The positive consequences of the free trade agreement will derive more from the end of uncertainty than from the new provisions introduced.

After a year and a half of negotiations, the new Treaty between the United States, Canada and Mexico (this country has named it T-MEC, the other two speak of USMCA) is still pending approval by the legislative chambers of each country. In Washington, the political discussion should begin shortly; it will be important what effects are foreseen for the US Economics and that of its two neighbors. The first programs of study disagree on some aspects, although they agree that the changes introduced in the renegotiation of the agreement that existed since 1994 will not have a special impact.

▲ signature of the free trade agreement between the U.S., Mexico and Canada, in the framework the G-20, in November 2018 [Shealah Craighead-White House].

article / Ramón Barba

The renegotiation of the formerly North American Free Trade Agreement (NAFTA), now known as the Treaty of the United States, Mexico and Canada (T-MEC or, in its English version, USMCA), has been one of the main points in the Trump Administration's diary . C by the three negotiating parties at the end of 2018, the treaty is now pending ratification by the legislative chambers of each country.

Put in place in 1994, the agreement had been described by Trump as "the worst trade agreement in history". Since the beginning of his presidency, Trump has proposed to modify some aspects of the agreement to reduce the large trade deficit with Mexico (about $80 billion, twice the deficit that the US has with Canada), and at the same time to refund activity and jobs to the US Rust Belt, where the echo of his promises had been decisive for his electoral victory.

What has each country gained and lost in the renegotiation of the treaty? And, above all, what effects will it have on the Economics of each country? Will the United States improve its trade balance? Will Mexico or Canada be negatively affected by some of the modifications introduced? We will first examine how the claims of each of the partners were left at the end of the negotiations, and then we will look at the possible economic effect of the new version of the treaty in the light of two recent programs of study, one by an independent body of the U.S. Administration and the other by the IMF.

Tug of war

In the negotiations, which dragged on for almost a year and a half, Mexico and Canada managed to "maintain the status quo in many important areas", but while the actual changes were modest, as analyzed by the Brookings Institution, they "went almost uniformly in the direction of what the United States wanted". "Trump's aggressive and threatening approach ," which he challenged with breaking the treaty for good, "succeeded in obtaining modest concessions from his partners."

On the core topic of the automotive industry, the US managed to increase from 62.5% to 75% the proportion of car production that must be made within the free trade area , to force 30% of the work needed to manufacture a car to have a wage of $16/hour (40% as of 2023) -a measure aimed at appeasing US unions, since in Mexico the average wage of an automotive worker is currently $4/hour-, and to set a tariff of 25% for cars coming from abroad.

Mexico and Canada were satisfied in their demand that an autonomous termination clause not be introduced after five years if there was no prior consensus on the renewal of the agreement, which had been put on the table by Washington. In the end, the T-MEC will last for 16 years, renewable, with a review in the sixth year.

Justin Trudeau's government had to make some concessions to the U.S. dairy sector, but preserved what had been its main red line from the beginning: the validity of Chapter 19, concerning the settlement of disputes through independent binational arbitration.

Mexico, for its part, gained the peace of mind that comes with the survival of the agreement, avoiding future uncertainty and guaranteeing close trade relations with the large U.S. market. However, the labor conditions of Mexican workers can be a double-edged sword for the Aztec Economics , since on the one hand it can favor an improvement in the standard of living and encourage consumption, but on the other hand it can affect the location of companies due to less competitive salaries.

Regardless of these changes in one direction or the other, the treaty update was necessary after 25 years of an agreement that was signed before the Internet revolution and the digital Economics that it brought. On the other hand, the change of name of the treaty was a "trick" devised by Trump to sell to his electorate the renewal of an agreement whose previous name was associated with criticisms made over the last two decades.

The discussion on the text will take place in the fall in the US congress , where Democrats will insist on reinforcing guarantees that Mexico will implement the committed labor measures. Before the vote the US will have to apply an exemption to Canada and Mexico from the steel and aluminum tariffs that the Trump Administration has imposed internationally.

