Friction, collision and tug of war, the 26 year old North American Free Trade Agreement (NAFTA) has come to an end in such a rhythm, replaced by the formal entry into force of version 2.0 "US Mexico Canada agreement" (hereinafter referred to as the US Mexico Canada agreement). Since US President Trump came to power, re discussing NAFTA has become a shadow over Mexico and Canada. Now, at the critical moment when Trump's first term enters the countdown, the US Mexico Canada agreement has finally won, and Trump's record has increased by one. But the key question is whether the new agreement can hedge against the economic impact and even the overall economic effect of the epidemic.
On July 1, Mexican President Lopez delivered a speech on the formal entry into force of the US Mexico Canada agreement at a press conference held at the National Palace in Mexico City. (photo source: Xinhua News Agency)
01
New agreement comes into effect
After three years of tugging, Trump's heart disease was finally relieved. According to Xinhua news agency, on July 1 local time, the U.S. - Mexico Canada agreement, which aims to update and replace North American Free Trade, officially entered into force. "Today marks the beginning of a new chapter of trade between the United States and Mexico and Canada," U.S. trade representative lethizer said in a statement on the same day. He said the agreement would bring more jobs, stronger labor protection, expanded market access and more trade opportunities for enterprises.
As usual, the United States is still preaching the benefits of the new agreement. Wright F Ze said that influenced by COVID-19, the United States should now strive to increase domestic manufacturing capacity and investment and stop the "outsourcing of employment" than ever before, and the US Mexico agreement is a major step forward. On the same day, trump also issued a statement saying that he fulfilled his campaign commitment to end NAFTA and welcomed Mexican President Lopez to visit the White House on the 8th to continue dialogue on trade, health and other issues vital to regional prosperity and security.
For trump, the conclusion of the US Mexico Canada agreement is something to celebrate. After Trump came to power in 2017, he repeatedly criticized NAFTA for causing the loss of US manufacturing jobs, and the trade deficit always made trump resentful. At that time, trump even stressed that the United States either withdrew from the NAFTA or renegotiated the contents of the agreement. After more than a year of hard work, the United States, Mexico and Canada initially reached an agreement on updating the NAFTA in September 2018.
However, later, members of the U.S. Congress demanded that some provisions of the U.S. - Mexico Canada agreement be amended to address concerns about labor, environment and pharmaceuticals, which led to another twists and turns in the negotiations. During this period, the United States kept putting pressure on Mexico and Canada, and even threatened to impose tariffs. After months of consultation, the three countries signed the revised US Mexico Canada agreement at the end of last year. The U.S. Congress finally approved the agreement in January this year and submitted it to trump for signing into law.
It is understood that the new US Mexico Canada agreement retains most of the contents of the original agreement, but changes have taken place in several key aspects. For example, the rules of origin have been further improved, that is, 75% of auto parts must be produced in three countries in order to enjoy zero tariff, compared with 62.5% in the original agreement. In addition, the agreement also includes that by 2023, 40% - 45% of the parts of zero tariff cars must be produced by workers with a minimum hourly wage of US $16; Mexico and Canada have obtained a "unilateral guarantee" from the United States on tariff exemption for their cars; Canada has agreed to cancel the "level 7" dairy pricing agreement and open about 3.5% of the dairy market share to the United States.
At the same time, the agreement also adds exclusivity to non market economy countries, that is, if any of the three parties reach a free trade agreement with non market economy countries, the other two parties can kick them out of the agreement.
02
Mecca's hope?
The new agreement seems to be the best outcome of the tripartite negotiations. At a press conference on the morning of the 1st local time, Mexican President Lopez affirmed that the entry into force of the agreement is of great significance in the field of economy and trade. Novel coronavirus pneumonia minister Graciela Marcos said at the press conference that the agreement would be able to offset the negative impact of the new crown pneumonia epidemic on the economy. Canadian Prime Minister Trudeau also recently said that in view of the fact that the total amount of trade between NAFTA members in 2018 is close to C $1.5 trillion, the importance of the new agreement for maintaining free and fair trade among the three countries "cannot be overemphasized".
Previous analysis reports suggested that the Mexican economy will drop by more than 7% this year. At that time, Lopez mentioned that April to June is the most difficult "bottoming out" period for Mexico's economy, and then it will gradually recover. With the US Mexico Canada agreement coming into effect on July 1, Mexico's economic indicators are expected to improve significantly in the second half of this year.
