President Trump’s new North American trade deal will have a marginal effect on the nearly $21 trillion U.S. economy, boosting output by just 0.35 percent and delivering an even smaller gain to the labor market, according to an independent analysis by the International Trade Commission.
In a 379-page report released Thursday, the ITC said the United States-Mexico-Canada Agreement would “have a positive impact” on both manufacturing and services industries. The largest gains would arise from eliminating “uncertainty” by preventing future barriers to cross-border e-commerce, services and investments.
“There can be no doubt that the USMCA is a big win for America’s economy,” said Robert E. Lighthizer, the president’s chief trade negotiator.
Notably, the deal would increase auto parts production and employment, key administration goals.
But the narrow benefits for the auto sector would come at the expense of the broader economy, making overall U.S. production more expensive, reducing exports, and denting wages and employment, the report said.
Congress required the assessment, which was delayed five weeks by the partial government shutdown, before lawmakers hold an up-or-down vote on the agreement.
“I don’t see it as providing much ammunition to either side. The skeptics will still be skeptical, and the advocates will still be advocating,” said William Reinsch, a trade expert at the Center for Strategic and International Studies.
Administration officials are pushing for quick congressional action, but most trade analysts expect the process to drag on for months. House Speaker Nancy Pelosi (D-Calif.) has said tougher enforcement measures need to be written into the deal to make sure that Mexico complies with promised labor reforms.
Several prominent lawmakers, including Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Finance Committee, say the president must remove tariffs on steel and aluminum imports from Mexico and Canada before a vote. Both countries have imposed retaliatory measures that have damaged U.S. exports, especially from farm states.
Administration officials said last year that the tariffs would be eliminated once the three countries reached a new trade deal. But instead, they have remained in place while the United States tries to get Mexico and Canada to accept quotas on their shipments of industrial metals.
“This report confirms what has been clear since this deal was announced — Donald Trump’s NAFTA represents at best a minor update to NAFTA, which will offer only limited benefits to U.S. workers,” said Sen. Ron Wyden, (D-Ore.), the committee’s ranking member.
The USMCA provides for the free flow of data among the three trading partners, an important step for banks, airlines, online retailers and entertainment companies.
It limits an existing procedure for companies to settle disputes with the three governments, which the report says will discourage U.S. investment in Mexico and boost capital spending in U.S. manufacturing and mining.
An overhaul of the 25-year-old North American Free Trade Agreement, the changes in the USMCA are less sweeping than the broad elimination of virtually all trade barriers in the earlier accord, economists say.
NAFTA was expected to increase the size of the U.S. economy by just 0.5 percent and boost employment by less than 1 percent, according to the ITC’s 1993 study. Those effects exceeded what’s likely from the new deal, including an employment gain of just 176,000 jobs, or 0.12 percent, according to the ITC.
“Most trade deals don’t have an outsized effect on growth over the long term,” said David Page, senior economist for AXA Investment Managers in London. “It does tend to be a little bit peripheral.”
While its top-line effects are modest, the deal would reshape North American auto production by requiring more American content and mandating that 40 percent of each vehicle be produced by workers earning $16 per hour — aimed at steering jobs away from lower-wage Mexican workers.
The administration sought to preempt the report, releasing an assessment that concluded the deal would create 76,000 auto jobs over the next five years and trigger $34 billion in new auto plant investments and $23 billion in added auto parts purchases.
Current auto industry employment is about 999,000, according to the Bureau of Labor Statistics.
The ITC study comes after a recent International Monetary Fund study cast doubt on USMCA’s effectiveness, saying the agreement would reduce trade among the three North American neighbors, have a “negligible” effect on economic output and fail to bring auto jobs back to the United States.
“The new rules lead to a decline in the production of vehicles and parts in all three North American countries, with shifts toward greater sourcing of both vehicles and parts from outside of the region,” the IMF paper said.
The deal also would have no impact on inflation-adjusted wages in the United States or Canada while resulting in a slight decline for Mexican workers. Consumers also would face higher prices and thus buyer fewer vehicles, the study said.
A senior official in the Office of the U.S. Trade Representative denigrated the IMF study as reflecting the “opinions” of its authors. The more favorable USTR conclusions were derived from confidential business plans that major automakers submitted to the government and that were more reliable than economic modeling, the official said.
“We have unique insights,” said the official, who insisted on anonymity to brief reporters.
Changing North American trade rules is especially important as the auto industry gears up for major investments in autonomous and electric vehicle production, the official said. The new deal should result in more next-generation plants in the United States rather than in Mexico, the official said.