USMCA to replace NAFTA

The United States, Mexico, and Canada have finally agreed on concrete parameters of a new trade agreement that will replace the North American Free Trade Agreement (NAFTA), called the United States-Mexico-Canada Agreement (USMCA). Signing is expected in two months, and the agreement will take effect on 1 January 2020.

Some highlights:

  • The new deal requires 75% of a vehicle’s parts to be made in North America to sidestep tariffs (12.5 points higher than NAFTA requires) with the intent of returning auto production that moved abroad back to the US.
  • It also requires that 40-45% of car and truck parts be made by workers earning at least US$16 per hour, to discourage US-based manufacturers from looking south of the border for cheaper labor.
  • Outside of the auto industry, the agreement also covers issues like exchange rate regulations, digital piracy, and the trade of dairy products.
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