Automakers are expected to bear the brunt of the recently signed U.S.-Mexico-Canada Agreement or USMCA, also known as NAFTA 2.0. Carmakers could endure as much as $3 billion more in tariffs in the next years under the USMCA, this is according to an estimate released by the Congressional Budget Office or CBO.
Among the important numbers to note from CBO is that USCMA requires 75% regional content requirement, along with other increased tariffs for North American steel and aluminum, before they can access the markets in the US, Canada, and Mexico tax-free. By comparison, the 26-year-old North American Free Trade Agreement only required 62.5% of similar content requirements.
Another significant point highlighted in CBO's estimates is that 40% to 45% of the required content should be manufactured from markets where workers are paid more than $16 an hour. Only the US and Canada could meet this requirement. In connection to this, carmakers in Mexico will not be able to enter the U.S. market tax-free.
While USMCA could pump 30,000 jobs into the auto industry, foreign car manufacturers may decide to pull out assembly plants in the US. At the same time, American carmakers may find it costly to pay workers.
On the other hand, USMCA wins in lowering tariffs on agricultural products. Also, the new deal could cut the federal budget deficit by $3.04 billion through 2029.
Still, experts remained divided about the possible economic repercussion of the USMCA with many leaning toward skepticism. Most economic observers believed that the USMCA is worse than NAFTA. A common conclusion was that USMCA could diminish global competitiveness for most American goods.
The U.S. International Trade Commission found that the new deal can drag the U.S. economic growth down by 0.12%.
U.S. President Donald Trump said the new USMCA deal which he signed with Mexico and Canada is "the best and most important trade deal ever made bu the U.S." This was a week before the news broke out that the Senate impeached him for abuse of power and obstruction of Congress.
Replacing NAFTA was among the many issues that Trump is prioritizing for his 2020 presidential bid. He said NAFTA should be replaced because it kills jobs in the U.S.
The U.S. House of representatives will review provisions of the new USMCA deal on Thursday. So far, observers are expecting the House to pass the deal since it will have wide support from the Republicans and Democrats.
