Canada and the U.S. have secured a trade deal to replace the current North American Free Trade Agreement (NAFTA), which governs more than $1.2 trillion worth of trade across Canada, the U.S. and Mexico. The new accord is expected to be named the United States-Mexico-Canada Agreement, or “USMCA” for short.
The National Retail Federation (NRF) expressed support for the agreement, with CEO Matthew Shay releasing a statement praising the deal:
“The administration, as well as officials from Canada and Mexico, should be applauded for months of hard work aimed at modernizing NAFTA for the 21st century — a goal retailers have shared from the start. We will carefully review all the details of the agreement to ensure it promotes U.S. economic growth and maintains access to the products American families need at the prices they can afford.”
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The NRF has been outspoken about its positions on Trump administration economic policies. The association officially stated its support of the tax reform bill enacted at the end of 2017, but has been against the tariffs that have been imposed, particularly on $200 billion in Chinese goods. As a result of the tariffs, NRF joined with 80 other trade organizations to form a multi-industry coalition, Americans for Free Trade.
While it is not yet clear just how much the provisions of USMCA will affect the retail industry, having an agreement is likely a much better alternative than initial rumblings that the U.S. would leave NAFTA altogether. If the U.S. withdrew from NAFTA, it could cost retailers a combined $15.8 billion over the next three years, according to a report from A.T. Kearney.
USMCA is designed to deliver more market access to Canada’s dairy market for U.S. farmers. While Canada has effectively capped automobile exports to the U.S., the goal of the new deal is to have more cars and truck parts made in North America. Starting in 2020, to qualify for no tariffs, a car or truck must have 75% of its components manufactured in Canada, Mexico or the U.S., a boost from the current 62.5% requirement.
The new deal also is designed to shift more North American auto production to U.S. and Canadian workers.Starting in 2020, cars and trucks should have at least 30% of the work on the vehicle done by workers earning at least $16 an hour. That percentage gradually moves up to 40% for cars by 2023.
Both nations, along with Mexico — which agreed to a deal earlier this year — are expected to sign the agreement by the end of November. It would then be passed to Congress. The new deal won’t go into effect immediately, however; most of the key provisions don’t start until 2020.
Even with a new deal in place, Trump administration tariffs on imported steel and aluminum from both Canada and Mexico are set to remain the same.
