North American Trade Pact Could Cushion U.S. Economy
December 11 2019 - 7:29AM
Dow Jones News
By Harriet Torry
WASHINGTON -- The new trade agreement with Mexico and Canada
won't bring an economic boom, but it could cushion the U.S. in the
face of slowing global growth as it boosts some industries and
removes a big source of business uncertainty.
The deal, reached Tuesday, also will keep U.S. trade on track
with its two largest partners. U.S. trade with Mexico and Canada
topped $1 trillion through October of this year, more than double
the $470 billion of trade with China.
The benefits "are not so much in what USMCA brings, but rather
what it prevents," said Gregory Daco, an economist at Oxford
Economics. He estimated that a U.S. withdrawal from the existing
trade pact, the North American Free Trade Agreement, or Nafta,
without a replacement would have dented U.S. gross domestic product
by 0.5% in the first year.
The U.S. International Trade Commission, a bipartisan agency
whose review is required for any trade deal, said this spring that
the new North American treaty would have a positive though modest
impact on growth, boosting U.S. gross domestic product by 0.35% and
adding 176,000 U.S. jobs over six years after it goes into
effect.
"In the overall giant U.S. economy these are small changes,"
said Gary Clyde Hufbauer, a senior fellow at the Peterson Institute
for International Economics.
President Trump made the renegotiation of Nafta -- a 26-year-old
trade pact between the U.S. and its immediate neighbors -- a key
2016 campaign promise. And he threatened U.S. withdrawal from the
agreement after he took office.
Removing the withdrawal risk by passing a new agreement is the
primary upside for businesses, economists say, particularly given
the current backdrop of slow global economic growth, trade tensions
with China and weak investment by U.S. companies.
The USMCA will replace Nafta when ratified and contains
provisions aimed at creating more U.S. manufacturing jobs. It would
increase the proportion of parts in vehicles that must originate in
North America for the cars and trucks to receive duty-free
treatment. It also includes rules mandating the free flow of data
among the three countries.
Lawrence Kudlow, director of the White House National Economic
Council, said at The Wall Street Journal CEO Council meeting on
Tuesday that the deal "updates Nafta, particularly in some
important new-economy ways," such as intellectual property rights
and financial and digital services.
"I think you're going to get a lot of investment that we might
not have had," Mr. Kudlow said. "Really, these are our big trading
partners."
The U.S. Trade Representative's office, in an April study, said
USMCA would result in $34 billion in total investment in the U.S.
auto industry and create 76,000 jobs over five years in that
industry alone.
But studies have offered conflicting views on the economic
benefits of the agreement.
In March, an International Monetary Fund working paper estimated
that the USMCA would generate negligible economic gains in the
three North American countries through improved market access to
goods.
And some economists say the new pact could raise commodity and
wage costs for manufacturers, which could make U.S.-produced cars
more expensive and less competitive.
The Federal Reserve has urged an end to trade uncertainty of all
types, saying it could help U.S. business sentiment. "I do think it
would be quite positive over time," Fed Chairman Jerome Powell said
at an Oct. 30 press conference.
--William Mauldin and Josh Zumbrun contributed to this
article.
Write to Harriet Torry at harriet.torry@wsj.com
(END) Dow Jones Newswires
December 11, 2019 07:14 ET (12:14 GMT)
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