit and the shuttered factories in America’s heartland. “No longer,” he vowed six years ago, “are we going to allow other countries to break the rules, to steal our jobs and drain our wealth.”

So Trump pressured Mexico and Canada to replace their mutual pact with one more to his liking. After a couple of years of negotiations, he got what he wanted. Out was the North American Free Trade Agreement. In was the U.S.-Mexico-Canada Agreement.

The USMCA, which Trump hailed as “the fairest, most balanced and beneficial trade agreement we have ever signed,” reached its third anniversary on Jul. 1.

The trade pact hasn’t proved to be the economic bonanza Trump boasted it would be. It couldn’t have been, given that trade makes up less than a third of America’s $26 trillion economy.

Yet while the the deal’s overall impact has been slight, it has nevertheless been helping workers on the ground. It’s just that the beneficiaries have so far been mostly in Mexico. Novel provisions of the pact have enhanced the ability of long-exploited Mexican workers to form unions and secure better wages and working conditions.

Trade officials and experts predict, though, that the benefits will also flow, in time, to U.S. workers, who no longer must compete with severely underpaid Mexican laborers without real bargaining power.

“U.S. workers win when workers in other countries have the same rights,” said Cathy Feingold, director of the AFL-CIO’s international department.

Thea Lee, a deputy undersecretary at the U.S. Labor Department, suggested that the pact and Mexico’s reforms haven’t been around long enough to yield measurable help to American workers yet. “We’re going to see the positive results first for Mexican workers because Mexico is undergoing a massive, comprehensive, ambitious labor market reform,” she said.

In some ways, the USMCA as a whole has fallen short of Trump’s promises.

Take the trade deficit with Mexico. Despite Trump’s insistence that the USMCA would pull more manufacturing back to the United States, the gap between what America sells and what it buys from Mexico keeps widening: It has surged from the $64 billion gap in 2016 that so irritated Trump to a record $139 billion last year.

The former president also predicted that exports of U.S. auto parts to Mexico would rise by $23 billion. They have increased since 2020 — but only by about $8 billion.

Also complicating any effort to calculate the USMCA’s impact is President Joe Biden’s own aggressive efforts to rejuvenate American industry with trillions of dollars in infrastructure spending and subsidies.

For all of Trump’s bombast, the USMCA actually left in place much of the pact it replaced. NAFTA erased most of the import taxes that the United States, Mexico and Canada imposed on each other’s goods. It created a duty-free regional bloc meant to compete with the European Union and China. That structure remains mostly in place.

The USMCA sought to make it harder for autos and auto parts to enjoy tariff-free treatment. To qualify, 75% of a car and its parts had to come from North America, up from 62.5% under NAFTA. That meant more content had to come from higher-wage North American workers, not imported cheaply from China or elsewhere. And at least 40% of vehicles would have to originate in places where workers earn at least $16 an hour — that is, the United States and Canada, not Mexico.

But those so-called automotive rules of origin stumbled out of the gate. Enforcement was delayed as customs officials faced supply chain backlogs at the height of the COVID crisis.

“Border officials were worried about clearing cargo in ports and getting rid of congestion,” said Daniel Ujczo, senior counsel at the law firm Thompson Hine in Columbus, Ohio. “They didn’t have a ton of time to deal with USMCA.”

Even after the auto rules took effect, the United States was slapped down for the way it tried to enforce them. A USMCA trade court, in a case brought by Mexico and Canada, found that Washington was applying the rules more strictly than was allowed.