The Importance of USMCA to the Economic and Foreign Policy of the Biden Administration

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During her confirmation hearing, US Trade Representative Katherine Tai said, “Trade is like any other tool of our domestic or foreign policy. It is a way to create more hope and opportunity. With that in mind, President Biden has made it clear that trade must improve wages and create better paying jobs for all Americans, as it focuses on controlling COVID-19, restoring economic growth and l employment, and expanding opportunities by investing in education, R&D and infrastructure. In this regard, there is no regional trade agreement more important to the United States than the United States-Mexico-Canada (USMCA) trade agreement.

Why North American Trade Relationships Are So Important

The importance of USMCA is clear. Canada and Mexico are the main export markets for the United States: 23% of American exports go to Canada and Mexico (compared to 5% to China), more than 70% of Mexican exports go to the United States. United States and Canada, and 62% of Canadian exports are to the United States and Mexico. Trade between countries provides key value-added inputs to regional supply chains (40 percent value-added in the United States versus 5 percent in China). This is especially true in the automotive sector, which dominates the trade in manufactured goods between the three countries. The importance of resilient supply chains has also been clearly highlighted in light of the impact of COVID-19, and as competition with China exposes vulnerabilities to dependence on Chinese supply chains. The Biden administration has ordered a review of US supply chains, with the aim of reducing US dependence on Chinese production of critical inputs. Integrated North American supply chains could offer a viable alternative to Chinese manufacturing and allow some critical industries to bring production closer to home.

The governments of the United States, Canada and Mexico should use USMCA as the backbone of a renewed vision for North American competitiveness.

A new start

The Biden administration has signaled that one of its priorities will be to strengthen diplomatic relations with traditional allies of the United States, including Canada and Mexico. Following Trump’s “America First” approach, an early and visible commitment to strengthening economic relations between the three North American partners would be a welcome signal that the Biden administration will prioritize alliance diplomacy.

USMCA builds on the North American Free Trade Agreement (NAFTA), which incorporated the region’s economies for the first time when it came into effect in 1994, but also presents a new model for North American relations. The USMCA was the first free trade agreement backed by the AFL-CIO union and it was passed by the Senate with overwhelming bipartisan support (89-10 versus 60-38 for NAFTA in 1993). This support underlines the potential of the agreement to rebuild consensus on how to advance economic integration consistent with good jobs, rising wages, high labor standards and environmental protection. However, to maintain broad political support, the Biden administration will need to continually engage, both nationally and with partners in Canada and Mexico, to ensure USMCA delivers on its promise. The USMCA’s sunset clause requiring a joint review and agreement on renewal in the sixth year of the agreement adds additional urgency to the establishment of the USMCA.

More than NAFTA

USMCA builds on NAFTA in a way that underscores the extent to which international trade policy has shifted from a focus on tariffs to non-tariff regulatory issues. In fact, USMCA largely maintains NAFTA tariff rates, maintaining duty-free trade between the United States and Mexico and including some additional market access improvements with respect to the United States. United States-Canada trade.

USMCA addresses regulatory differences that create unnecessary barriers to trade. It also rebalances rights and obligations, canceling certain commitments, such as access to investor-state dispute resolution (ISDS), and strengthening commitments to labor rights, environmental standards and small business. Stricter rules of origin for automobiles that require 75 percent local content (up from 62.5 percent under NAFTA) should also create incentives for domestic manufacturing, another potential benefit for workers. .

An early focus on implementation and compliance is needed

How the USMCA operates in practice will be critical to maintaining the high level of bipartisan support. The most immediate need is for all governments to fully implement and respect the agreement. The Trump years have undermined the confidence of other governments in the United States’ commitment to the rule of law, which has also undermined the trade certainty these deals are meant to bring. Indeed, the United States International Trade Commission (USITC) has identified a reduction in investor uncertainty, stressing the importance of compliance by all governments for the benefits of USMCA to materialize. Strict U.S. compliance with the country, combined with a willingness to use USMCA enforcement tools to resolve compliance issues in Mexico and Canada, can help restore confidence in government commitment. and indicate that companies can rely on the agreement when making trade and investment decisions.

The administration must also invest in making the many committees of the agreement productive and dynamic, using these institutional mechanisms to give the effect of a living agreement. For example, a new competitiveness committee will bring together officials from the three countries to assess implementation and identify opportunities for further integration to increase regional competitiveness. Additionally, it creates opportunities for partners to continually review and update their associated trade and investment policies – but only if governments make significant investments in the process.

As noted, USMCA also includes a “joint review” mechanism, which calls on the three countries to meet every six years to identify where the deal succeeds and where it fails. The review mechanism was controversial during the negotiations, as critics feared it would introduce greater uncertainty and could be used as a pretext for a government to withdraw from the deal. Yet the ultimate impact of the review mechanism will depend on how governments use it: whether they see it not as a chance to voice grievances and threaten to withdraw, but as an opportunity to guarantee the proper functioning of the trade agreement.

USMCA’s new monitoring, research and engagement project at Brookings will help track the results of the agreement and identify areas where improvements are needed.

Ultimately, the governments of the United States, Canada and Mexico should use USMCA as the backbone of a renewed vision for North American competitiveness, helping the three partners align their economic strategies and interests in a global political economy. mutating. Yet such an outcome will not emerge spontaneously just because the trade agreement is in place. Rather, it will require ongoing commitment, attention and (if necessary) adjustments on the part of leaders. This is one of the reasons why we intend to closely monitor the implementation of USMCA over the next few years.

USMCA’s new monitoring, research and engagement project at Brookings will help track the results of the agreement and identify areas where improvements are needed. We will use our convening power to bring key stakeholders – the United States administration and Congress, key government officials and legislators in Canada and Mexico, businesses, workers and civil society – to the table on specific issues such as the impact on workers’ rights and wages, support for digital commerce and how USMCA is strengthening (or not) North American supply chains. We will monitor progress and present policy options to strengthen the deal.

At one of the first roundtables held at Brookings earlier this month, business, academics and civil society representatives from the United States, Mexico and Canada stressed the importance of l ‘USMCA for North American competitiveness, especially amid a post-COVID-19 push to build more resilient regional supply chains. But they also noted some potential obstacles, underscoring the need for increased government engagement.

In the months to come, ensuring effective implementation and high compliance with the agreement will be critical and will require continued time and attention from policymakers. Former Secretary of State George Schultz compared diplomacy to gardening: Successful diplomacy requires continual care, pulling out weeds before they overwhelm fertile soil. Business relationships require similar attention from decision makers: checking in with partners, resolving irritants before they become persistent conflicts, proposing strategies to address new common challenges, and building on successes that create more business. hope and opportunity for all.



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