New North America deal boosts US economy

FE Team | Published: April 22, 2019 22:16:46

WASHINGTON, Apr 22 (Reuters): The new North American free trade pact would modestly boost the US economy, especially auto parts production, but may curb vehicle assembly and limit consumer choice in cars, a hotly anticipated analysis from the US International Trade Commission showed.
The ITC report is a crucial step in the push for Congress to consider ratification of the US-Mexico-Canada Agreement, which was signed by President Donald Trump and the leaders of the other two countries last year to replace the 25-year-old North American Free Trade Agreement.
The report estimates that annual US real gross domestic product would increase by 0.35 per cent, or $68.5 billion, on an annual basis compared to a NAFTA baseline, and would add 176,000 US jobs, while raising US exports.
The ITC's estimates are for year six of the trade deal, once it is fully implemented.
The trade deal's success or failure in Congress could be determined by how it is expected to affect the US auto industry, a sector that steadily drained jobs to Mexico under NAFTA.
The USMCA deal contains much tighter regional content rules, requiring that 75 per cent of a vehicle's value be sourced in North American versus 62.5 per cent currently, and 40-45 per cent produced in high-wage areas, namely the United States and Canada.
Auto industry employment would rise by 30,000 jobs for parts and engine production, but US vehicle assembly would decline.
US vehicle prices would rise up to 1.6 per cent, causing consumption to fall by 140,000 units per year, or about 1.25 per cent of 2017 sales, the report said.
The report overall was more positive than initially anticipated by economists, who said the traditional economic models used by the ITC to measure previous trade deals would result in minimal gains for the United States.
White House economic adviser Kevin Hassett told Reuters that he was pleasantly surprised by the results, which used different modeling methods that he called "accurate and well done."
"Their estimate is a lot closer to what we think USMCA will do than I expected," Hassett in a telephone interview. "This is very strong argument for passing the USMCA."
But some key Democrats were not swayed from their demands for improvements to the enforcement of new labour standards before they consider USMCA. Democrats control the US House of Representatives.
Representative Earl Blumenauer, chairman of the House Ways and Means trade subcommittee, said that he had already believed the trade deal needed changes before it could be considered by the House.