Question

Review the current regional trade pact is among Canada, the United States and Mexico. Which industries have gained from this trade pact? Which industries have lost from this trade pact? Please quantify your answers.

Answer 1

Ans- A trade agreement also known as trade pact is a tariff, wide-ranging taxes and trade treaty that often includes investment guarantees. When two or more countries agree on terms that help them trade with each other. The most common trade agreements are of the preferential and free trade types are concluded in order to reduce tariffs, quotas and other trade restrictions on items traded between the signatories.

On Sunday night dated 1st October 2018, President Trump wishes for a significantly revised North American trade deal. It took more than a year of intense negotiations between the United States, Canada and Mexico to reached on an agreement to update the North American Free Trade Agreement or NAFTA, the 1994 pact that governs more than $1.2 trillion worth of trade among the three nations.

The new deal won’t go into effect instantly. The key provisions of the trade pact don’t start until 2020 because leaders from the three countries have to sign it and then Congress and the legislatures in Canada and Mexico have to approve it, a process that is expected to take months.

The new deal will be known as the United States-Mexico-Canada Agreement or USMCA. Trump, who had long disdained NAFTA, had suggested that he might call it the “USMC,” in honour of the U.S. Marine Corps, but in the end, USMCA won out.

The sectors that benefited the most were agriculture, automobiles, and services.

U.S. farm exports to Canada and Mexico grew 156%, that's compared to a 65% increase in farm exports to the rest of the world. Farm exports to Canada and Mexico alone were greater than exports to the next six largest markets combined. Total farm exports were $39.4 billion.

NAFTA increased farm exports because it eliminated high Mexican tariffs. Mexico is the top export destination for U.S. beef, rice, soybean meal, corn sweeteners, apples, and beans. It is the second largest export destination for corn, soybeans, and oils.

NAFTA modernized the U.S. auto industry by consolidating manufacturing and driving down costs. Most cars made in North America now have parts sourced from all three countries. By 2020, Mexico will manufacture 25% of all North American cars.

The industry which has lost from this trade pact is the manufacturing industry such as vehicles, textiles, computers etc . Since labour is cheaper in Mexico, many manufacturing industries withdrew part of their production from the high-cost United States. Almost 80% of the losses were in manufacturing.

The hardest-hit states were California, New York, Michigan, and Texas. They had high concentrations of the industries that moved plants to Mexico. These industries included motor vehicles, textiles, computers, and electrical appliances.