Utah Businesses Tentatively Optimistic After New NAFTA Revision

On September 30th, the U.S., Canada and Mexico finalized a long-awaited trade deal that will replace the North American Free Trade Agreement (NAFTA). Assuming it is approved by the legislatures in the three countries, the new deal—called the United States-Mexico-Canada Agreement (USMCA)—will govern trade in North America beginning in 2020.

The USMCA is a win for Utah businesses who depend on stable commerce with Canada and Mexico. Utah’s trade with these countries totaled over $7.7 billion in 2017, amounting to 30% of Utah’s total international trade that year. In exports alone, Utah sent nearly $1.9 billion to USMCA countries, comprising 16% of Utah’s annual exports.

“Reaching a trade agreement with Canada and Mexico is a crucial step towards easing the uncertainty hindering Utah businesses since negotiations began in August 2017,” said Miles Hansen, president and CEO of World Trade Center Utah. “Our economies have evolved in the nearly 25 years since NAFTA was signed, and the Trump Administration deserves credit for reaching a modern, improved agreement with our two most important trading partners.”

While some elements of the agreement will undeniably provide new opportunities to Utah’s businesses, other elements appear to be protectionist in nature and could have harmful repercussions.

Automotive component manufacturers will benefit from the increased North American vehicle content and tighter labor regulations required for zero-tariff treatment, which should shift production back to the U.S. and Canada. Nearly 40% of Utah’s $945 million in transportation equipment exports are purchased in Mexico or Canada. As demand increases for American and Canadian vehicle components, Utah transportation equipment manufacturers should enjoy increased sales.

However, increased regulations will drive up prices for automobiles in the U.S. which may result in decreased sales, undermining those gains in the long run. Additionally, increased trade barriers for manufacturers outside of North America could further cause a decline in foreign demand for Utah’s automotive components.

The effects of the USMCA could be diluted by the extended 16-year sunset provision, which calls for a meeting of the three countries’ leaders every six years to discuss the continuation of the agreement. Periodically reviewing and refining the USMCA will be positive if the next review process is not as contentious. We need to reduce uncertainty and instability, not add to it.

The USMCA does create new straightforward and transparent rules. Utah’s dairy industry will benefit from new access to Canadian markets for “fluid milk, cream, butter, skim milk powder, cheese and other dairy products,” as well as decreased restrictions on marketing certain types of cheese across North America. Utah exported nearly $2.5 million in dairy products to Canada and another $700,000 to Mexico throughout 2017. Increased market access and decreased restrictions will help Utah’s dairy farmers increase their bottom lines.

Utah’s pharmaceutical industry will also enjoy longer lasting intellectual property protections provided by the USMCA. Utah exported over $23 million in pharmaceuticals and medicine to Mexico and Canada last year.

While the deal addressed multiple pressing issues, others were ignored for the sake of keeping to the October 1st deadline. More work is needed to resolve the dispute on U.S. tariffs on steel and aluminum, which will continue to be a source of tension, particularly between the US and Canada.

“Reaching deals on the issues that are hurting Utah businesses the most,” said Hansen, “such as the escalating trade dispute with China and the continuing steel and aluminum tariffs, is essential to reinforce American leadership of the open, rules-based international trade system at the core of our economic success.”