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Changing the Game

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After much horse-trading and hand-wringing, it’s finally done. The United States-Mexico-Canada Agreement, or USMCA, has been completed and is officially making its way through Congress as we speak. So, let’s forego the pomp and circumstance and get straight to the question everyone wants answered: Is it better than its predecessor, NAFTA?

Well, yes. While the question of just how much better depends upon who you read, most everyone agrees that it’s an upgrade. President Trump tweeted that it “will be the best and most important trade deal ever made by the USA” — adding that NAFTA, by contrast was “our Country’s worst Trade Deal.” In a rare moment of agreement, House Speaker Nancy Pelosi echoed that view, saying in her announcement that “there is no question of course that this trade agreement is much better than NAFTA.”

That should make for an awkward exchange next time the Clintons are in DC.

But looking beyond partisan—or bipartisan—spin, how much of an upgrade can we actually expect? Well, the two deals are far more alike than they are different — and the impact of the renegotiated agreement may not be as big as some have forecast. In April, the US International Trade Commission found the initial version of the USMCA would create 176,000 jobs after six years and increase the GDP by 0.35% — an impact the agency described as “moderate. Thats certainly nothing to sneeze at, but must be put into context. For comparison’s sake: The US added 266,000 new jobs last month alone. It should be noted, however, that these estimates should not be taken as Gospel, as the full final version has not yet been released publicly. Also, in case you didnt notice over the past few years, the federal government tends to suck at economic forecasting. Thank God.

In any event, we do have the requisite information to outline key differences/upgrades between NAFTA and the USMCA. As with every other issue, I’ll provide both the good and bad so the reader can decide for themselves.

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Let’s talk about trade!
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The Good

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Below are the areas which most people can agree are improvements over NAFTA, at least everyone except those wearing pink genitalia hats.

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Auto manufacturing

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The USMCA requires 75% of a vehicle’s parts to be made in one of the three countries — up from the current 62.5% rule — in order to remain free from tariffs when moving between the three signatory countriesIt also requires more vehicle parts to be made by workers earning at least $16 an hour, which may provide a boost to manufacturing in the United States, where wages are higher than in Mexico.
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The International Trade Commission report found that these changes would add 28,000 jobs in the industry over six years, while also leading to a small increase in the price of vehicles that consumers pay.
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The car industry itself, however, believes the ITC is being too conservative in its estimates. The American Automotive Policy Council, which represents General Motors, Ford and Fiat-Chrysler, argued the main flaw in the ITC report is its underestimation of the long-term investments US automakers will make because of the USMCA.
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The Trump administration report has a more positive outlook, projecting that the deal would create 76,000 auto jobs over five years. That would mean a more than 7% increase in employment over the current 990,000 US auto workers. Not too shabby. All in all, the auto industry is pretty happy about the new deal going forward, as they recently expressed in a public statement:
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“The USMCA allows the US auto industry to remain globally competitive by ensuring vehicles and auto parts are able to move freely across country lines,” said the president of the American Automotive Policy Council.
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The one downside is auto plants tend to be capital intensive, which can make the movement of production a long, arduous process. Many analysts predict that some automakers may opt to pay the tariff, at least at first, rather than move plants or shift hiring. For some, the low cost of the tariff in comparison to the cost of moving shop will keep them stationary. Others are being more forward-thinking, though, opting to begin long-term investment as opposed to short-term savings.
GM, for example, said this week that the company had already made numerous changes in anticipation of the more stringent standards set by the USMCA, including shifting production plans of a new Chevrolet electric vehicle back to the United States, and building a new GM/LG battery plant near Lordstown, Ohio.
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That sound you hear was the last chance of Democrats winning Ohio going out the window.
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Stronger labor laws

