A government analysis of President Donald Trump’s proposed replacement for the North American Free Trade Agreement shows it would have only a modest, though positive, effect on the US economy.
Thursday’s report from the US International Trade Commission, an independent federal agency, found that the United States-Mexico-Canada Agreement (USMCA) would boost the manufacturing, agriculture and service industries. The report estimates the deal would raise GDP by 0.35% and create 176,000 jobs after six years.
But given the size of the three countries’ economies, and the fact that NAFTA already eliminated most tariffs and trade barriers between them, “the impact of the agreement on the US economy is likely to be moderate,” the ITC report said.
The report, which was due to Congress by Friday, could play an important role as the Trump administration tries to sell the deal to lawmakers. Trump campaigned in 2016 on getting rid of NAFTA, which he’s said is “perhaps the worst trade deal ever made.” He’s promoted the USMCA as one of his big accomplishments, claiming it’s already creating jobs – despite the fact it hasn’t been ratified by Congress.
Democrats have been dissatisfied with Trump’s new deal, arguing it does not go far enough to enforce new labor and environmental protections. House Speaker Nancy Pelosi and some of her colleagues have pushed Trump’s trade team to reopen the negotiations, which finished with a signing ceremony with leaders of all three countries last November.
The office of the US Trade Representative, headed by Trump appointee Robert Lighthizer, put out its own economic analysis of the USMCA Thursday, focusing on some of the most notable changes for automakers made in the deal. It requires that 75% of a vehicle’s parts must be made in North America, up from the current 62.5% rule, in order to remain free from tariffs. It would also require more vehicle parts to be made by workers earning at least $16 an hour.
The administration’s report, which the official said is based on information the administration received from automakers, said those changes alone would create 76,000 jobs and lead to $34 billion in new manufacturing investments over a five-year period.
But the ITC’s analysis of the new auto rules was less positive. It found that it would add 28,000 jobs in the industry over six years, but also lead to a small increase in the price of vehicles that consumers pay.
The American Automotive Policy Council, which represents General Motors, Ford and Fiat-Chrysler, criticized the ITC report for underestimating the long-term investments US automakers will make because of the USMCA.
“In fact, billions of dollars in new US investments have already been announced,” said president Matt Blunt, a former Missouri Republican governor.
It’s not the first time the Trump administration has put out economic analysis that differs from independent government agencies. When the Congressional Budget Office scored the President’s first budget in 2017, it said that the administration overestimated future economic growth to the tune of $3.4 trillion in tax revenue over next decade.
In a statement Thursday, Lighthizer said he welcomed the ITC report, noting that it found the USMCA would boost GDP by more than was projected under the Trans-Pacific-Partnership trade deal that Trump pulled out of in one of his first acts as president.
“These findings validate President Trump’s action to withdraw from TPP and renegotiate the disastrous NAFTA,” he said.
Automakers could decide not to comply with the new rules, and instead pay the relatively low 2.5% tariff on vehicles and auto parts moving across the border – as suggested by an International Monetary Fund study released last month. That paper said the USMCA’s impact on real GDP would be trivial and could even be a net loss for the United States if Trump’s tariffs on steel and aluminum remain in place.
Canada and Mexico, along with US lawmakers from both parties, have called for Trump to end the tariffs before the trilateral deal is ratified. An automaker industry group, the Association of Global Automakers, reiterated Thursday how those tariffs complicate matters.
“Current and threatened tariffs should be removed so the industry can focus on retaining a critical regional trading agreement, while keeping more jobs and innovation in the United States,” the group said in a statement.
Senate Finance Committee Chairman Chuck Grassley, an Iowa Republican, is a proponent of the USMCA, and for lifting the existing tariffs. He argued on Thursday that the agreement makes important updates to NAFTA on intellectual property, currency practices and digital trade – but that the impact on GDP of those changes “has historically been inherently difficult for economists to measure.”