Economic effect

The United States International Trade Commission (USITC), an independent body that has the status of a government agency, considers that the T-MEC will have a limited but positive impact on the US Economics . Thus, in a report published in April, it estimates that the entrance into force of the reformulated agreement will increase US production by 0.35%, with an increase in employment of 0.12%, figures somewhat lower than those forecast when NAFTA came into force in 1994, when the US expected a 0.5% increase in its Economics and a 1% rise in employment.

In any case, this timid impact would not be so much due to the content of the agreed text, but to its mere existence, since it eliminates uncertainties about US trade relations with its two neighbors.

The report believes that the T-MEC will lead to an increase in the production of automotive accessories in the U.S., boosting employment in that country, but causing a rise in the price of products and, therefore, negatively affecting exports. The report also predicts that maintaining the current arbitration system, as demanded by Mexico and Canada, will discourage US investments in the Mexican market and boost them in the US.

These conclusions do not coincide with the International Monetary Fund's assessment, although both bodies agreement in ruling out major effects of the agreement. Thus, an IMF study published in March believes that, at the aggregate level, the effects of the new wording "are relatively small". The new provisions "could lead to less economic integration of North America, reducing trade among the three North American partners by more than $4 billion (0.4%), while giving their members a combined gain of $538 million". He adds that the effects on real GDP of the free trade area are "negligible," and qualifies that many of the benefits "would come from trade facilitation measures that modernize and integrate customs procedures to further reduce trade costs and border inefficiencies."

The result the study sample that the more demanding rules of origin in the automotive sector and labor value content requirements, issues that especially concern the US-Mexico relationship, "would not achieve their desired consequences". According to the IMF, "the new rules lead to a decline in vehicle and parts production in the three North American countries, with shifts toward increased sourcing of vehicles and parts from outside the region. Consumers will find higher vehicle prices and will respond with lower quantity demand".

As for Canada's dairy market, an issue of particular relevance in the US-Canada trade relationship, the effects of increased US access "would be very small and macroeconomically insignificant".

This disparity in forecasts between the USITC and the IMF is due to the fact that several variables are undetermined, such as the future of the Trans-Pacific agreement , in which Canada and Mexico are involved, or the ongoing trade discussions between the US and China. A sample in which the ground is especially shaky is the fact that in January and February 2019, Mexico became the first trading partner of the USA (an exchange of 97.4 billion dollars), ahead of Canada (92.4 billion) and China (90.4 billion). That raised the US trade deficit with Mexico by $3 billion, just in the opposite direction of the Trump Administration's pretensions.

Continental U.S. neighbors are having a hard time interpreting the first year of the new Administration.

Donald Trump arrives at his first anniversary as president having sparked some recent fires in Latin America. His rude disregard for El Salvador and Haiti, for the Issue of refugees welcomed in the United States, and his intemperate attention to Colombia for the increase in cocaine production worsen relations that, although already complicated in the case of Mexico, have had some good moments throughout the year, such as the dinner of presidents that Trump convened in September in New York in which a united action on Venezuela was outlined.

▲Trump, on completing 100 days as president [White House].

article / Garhem O. Padilla [English version].

One year after the arrival of the 45th President of the United States of America, Donald John Trump, to the White House -the inauguration ceremony was on January 20-, controversy dominates the balance of the new Administration, both in its domestic and international performance. The continental neighbors of the U.S., in particular, show bewilderment over Trump's policies toward the hemisphere. On the one hand, they regret the U.S. disinterest in commitments to economicdevelopment and multilateral integration; on the other, they note some activity in relation to some regional problems, such as Venezuela. The balance for the moment is mixed, although there is unanimous agreement that Trump's language and many of his manners rather threaten relations.

From TPP to NAFTA

In the economic field, the Trump era began with the final withdrawal of the United States from the Trans-Pacific Partnership agreement (TPP) on January 23, 2017. This made it impossible for the TPP to entrance into force, as the United States was the market for which the agreement emerged, which has affected the prospects of the Latin American countries that participated in the initiative.

