The revised NAFTA deal relieves uncertainty for Canada and avoids a possible Mexican barrier to ratification. But what does it really mean for the three countries involved—or for trade tension with China?
The US and Canada over the weekend reached agreement on a NAFTA rewrite that will in future be called the “US-Mexico-Canada Agreement,” a name in desperate need of an acronym. The timing of the agreement was important, as it means Mexico’s outgoing president, Enrique Peña Nieto, can sign it before Andrés Manuel López Obrador—a bit of a wild card on trade policy—takes office later this year (the US and Mexico struck an agreement a few weeks ago).
But what does the new deal really mean? Will it help or hurt when it comes to US-China trade relations? Should we expect it to have any effect on the global drift toward protectionism?
Here are the main takeaways, as we see them:
1. For the US, the changes are trivial. Perhaps the most heralded change—in the US, at least—is one that gives US producers greater access to Canadian dairy markets. The rewrite also preserves a joint mechanism to resolve trade disputes without using the US legal system and shields Canadian auto producers from any future US auto tariffs.
The most representative change, though, may be this one: Canadians can now carry $100 of US goods across the border duty free, up from $20 under the old agreement. If these sound like small numbers, it’s because they are. There is no reason to change US economic forecasts as a result of the deal. The White House may claim the accord is a game changer. But in economic terms, it simply isn’t.
2. The deal removes uncertainty in Canada. For Canada, the stakes of a NAFTA rewrite were always higher, since the country is much more reliant on trade than the US. Keeping the basic contours of NAFTA in place should allow business investment that may have been delayed as a result of the negotiations to proceed. That should reduce downside risk for the Canadian economy.