It’s been nearly a year since leaders from the U.S., Mexico and Canada signed the United States-Canada-Mexico Agreement, but the future of the detail is up in the air and this uncertainty could have significant consequences for Arizona’s economy.
The USMCA, signed last November as an update to the 1994 North American Free Trade Agreement, seeks to promote free trade among the three countries by limiting the use of tariffs and regulatory powers on the exchange of goods and services.
Ratification of the USMCA is particularly critical for Arizona; the state exported $7.6 billion in goods to Mexico in 2018, making it by far Arizona’s largest international trading partner, according to the Office of the United States Trade Representative.
But so far, only Mexico has ratified the agreement and congressional approval of the deal in the U.S. is far from guaranteed.
Republicans have fallen in lock-step with President Trump, pushing for immediate ratification of the USMCA, despite the many concerns economists and experts have raised about the deal Trump negotiated.
Democrats have also raised concerns and have been working with United States Trade Representative Robert Lighthizer for several months as they try to negotiate stronger environmental and labor standards into the deal and ensure the deal has reliable enforcement mechanisms.
They’ve also taken issue with a clause that would grant North American pharmaceutical companies a ten-year exclusive patent on “biologics,” — specialty drugs that are made with living cells — and prevent lawmakers from doing anything to reign in the resulting monopolies.
As it stands, the rule would allow drug companies to raise the prices on potentially life-saving drugs as much as they want since they’d have no generic competition for a decade.
Assuming they can resolve these issues, Democrats have made it clear they want to find a way to pass the bill. “We’re moving ahead on USMCA hoping to be on a path, a continuing path to ‘yes,’” said House Speaker Nancy Pelosi while speaking to reporters on Thursday.
Why the USMCA matters for Arizona
North American trade is so critical to Arizona that one in five manufacturing firms in the state exports to Mexico and Canada, and those two countries purchase more than 40% of Arizona’s global manufacturing exports, according to data from the National Association of Manufacturers.
More than 19,000 manufacturing jobs in the state also depend on tariff-free exports to Canada and Mexico.
Whether the trade deal is ratified could also affect the futures of hundreds of thousands of other Arizonans, whose jobs rely on trade in some capacity.
“The US Chamber of Commerce says that over 700,000 jobs in Arizona are directly related to traded industries,” University of Arizona School of Government and Public Policy Professor Jeff Kucik told News4 Tucson. “So trade matters for everyone, and the importance of the USMCA is that it’s not just about trade promotion, it’s about increasing stability in the marketplace.”
The trade issue is particularly significant for local Arizona companies that are suffering from steel and aluminum tariffs — a consequence of President Trump’s ongoing trade war.
“In the Tucson area, we’ve seen everyone from Caterpillar to local craft brewers express concern about uncertainty over trade policy and the higher prices that they’re causing,” Kucik said. “So this is really an issue that matters for the entire state.”
While the consensus is that the USMCA isn’t actually much different from the initial NAFTA, Kucik told UA News there are some key differences, including a new rule that 40% of passenger vehicles must be produced in North American facilities where workers make an average of $16 per hour.
“You could claim it’s a victory for manufacturing workers, because it looks like a minimum wage,” Kucik said. “But it’s more of a trade protection. U.S. manufacturing employees make much more than that on average. Mexican workers make much less and are not likely to get a raise to $16 per hour. So it limits the relocation of manufacturing jobs.”
Arizona companies exported almost $250 million worth of automotive parts to Mexico in 2018, according to the Eller College of Management Arizona-Mexico Economic Indicators data.
The deal would also call for zero tariffs on most produce, which would directly impact Arizona’s agriculture companies along the southern border.
Sergio Puig, professor in the James E. Rogers College of Law at UA, says the biggest worry for Arizona agriculture and other industries is the possibility of the deal falling apart. “The lack of a free trade agreement with Mexico would be devastating for the economy of Arizona…the economy of Arizona depends on exports to and imports from Mexico,” Puig told UA News.
Puig said that maintaining NAFTA would be fine, but passing the USMCA would be preferable, as it “creates some new modernizations that may facilitate even more trade.” According to Puig, those modernizations include trade facilitation, digital trade and e-commerce provisions, as well as better labor, social and environmental protections.
On the other hand, if the USMCA isn’t ratified and President Trump withdraws from NAFTA, the effects could be devastating.
“Trade policy affects all levels of the market,” Kucik told UA News. “It affects governments, it affects big multinational firms, but it also affects small mom and pop shops and individual workers.”
Kucik cited the impact that steel tariffs could have on local craft breweries, which might struggle to afford price increases on the metal they use for kegs and cans.
Despite these benefits, Kucik notes that there is a trade-off to trade (pun intended). While free trade gives Arizonans access to cheaper foreign goods, “if we buy more stuff from abroad, we’re buying fewer things made at home,” Kucik told UA News. “So the political tradeoff is foreign goods versus U.S. jobs, and everyone has to make that political decision for themselves.”
House Ways and Means Chairman Richard Neal (D-Mass.), who leads the working group negotiating changes to the USMCA, told reporters on Wednesday that Democrats are continuing to negotiate. Politico reported that the working group plans to send another counter-proposal to the Trump administration by the end of the week.