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ECONOMICS
Bloomberg Businessweek
October 8, 2018
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Canada is able to retain a provision that allows it
to challenge U.S. antidumping indings and puni-
tive tarifs before a special panel.
There are some important additions and sub-
tractions to the 1994 pact. The USMCA includes a
chapter on digital trade, for example, and stricter
labor provisions that Mexico will have to live up to.
It strips away a controversial provision that allowed
companies to take investment disputes with U.S.
and Canadian national, state, and local govern-
ments to arbitration panels, though it remains in
place for some sectors in Mexico, such as energy.
The pact also features some Trumpian innova-
tions. Complicated regional content requirements
for cars include one that 40 percent of the parts in a
vehicle made in North America come from factories
with a $16-an-hour average wage or higher. Given
that the typical Mexican autoworker earns less than
half that, the rule is guaranteed to beneit produc-
ers and workers in the U.S. or Canada.
In a move that echoes what economists such as
Catherine Mann, global chief economist at Citigroup
Inc., consider misguided eforts to restrain auto
imports in the 1980s, the Trump administration
claimed the right to impose tariffs on vehicles
imported from Canada or Mexico once those ship-
ments hit a 2.6 million-car threshold. Canada and
Mexico together exported fewer than 2 million cars
to the U.S. last year.
The Trump administration has already begun
to sell the USMCA as part of a broader efort to
build an alliance against China. To that end, the
deal contains a provision that efectively bars any
of the three members from negotiating a trade deal
with a “nonmarket economy.”
The USMCA was welcomed broadly if cautiously
on Capitol Hill, where the political debate over
whether to ratify it is unlikely to heat up before
next year. Some important political constituencies,
however, have aired their doubts. “We still don’t
know whether this new deal will reverse the out-
sourcing incentives present in the original Nafta,”
says Richard Trumka, president of the AFL-CIO,
adding that there are “too many” details that still
need to be worked out. That matters because the
Trump administration has been courting the U.S.’s
largest labor group to bring Democratic votes with
it when the deal eventually goes before Congress
in the months ahead.
For the trade skeptics on the left whose message
Trump co-opted so efectively in 2016, the deal
poses a dilemma. Dani Rodrik, a Harvard econ-
omist who frequently rails against globalization,
has long advocated a new approach to trade agree-
ments that does more to protect jobs. But he sees
an elaborate illusion in the USMCA. “Trump is
more interested in smoke and mirrors—the optics
of striking a deal that seems advantageous to him—
than in real changes in trade agreements,” he says.
Above all, the USMCA is a relection of how
Trump’s promise to deliver a trade revolution
collided with economic and political realities. His
threats to rip up Nafta—together with his esca-
lating tarif war with China—ignited a Farm Belt
rebellion that his own Republicans fear could hurt
them in November’s midterm elections. They also
put him at odds with the GOP in Congress and
powerful Establishment business bodies such as
the U.S. Chamber of Commerce. “Vested interests
in cross-border supply chains are very strong,”
says Gary Hufbauer, a recently retired trade
expert at the Peterson Institute for International
Economics. “Politicians interfere with them at
their peril.”
—Shawn Donnan, with Peter Coy
○ A shortage of pipelines is weighing on prices
for the country’s crude
TheOil Recovery
SkippedCanada
Alex Pourbaix, chief executive oicer of Cenovus
Energy Inc., was in his oice in downtown Calgary
in late August when he checked his phone and
noticed his company’s shares were plunging for
no apparent reason.
That’s when he learned that a federal appeals
court in Ottawa had overturned the government’s
approval of an expansion of the Trans Mountain
Pipeline, potentially stalling for a year a key
project that would help energy companies in west-
ern Canada ship oil to new customers in Asia. For
Pourbaix’s company, one of the country’s largest
oil sands producers, the ruling threatened to pro-
long a shortage of pipeline capacity that’s weighed
on prices for Canadian crude and kept Cenovus and
its peers dependent on U.S. reineries.
The court decision was only the latest in a string
of failed or delayed pipeline projects that has
stymied the Canadian oilpatch while competitors
around the globe have enjoyed a steady recovery.
THE BOTTOM LINE The new USMCA is mostly the old Nafta,
with some TPP thrown in. Some economists worry that provisions
designed to bring jobs back to the U.S. may erode competitiveness.