Chen Yuanting, an associate researcher at the Latin American Institute of the Chinese Academy of Social Sciences, said that for Mexico, the US Mexico Canada agreement does not mean how much benefit it brings, but that if the US Mexico Canada agreement cannot continue, it will bring more losses and hit its economy even more. In terms of the agreement, Mexico and Canada must have made concessions. For example, there is a controversial clause, that is, when enterprises of both sides have disputes, it is not particularly beneficial to Mexican enterprises, and the exclusive agreement will restrict the economic closeness between Mexico and countries other than the United States and Canada. However, as far as the current situation is concerned, this concession is actually acceptable to Mexico, after all, Mexico's economic development in recent years It's too tight. I can't think of too many other things now. I have to keep the agreement first.
It seems that Mecca is cheering for the new agreement, but there are always circumstances that show that the reality is far from as good as it seems. For example, Canada needs to further open its dairy products and egg poultry markets, which have always been highly protected for supply channels, and some provinces also need to lift restrictions on the import of wine. It should be noted that the differences in dairy products were once the biggest obstacle to the negotiation of the new agreement between the United States and Canada. David Waynes, vice president of the Canadian dairy farmers association, once mentioned that "for American farmers, the Canadian market is insignificant, but for us, it is the livelihood."
Sun Jie, a researcher at the Institute of world economics and politics of the Chinese Academy of Social Sciences, said that the United States, relying on its own strength, took the initiative to re sign the agreement. From this point of view, the United States certainly took advantage of it more than before. In the final analysis, it can be regarded as a political achievement of trump. However, there is mainly visible trade between the United States, Mexico and Canada, which is greatly affected by the epidemic situation. Even if an agreement is signed, the expected effect may not be fully realized. After all, it is still a matter of two whether production can go up and sales can go up.
Earlier, a study released by the Peterson Institute for international economics, a well-known us think tank, also believed that the stricter rules of origin for automobiles in the new agreement would restrict trade and damage relevant industries in the United States, which would have a negative impact on the economies of the three countries. The Mexican business community and scholars are also cautiously optimistic about how good the agreement will bring to Mexico, which is facing a severe economic recession due to the epidemic.
03
The United States is supreme
In the face of the new agreement, Mexico and Canada have made more concessions than the United States. For example, the United States has won important concessions from other two countries in key areas such as agriculture, automobile, steel and aluminum products and labor market. In addition, the US Mexico Canada agreement requires the three countries to undertake equal obligations in market opening and trade liberalization. As a developing country, Mexico is bound to sacrifice greater interests. The value orientation of "free, fair and equal" international trade advocated by the new agreement is also to reduce the trade surplus between Mexico, Canada and the United States, which is no different from tailor-made for trump.
But none of that may matter. Chen Yuanting commented that the new US Mexico Canada agreement embodies the principle of us supremacy and us first. For example, some provisions are more in line with the interests and demands of the trump government, including the rules of origin for automobiles and the exclusive agreement known as the "poison pill clause". The latter will increase trade barriers between other WTO members and the United States and Mexico, and the non market economy restriction clause will make WTO members more vulnerable From this point of view, it also reflects the trump administration's hope to revive the U.S. manufacturing industry through the agreement and Trump's long-standing priority principle of the United States.
In fact, an important part of the new agreement is to gradually transfer the automobile supply chain to North America, so as to push the manufacturing industry back to the United States. This is what trump has been emphasizing since he took office. We need to know that it is white blue collar workers in the United States who support trump to win the presidency, and they are exactly the biggest beneficiaries of the return of American manufacturing industry. They are closely linked, and Trump's intention can not be more obvious.
Liu Xiangdong, deputy director of the Economic Research Department of China Center for international economic exchanges, also said that the internal contradictions in the United States are relatively obvious. In this case, it is difficult for the American people to worry about others, resulting in some national emotions of national priority. Trump will also use this national emotion as his election card. From this point of view, his words and deeds are very important At least in the hearts of the American people, this kind of protectionist and domestic priority measures can still get some support.
When trump emphasizes the priority of the United States, even with the protection of the new agreement, the relationship between the United States, Mexico and Canada may not be as strong as it seems. On the one hand, there is a long-standing border issue between the United States and Mexico. On the other hand, there is a dispute between the United States and Canada over aluminum products.
Recently, according to a report by the Peng Bo news agency, the trump government is considering imposing tariffs on Canadian aluminum products again. In response, Trudeau said on June 29 that the United States needs Canadian aluminum. If the United States imposes tariffs, it will only increase the input of its manufacturing industry and the cost of consumers, and damage its own economy. Because of the economic connections between the two countries, punitive taxation will hurt Canadians as well as Americans.