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If Democrats have a logically consistent bone in their bodies, they’re really celebrating this aspect of the deal, as this has been a traditionally Democratic issue. Manufacturing workers have long blamed NAFTA for sending jobs to Mexico, where wages are lower, and it was a priority for Dims that the USMCA strengthen the enforcement of labor rules, creating a more level playing field for American workers.
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Lawmakers were able to include some changes to enforcement language before coming to an agreement Tuesday with the Trump administration, and the deal now has the backing of the AFL-CIO, the largest federation of unions in the US.
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“For the first time, there truly will be enforceable labor standards — including a process that allows for the inspections of factories and facilities that are not living up to their obligations,” said AFL-CIO President Richard Trumka in a statement.
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The deal struck by Democrats provides for an interagency committee that will monitor Mexico’s labor reform implementation and compliance with labor obligations and a set of benchmarks for Mexico to meet in implementing the reforms. That enforcement mechanism is as important as the deal itself, as Mexico would happily lower their standards in order to attract American companies if they knew they’d get away with it.
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The logic here is pretty simple, and unassailable in my view. Mexico has taken a sledge hammer to American manufacturing by offering cheap labor and lower working standards. Companies have seen what can be saved longterm on labor costs and headed to Mexico as a result. Now, that incentive is being removed. Free trade purists may not like it, but this is all but certain to help American manufacturing remain viable for decades to come. While some companies are sure to head to South America or elsewhere to get the cheap labor to which they’ve become accustomed, the pain of operating outside the USMCA will keep many at home. That means fewer plants packing up and heading south and more job security in the manufacturing sector for American workers.
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Forget Ohio, Dims may stand to lose the entire Rust Belt. Again.
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Market access for our dairy farmers

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The original NAFTA eliminated tariffs on most agricultural products traded among the three countries. Canada and Mexico are already the two biggest export markets for US farmers and ranchers.
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The USMCA will keep those tariffs at zero, while also further opening up the Canadian market to US dairy, poultry and eggs. In return, the United States will allow more Canadian dairy, peanuts and peanut products, as well as a limited amount of sugar, to cross the border.
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Bottom line: Same tariff rate with better market access for our farmers. It’s hard to argue this isn’t an improvement.
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Let’s get digital

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One area of trade that has been largely ignored has been technology. In fact, NAFTA doesn’t even have a chapter on digital technology, which is understandable given the fact it was negotiated three decades ago. The USMCA brings us into the 21st century by including sweeping new benefits for the technology sector. And while the new provisions aren’t expected to directly create new jobs, they could provide a boost to US businesses in other ways.
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For example, the new trade deal prohibits Canada and Mexico from forcing US companies to store their data on in-country servers. Data creates a clear new precedent. The provisional text states that “no Party shall prohibit or restrict the cross-border transfer of information, including personal information,” for business purposes, nor shall any country require companies to store “computing facilities” on its soil.Two Canadian provinces, Nova Scotia and British Columbia, currently have laws mandating the local storage of citizen data.

This is a direct response to China and its data policies that have hurt American companies for so long. The mandated construction of facilities and restriction of data flow across borders, like what China established, hurts American tech companies and trade overall. The USMCA made an important gain by ceasing the practice.

It also ensures that US companies cannot be sued in Canada and Mexico for much of the content appearing on their platforms — a legal protection Pelosi had pushed to exclude from USMCA amid an ongoing debate at home about whether tech companies still deserve that liability shield under domestic law.
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While the domestic debate over Big Tech’s content liability is a legitimate one, it is ours to have. If someone is going to set the rules for our tech companies, it should be us. Hopefully soon we’ll do just that, as companies like Facebook have tried to have their cake and eat it too by acting as a platform (as opposed to publisher) while still censoring content. That is another discussion for another day, though, and neither Canada nor Mexico will be part of it.
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Intellectual Property

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This is perhaps the most important of the new changes, as we’ve been getting absolutely reamed by our “friends” in the Far East in terms of intellectual property theft. While this trade deal is for North America, the practices established therein will change the way we do business with everyone.

The USMCA requires full national treatment for copyright and related rights so United States creators are not deprived of the same protections that domestic creators receive in a foreign market.

It also provides strong patent protection for innovators by enshrining patentability standards and patent office best practices to ensure that American innovators, including small- and medium-sized businesses, are able to protect their inventions with patents. Pharmaceutical and agricultural innovators have especially strong protections.

The deal will require a minimum copyright term of life of the author plus 70 years, and for those works with a copyright term that is not based on the life of a person, a minimum of 75 years after first authorized publication.

It requires strong standards against the circumvention of technological protection measures that often protect works such as digital music, movies, and books. It establishes appropriate copyright safe harbors to provide protection for IP and predictability for legitimate enterprises that do not directly benefit from the infringement, consistent with United States law.

Important procedural safeguards for recognition of new geographical indications (GIs) will be established, including strong standards for protection against issuances of GIs that would prevent American producers from using common names, as well as establish a mechanism for consultation between the Parties on future GIs pursuant to international agreements.

Finally, it will enhance provisions for protecting trademarks, including well-known marks, to help companies that have invested effort and resources into establishing goodwill for their brands.

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The Bad

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There’s no such thing as a perfect trade deal, but I’m happy to report that this section is much shorter than the “Good” section. Anytime that’s the case, we’re doing pretty well.

