USMCA, Trump’s new NAFTA deal, explained in 500 words
The US, Canada, and Mexico signed a trade deal to replace NAFTA in November at the G20 summit in Argentina. It’s known as the United States-Mexico-Canada Agreement, or USMCA.
President Donald Trump, during his 2019 State of the Union address, encouraged Congress to approve the USMCA and replace “the catastrophe known as NAFTA” and “deliver for American workers like they have not had delivered to for a long time.”
But the USMCA is essentially NAFTA 2.0, with a few updates. The pact has been tweaked to include changes for automakers, labor and environmental standards, intellectual property protections, and digital trade provisions.
Here are the biggest changes:
- Country of origin rules: Automobiles must have 75 percent of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (up from 62.5 percent under NAFTA).
- Labor provisions: 40 to 45 percent of automobile parts have to be made by workers who earn at least $16 an hour by 2023. Mexico has also agreed to pass laws giving workers the right to union representation, extending labor protections to migrant workers, and protecting women from discrimination. The countries can also sanction one another for labor violations.
- US farmers get more access to the Canadian dairy market: The US got Canada to open up its dairy market to US farmers, which was a big issue for Trump.
- Intellectual property and digital trade: The deal extends the terms of copyright to 70 years beyond the life of the author (up from 50). It also extends the period that a pharmaceutical drug can be protected from generic competition, and includes new provisions to deal with the digital economy, including prohibiting duties on things like music and e-books, and protections for internet companies so they’re not liable for content their users produce.
- No section 232 tariff protections: Section 232 is a trade loophole that Trump used to impose steel and aluminum tariffs on Canada, Mexico, and the European Union. Canada and Mexico wanted protections from these tariffs as part of the NAFTA negotiations, and the fact that tariffs are still in place remains a sore subject, particularly for Canada. Canada and Mexico did get the US to make a side agreement that shields them from possible auto tariffs under 232.
- Sunset clause: The agreement adds a 16-year “sunset” clause — meaning the terms of the agreement expire, or “sunset,” after a set period of time. The deal is also subject to a review every six years, at which point the US, Mexico, and Canada can decide to extend the USMCA.
The USMCA is signed — now it needs to get approved
Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto signed the deal in November, but it still needs to be ratified by all three governments. The US Congress hasn’t taken up the USMCA yet, and it’s unclear what lawmakers will do, especially now that Democrats control the House. Democrats currently object to parts of the deal, which could derail its approval.