The renegotiation of the North American Free Trade Agreement (NAFTA), demanded by Trump, was immediately opened. Doubts about the future of NAFTA, signed in 1994 and which Trump has described as a "disaster", have been prominent so far in his administration. Some of his demands, which Mexico and Canada oppose, are to increase the quota for products manufactured in the United States and the "sunset" clause, which would oblige the treaty to be reviewed methodically every five years and would cause it to be suspended if any of its three members were not in agreement. All of this stems from the U.S. president's idea of fail the treaty if it is not favorable to his country. 

Cuba and Venezuela

If the quarrels with Mexico have not yet reached a conclusion, in the case of Cuba Trump has already retaliated against the Castro regime, with the expulsion in October of 15 Cuban diplomats from the Cuban embassy in Washington as a response to the "sonic attacks" that affected 24 U.S. diplomats on the island. The White House has also reversed some of the Obama Administration's conciliatory measures, when it realized that Castroism is not responding with open-minded concessions.

As far as Venezuela is concerned, Trump has made forceful efforts to introduce measures and sanctions against corrupt officials, in addition to addressing the political status with other countries, so that they support those efforts aimed at eradicating the Venezuelan crisis, thus generating multilateralism among American countries. However, this policy has its detractors, who believe that the sanctions are not intended to achieve a long-term goal , and it is unclear how they would promote Venezuelan stability.

Although in these actions on Cuba and Venezuela Trump has alluded to the democratic principles violated by the rulers of Havana and Caracas, his Administration has not particularly insisted on the commitment to human rights, democracy and moral values, as had been usual in the argumentation of U.S. foreign policy. Some critics point out that the Trump Administration is willing to promote human rights only when they fit its political objectives.  

This could explain the worsening opinion in Latin America about the United States and relations with that country. agreement to theLatinobarómetro 2017 survey , the favorable opinion has fallen to 67%, seven points below the 74% at the end of the Obama Administration. This survey sample a relevant difference for Mexico, one of the countries that, without a doubt, has the worst levels of favorable opinion towards the Trump Administration: in 2017 it was 48%, a drop of 29 points compared to 2016, when it was 77%.

Immigration, withdrawal, decline

The restrictive immigration policies applied would also explain the rejection of the Trump Administration by Latin American public opinion. In the immigration section , the most recent is the decision not to renew the authorization to stay in the United States of thousands of Salvadorans and Haitians, who once arrived fleeing calamities in their countries.

It is also worth mentioning Trump's efforts to achieve one of his main objectives since the beginning of his political campaign: to build a border wall with Mexico. The U.S. president has not been very successful so far in this goal, since despite having sought ways to finance it, what he has managed to introduce in the budgets is very insignificant in relation to the estimated costs. On the other hand, his decision

Trump's protectionism entails a retreat that may be accentuating the decline of the United States as a leader in Latin America, especially vis-à-vis other powers. China has been increasing its economic and political engagement in countries such as Argentina, Brazil, Chile, Peru and Venezuela. Russia, for its part, has strengthened its diplomatic and security relations with Cuba. It could be said that, taking advantage of the conflicts between the island and the United States, Moscow has sought to keep it in its orbit through a series of investments.

Security threats

This brings us to the new US National Security Strategy, announced in December. The document, presented by Trump, addresses the rivalry with China and Russia, and also refers to the challenge posed by the Cuban and Venezuelan regimes, because of the alleged security threats they pose and the Russian support they receive. Trump expressed his strong desire to see Cuba and Venezuela join in "shared freedom and prosperity" and called for "isolating governments that refuse to act as responsible partners in advancing hemispheric peace and prosperity.

Similarly, the new U.S. Security Strategy alludes to other challenges in the region, such as transnational criminal organizations, which impede the stability of Central American countries, especially Honduras, Guatemala and El Salvador. However, the document devotes only one page to Latin America, in line with Washington's traditional focus on the areas of the world that most affect its interests and security.

An opportunity for the United States to get closer to Latin American countries will be the Summit of the Americas, to be held next March in Lima. However, nothing is predictable given the President's characteristic attitude, which leaves a great deal of room for possible surprises.