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Auto price hikes

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As a result of the aforementioned automobile changes, prices for cars will rise. While no longer being able to outsource to Mexico for cheap labor will keep many factories home, it’s also likely to cause price increases. The math is pretty simple. When labor costs more, so does the product.

In the long run, however, it better prepares the U.S. to face the far larger Chinese threat to automakers. So while this is in the “Bad” column, it’s more of a short-term inconvenience for long-term gain.

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Prescription drug competition

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Large pharmaceutical companies gain a much larger foothold in Canada and restrict potential legislation in the United States. Right now, the length of time that a drug can be protected from generic competition in the U.S. is twelve years, in Canada eight years, and in Mexico five years.

The Trump administration successfully pushed for a change to ten years. Though it helps to defend against foreign-made generic drugs, it artificially raises the price beyond what is necessary to ensure that developers can make returns and stifles competition.

Simply put, when industries are protected from competition, the consumer suffers. Kudos to the Trump administration for getting the wait time down to a decade, but the larger problem still persists. Damn Pharma lobby.

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Tariffs

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The 25% steel tariffs imposed on Canada and Mexico will stay, at least for the time being. President Trump indicated an intent to work on these further down the road, but their continued existence is never ideal.

The hope was that a new trade deal would eliminate the need for such punitive measures, which would bring down costs for the consumer, but as for now the tariffs remain in place. The good news is, the punishment from those tariffs hasn’t been nearly as bad as the doomsday naysayers have been suggesting ever since we took this route.

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Big Picture

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While there are some definite improvements to the trade relationship we share with Canada and Mexico, one of the main targets of this new deal is halfway around the world: China.

The U.S. is now better prepared for a trade war with China and sets expectations for its termination. It is clear that Trump views China as the main United States trade antagonist, and rightfully so. If Americans don’t like anything else about the Trump presidency, they should at least thank him for addressing China in a way that his predecessors simply wouldn’t, be it for reasons of incompetence or corruption.

Many of the changes included in the USMCA focus on specifically sending a message to Beijing. The change to data is one, but so too are “protections against misappropriation of trade secrets, including by state-owned enterprises.” If enforced properly—and the mechanisms do seem to be in place—this would be devastating to the multibillion dollar annual profits that China has enjoyed on the backs of intellectual property theft.

Most importantly, a China containment clause exists, which states “entry by any Party into a free trade agreement with a non-market country, shall allow the other Parties to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement).” This will ensure stronger North American cooperation in the face of potential moves by China.

In other words, China is now facing a united North American front, which is bad news for them considering they haven’t fared well against a good old fashioned American front over the past 3 years. This could very well be why China has come to the table recently to complete a “Phase One” deal. Up to now, their strategy has been to wait out the next year to see if their old Swamp buddies take back control of DC, thereby giving them free rein to fleece us once more. With this new trade deal on the horizon uniting North America against our Eastern competition, we now have a potentially game changing weapon in our arsenal: the prospect of trade reform beyond the Trump administration.

If they think the pain will come even with or without Trump, it changes the entire landscape. Rather than holding out hope for a return to the old way of doing things, they’re likely to surrender and see what favorable actions they can negotiate in order to mitigate the damage. The fact that the USMCA has bipartisan support helps greatly toward that end.

Isn’t it something what we can accomplish when Democrats actually work with the president rather than trying to destroy him?

Speaking of Democrats, the big picture analysis also extends to the political realm. The USMCA has put Pelosi and co. in a hell of an awkward bind. While the Schiff crew was laser focused on burning witches at the stake, calls began to stream in to Rust Belt Dims asking why this new trade deal was collecting dust. After some internal polling and a few hard-fought bouts with good ole common sense, Pelosi has since surrendered to reality and hopped aboard the USMCA train, as a failure to do so could have been disastrous for Dims in the formerly blue states that cost them the last election.

Unfortunately for Nancy, it may be too little too late. While moderate Dims could feasibly retain their seats with the proper level of cooperation with the administration, those who are voting to push impeachment to the Senate are choosing which narrative under which they’ll be defined. The contrast of the Trump administration fixing NAFTA while Dims played kangaroo court on CNN is striking and, politically speaking, manna from Heaven for the Trump campaign.

Luckily, Pelosi has gone too far to turn back now, so she and her cohorts will now be tasked with explaining to working class voters why it was a good idea to try to destroy the president at every turn while he worked to fix what they’d ignored for the last 30 years. Good luck with that.

The USMCA looks to kill three very dirty birds with one stone: outsourcing, China and the useless Democrat party.

Not a bad day’s work, Mr. President.

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