The almost 25-year-old North American Free Trade Agreement (NAFTA) has been relegated to the dustbin of history. The United States, Canada, and Mexico have agreed on a trilateral trade deal — the United States-Mexico-Canada Agreement (USMCA) — to replace it. As expected, the agreement finalized on Sept. 30 is intended to stimulate production in North America and deter outsourcing to low-wage countries in Asia. Imports from other states are being penalized. The timing is perfect. Now President Trump can tout the USMCA as a win just as the November midterm elections are drawing near.
The USMCA contains a special clause that gives Washington a near-veto over any attempt by Canada or Mexico to make deals with China. It stipulates that if one of the three were to sign a free-trade agreement with a non-market country, either of the other two would have the right to terminate the trilateral USMCA with six months’ notice and form its own bilateral deal on the same terms. As a result, Canada and Mexico cannot act as back channels to ship products tariff-free to the United States. The US and the EU have not recognized China as a free-market economy. Neither has the WTO.
This is a major threat to Beijing’s position within the global trading system. China is Canada’s second-largest trading partner and Canada is China’s 13th largest. What this agreement actually is is a forerunner to an economic and trade alliance created in opposition to Beijing. Once it takes effect after being approved by parliaments and Congress, the USMCA will be the first step in an anti-Chinese global campaign, to be followed by other deals aimed at the same goal. Evidently the US is going to insist that a similar clause be inserted into other trade accords, particularly the ones being negotiated with the EU and Japan, plus the one it is trying to develop with other nations of Asia-Pacific region.
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