All About That Base(line): How to Interpret the International Trade Commission Report on USMCA
Apr. 16, 2019
By John G. Murphy, Senior Vice President for International Policy
On or around April 18, the U.S. International Trade Commission (ITC) is expected to release a report assessing the expected effects on the U.S. economy of the United States-Mexico-Canada Agreement (USMCA). Interpreting the report is going to be… complicated.
This report is required under the Bipartisan Trade Priorities and Accountability Act of 2015 (known as Trade Promotion Authority or TPA). Before new trade agreements are considered by Congress, the TPA law requires that the ITC prepare a report assessing the likely impact of the agreement on the United States economy as a whole and on specific industry sectors, including the impact the agreement will have on the gross domestic product, exports and imports, aggregate employment and employment opportunities, the production, employment, and competitive position of industries likely to be significantly affected by the agreement, and the interests of United States consumers.
It’s no easy task, and in the case of the USMCA, it may be harder than it was with past trade agreements.
One overriding question is: What’s the baseline? Unlike new trade agreements reached over the past two decades with countries from Chile and Singapore to South Korea and Colombia, the USMCA is a successor to the 25-year old North American Free Trade Agreement (NAFTA), which eliminated all Mexican tariffs on U.S. exports. With regard to Canada, the NAFTA and its predecessor, the U.S.-Canada Free Trade Agreement, eliminated Canadian tariffs on approximately 99% of all U.S. exports.
Historically, the economic effects of tariff elimination have been central to these ITC reports. In this case, the USMCA eliminates some remaining Canadian barriers facing U.S. dairy and poultry exports, but the bottom line is that there just aren’t many tariffs left to cut.
However, members of Congress reviewing the ITC report and considering their vote on the USMCA should look at the big picture. Liberalized trade with Canada and Mexico has been tremendously important to the U.S. economy.
A vote for USMCA is a vote to continue these far-reaching benefits. To recap, U.S. trade with Canada and Mexico:
•Reached nearly $1.4 trillion last year, or $3.8 billion daily;
•Supports 12 million American jobs in every state in the union;
•Is vital for U.S. manufacturers, who export more made-in-America manufactured goods to Canada and Mexico than they do to the next 11 largest export markets combined;
•Accounts for nearly one-third of U.S. agricultural exports;
•Powered growth in U.S. services exports from $27 billion in 1993 to $91 billion in 2017;
•Fuels growth among U.S. small and medium-size businesses, more than 120,000 of which sell their goods and services in our two North American neighbors.
Approving USMCA will safeguard these benefits for the years to come.
Looking at the issue another way, Trade Partnership Worldwide forecasts that transitioning to a scenario with no trade agreement of any kind with Canada and Mexico – and reverting to the higher tariffs and non-tariff barriers implied by trading under WTO rules and so-called “most-favored nation” tariff rates – would result in the loss of as many as 1.8 million American jobs.
Another aspect of the challenge the ITC faces in preparing its report is that many of the benefits of the USMCA will come in the modernized “rules” chapters addressing issues ranging from the digital economy and intellectual property protection to sanitary and phytosanitary rules for agricultural trade.
For example, the USMCA includes strong rules blocking “behind the border” barriers against U.S. exports. All too often, foreign governments deploy regulations or standards in an arbitrary way to block imports. The USMCA prohibits this kind of protectionism in disguise.
Demonstrating the benefits of these rules in dollar terms is exceedingly difficult. Yet these rules were very much at the forefront of industry’s concerns during the negotiations. They are hugely important to the business and agriculture communities.
How do economic models take these state-of-the-art rules? This is part of the ITC’s unenviable task. But the business community knows their benefits are very substantial.
In the end, the facts about North American trade and the USMCA are staring us in the face: Millions of American jobs, trillions in trade, and benefits for every state in the union. These facts should guide lawmakers as they consider their vote.