USMCA is signed into law, freight interests applaud the new deal

As was expected following both the United States House of Representatives and Senate each voting to move forward with the United States Mexico Canada (USMCA) agreement, as a replacement for its predecessor the North American Free Trade Agreement, USMCA was formally signed into law by President Trump yesterday.

USMCA, in various ways, is actually based on the same rules and procedures and most of the same products, as NAFTA, which took effect in 1994. Analysts say that there are some strong environmental and labor regulation improvements, and it incentivizes domestic production of cars and trucks. It’s also the first free trade agreement that has ever included intellectual property protections, which are very timely given the current trade wars that were triggered by the alleged theft of American intellectual property by China and other nations.

“USMCA is a great deal for all three countries, solves the many deficiencies and mistakes in NAFTA, greatly opens markets to our farmers and manufacturers, reduces trade barriers to the U.S. and will bring all three Great Nations together in competition with the rest of the world,” said President Trump.

And at a signing ceremony yesterday, United States Trade Representative Robert Lighthizer said that USMCA marks a significant improvement over NAFTA, in the form of its objectives to create more manufacturing jobs, protect America’s competitive advantage in technology and innovation, secure greater market access for American businesses, farmers, ranchers, and, critically, to change the stale politics of trade by creating bipartisan consensus around a new model that works better for all Americans. 

Before the House and Senate voted to approve USMCA, many legislators and business groups had been publicly clamoring for it to come to fruition, saying a stronger and more reliable deal was wanted, in addition to the need for a deal with more certainty for the cross-border markets in which the U.S., Mexico, and Canada participate in, too.

Similar sentiment had been issued in October by Neil Bradley, U.S. Chamber of Commerce executive vice president and chief policy officer, whom said that time was of the essence for Congress to move forward and enact USMCA sooner than later.

Bradley noted that the September edition of the Institute for Supply Management’s Manufacturing Report on Business posted its lowest reading in more than ten years, which, he said, extended the trend the U.S. Chamber started noticing at the end of last summer.

“We started to see weakness on the business side of the economy, in contrast to the consumer side, which runs the risk of an economic downturn and, if not sufficiently corrected, ultimately there is the possibility of a recession,” he said.

Freight transportation and business organizations applauded USMCA being signed into law.

“[This] is the beginning of the next phase in our strong and productive relationship with Mexico and Canada,” said American Trucking Associations (ATA) President and CEO Chris Spear. “ATA and our members are proud to have been engaged throughout the process, attending the ministerial conferences and working with the administration and our trucking partners in Canada and Mexico to shape this final outcome. We commend President Trump for making this a top priority of his presidency and seeing it through to completion.”

ATA pointed to data in a report from the United States International Trade Commission that indicated USMCA is projected to increase annual U.S. exports to Canada and Mexico by a combined $33 billion above the current NAFTA baseline, as well increase U.S. GDP by $68 billion, stimulating broad sectors of the economy that the trucking industry serves, like agriculture and manufacturing.

Association of American Railroads (AAR) President and CEO Ian Jefferies also had high praise for USMCA, saying that it will benefit all three countries for years to come.

“As an industry built on connecting goods and businesses, railroads know that free and fair trade makes both our supply chains and individual economies stronger,” he said in a statement. “Coupled with the Phase I trade deal with China, USMCA will provide certainty rail customers and American businesses need to grow and compete in world markets.”

At this week’s SMC3 JumpStart 2020 conference in Atlanta, Dr. Jeffrey Rosenweig, Associate Professor of Finance; Director, The Robson Program for Business, Public Policy, and Government, at Emory University, said that when looking at this deal from a transportation perspective, there is a lot to consider.

“As we have studied why do two countries do more international trade with each other, there have been two major factors that have been discovered,” he said. “One is are they big economies? The bigger the economies, it is more likely they have a lot of stuff to sell and purchasing power to buy stuff. And the other thing is literally how close they are to each other. If you have a land border as we do in North America, that makes it so much easier.” 

Rosenweig said this is viewed as what he called the “gravity equation,” in which two bigger bodies exert more gravity on each other, the closer they are to each other. Taking that a step further, he said that the biggest market for U.S. exports is Canada, with Mexico next, which speaks to the North-South transportation infrastructure and circling back to the gravity in the form of the free trade the three nations have with each other.