The North American trade pact signed last year would have a “moderate” positive effect on the US economy, an independent US government report said on Thursday, an underwhelming endorsement as it faces an uncertain path to ratification.
The US International Trade Commission (ITC) said that the trade deal could actually dent the US auto sector, slightly increasing employment, but raising prices while reducing sales and manufacturing output.
US Trade Representative Robert Lighthizer said that the report showed there was “no doubt” the trade deal was “a big win” for the US economy, because the predicted gain was bigger than that for the Trans-Pacific Partnership, from which US President Donald Trump withdrew in 2017.
After a year of tough negotiations, Washington, Ottawa and Mexico City in November last year signed a new continent-wide trade deal, US-Mexico-Canada Agreement (USMCA), to replace the 1994 North American Free Trade Agreement (NAFTA) and revamp rules on manufacturing, digital commerce and labor rights, among other areas.
However, the boost to the US economy “is likely to be moderate,” given that most tariffs were already dropped region-wide 25 years ago and because the US economy is much larger than those of Mexico and Canada, the ITC report said.
Under the model used by the ITC, total US GDP would increase as a result of the agreement by just 0.35 percent, or about US$68 billion, and the US should gain 176,000 new jobs compared with a scenario in which NAFTA were to remain in place, the report said.
“The model estimates that the agreement would likely have a positive impact on all broad industry sectors within the US economy,” the report said.
Trade between the US, Mexico and Canada is also likely to increase, with US exports rising by about the same amount as its imports from the two partners, the report said.
Yet in the auto sector, outcomes were not so upbeat.
The US auto workforce would rise by a net 28,000 workers, but prices would also rise somewhat — actually cutting auto sales by 140,000.
Automakers would likely cease offering some vehicles as they become more expensive to produce, “which would ultimately decrease consumer choice,” the report said.
However, in a separate report released hours earlier on Thursday, the Office of the US Trade Representative (USTR) said that auto manufacturers would instead invest US$34 billion in the US and add 76,0000 jobs within five years of the date the deal takes effect.
A senior USTR official told reporters that USTR’s estimates were based on “hard numbers” manufacturers had given to the agency.
“We have unique insights as a result of the information that’s been provided to us, proprietary business information that has been provided to us by the companies,” the official said, speaking on condition of anonymity due to USTR rules.
Prospects for the USMCA’s ratification in the US Congress face what could be an uphill battle, with Washington reportedly reluctant to lift punishing steel and aluminum tariffs so long as Canadian and Mexican authorities object to export quotas.
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