USMCA Finally Takes Effect

The United States-Mexico-Canada trade agreement — better known as USMCA — went into effect last week (July 1).

USMCA replaces the North American Free Trade Agreement (NAFTA). While NAFTA clearly needed an update, South Carolina has directly prospered because of the 1994 treaty. Since NAFTA was signed, South Carolina’s trade with Canada and Mexico has grown 381 percent ($4.4 billion), and since 2006, our exports alone have grown $1.3 billion. In the Upstate, exports account for $15 billion in economic activity. Canada is our second-largest trading partner and Mexico ranks fourth. (China is first, Germany ranks third, and the United Kingdom ranks fifth.)

Replacing NAFTA with USMCA has been a long and winding road with many speed bumps along the way. The Upstate Chamber Coalition has long supported trade deals that benefit the Upstate economy. The Upstate has a strong export economy, so opening markets to goods manufactured here benefits everyone in the region. By establishing a stronger, more modern trilateral trade program, we enhance our security. By strengthening supply chains, improving critical infrastructure, and hedging us against global market fluctuations, we are enhancing the security of North America.

What’s in the USMCA? Here are a few parts of the agreement that might impact you:

1. Autos: Automobile manufacturing and assembly is a major part of South Carolina’s economy. One of the biggest USMCA changes requires increased North American content in cars — to 75% from 62.5% under NAFTA — with a new mandate to use North American steel and aluminum. In addition to that, as much as 45% of a vehicle’s value must come from “high wage” areas paying workers at least $16 an hour. Analysts have said the new agreement could impact the operations of some foreign-brand automakers in the United States by requiring them to invest in new U.S. or Canadian suppliers for high-value components (such as engines, transmissions, and/or other high-value parts).
2. Digital Trade: Customs and other tariffs on digital products such as music, games, videos, and e-books are now prohibited. USMCA also doubles the thresholds in Mexico and Canada for imports subject to duties and customs declarations — that should benefit online retailers and small businesses who may be importing small orders.
3. Prescription Drugs: USMCA limits some patent protections for pharmaceuticals. The deal also removes a provision that some believe blocks generic competition.
4. Labor: The deal allows the US and Canada to convene international labor experts to hear complaints if Mexican factories are denying workers the freedom to organize and bargain collectively — with the hope that will push up wages for Mexican workers. Offending facilities could lose tariff-free access to American and Canadian markets.

No trade deal is perfect, but we believe the USMCA will allow the Upstate’s trade with Mexico and Canada to continue to grow.