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May 13, 2019

What Happens If Lawmakers Don’t Ratify The USMCA?

As readers of Connecting the Dots are aware, policymakers in Canada, Mexico and United States have negotiated a deal to replace the North American Free Trade Agreement (NAFTA). The new pact, the United States, Mexico Canada Agreement (USMCA) requires approval by lawmakers in each country and those efforts are currently underway. President Donald Trump has threated to repeal NAFTA if the individual countries do not ratify it’s replacement.

In a new report, the American Council for Capital Formation (ACCF) warns NAFTA termination would be a “big mistake” because the trade agreement has had an overall positive impact on the U.S. and North American economies. In order to prevent the U.S. president from making good on this threat, ACCF recommends lawmakers ratify the USMCA. ACCF Senior Vice President and Chief Economist Dr. Pinar Çebi Wilber, the report’s author, said “Over the last twenty-five years, NAFTA has had a profound impact, changing the North American economy by creating integrated supply chains and increasing productivity and economic activity in the region. Both in terms of output and employment, the agreement has been a net positive for the United States, Canada, and Mexico.”

According to Çebi Wilber’s report, since NAFTA was ratified:

  • Overall trade in goods and services between United States and its NAFTA trading partners almost quadrupled, from $337 billion in 1993 to $1.3 trillion in 2017.
  • The top two destinations for U.S. goods exports are now Canada and Mexico, accounting for 34 percent of all U.S. exports of goods and services.
  • Canada and Mexico became the second and third largest import source for the United States, comprising 26 percent of total U.S. imports.

The report argues that, that under various scenarios, repealing NAFTA without replacing it would result in jobs losses between 1.8 to 3.6 million and Gross Domestic Product (GDP) losses between 0.6 to 1.2 percent. Click here to read the full ACCF report.

The USMCA still has a tough path to ratification. As Politico explained last week, Senate Finance Chairman Chuck Grassley (R-Iowa) said early last week that President Donald Trump has once again said he will not lift his Section 232 steel and aluminum tariffs. Lawmakers in the U.S. House and Senate, including Sen. Grassley, and officials in Canada and Mexico all have said the tariffs must come off before they will approve the USMCA.