The Report Is Out … On USMCA

While the rest of America seemed fixated over the “Mueller Report,” yours truly was … also looking at Mueller’s report. However, I also spent some time reviewing the report from the U.S. International Trade Commission on the likely economic impact of the US-Mexico-Canada Agreement that is supposed to replace NAFTA – and it wasn’t too good for the president either.

To hear Trump crow over it, the USMCA was a vast improvement over NAFTA. USITC sees it very differently.

Estimates indicate that U.S. real GDP would grow by 0.35 percent ($68.2 billion) and employment would grow by 0.12 percent (about 176,000 jobs).

One could argue those figures are within the margin of error. In fact, one of the key factors in the impact of the USMCA was reducing uncertainty in certain sectors (International Data Transfer, Cross-border Services, and Investment, to be exact). The model provided different weights to provide a range of potential impacts.

The figures cited were the “moderate” forecast (the central one). On the low end (no uncertainty reduction), the economy actually does slightly worse under USMCA (0.12% worse) and over 50,000 jobs would be lost. When one takes into account the fact that the uncertainty reduction weights did not take into account the overall uncertainty created by the USMCA’s sunset clause (“As these provisions are new to USMCA, there is little historical evidence suggesting their likely impact”), the top-line figures become even less certain.

In other words, any gains from this “deal” are questionable at best, and minimal even if real.

Combined with some of the provisions that shift the agreement away from a free trade area and closer to a customs union (including opportunities for retaliation against a country that enters an agreement with “non-market countries” and a committee to oversee monetary policy), USMCA’s infinitesimally shaky “benefits” are not worth it. Congress would be better off reaffirming NAFTA and reminding the president that he can’t withdraw from it.