When former President Donald Trump calls for some of these changes, he’s onto something—and his proposals would have a big impact on American consumers. The USMCA, short for the United States-Mexico-Canada Agreement, is a Trump-signed trilateral free-trade agreement. It has served as a vital underpinning for commerce among the three North American neighbors.
Since USMCA’s ratification, the agreement has been key to maintaining the current stability of the electronics manufacturing ecosystem. This ecosystem stretches across North America. Products produced in Mexico and Canada that comply with USMCA rules of origin are eligible to enter the U.S. duty-free. This policy has truly been the best way to ensure American consumers pay less. In fact, experts like these have raised alarm bells on the dangers of revoking these exemptions, predicting substantive price hikes for thousands of items.
Erica York, vice president of federal tax policy at the Tax Foundation, highlights the importance of USMCA exemptions. She adds that without them, Americans would pay significantly higher costs on the things we buy every day.
“Increased compliance with USMCA has shielded billions of dollars’ worth of imports from the new tariffs,” – Erica York
Analysis of recent data underscores the profound impact that the agreement has had on trade flows. Last year, only 38 percent of our imports from Canada qualified under USMCA rules of origin. At the same time, 49% of U.S. imports from Mexico met the same criteria. By August, that had increased to 86% of Canadian imports and 87% of Mexican imports. This uptick in compliance is indicative of a larger trend towards turning to USMCA for stability in trade and consumer pricing.
In his remarks, U.S. Trade Representative Jamieson Greer emphasized the importance of the agreement. He pointed out that unlike most trade deals, USMCA has a built-in five-year review period for at least making revisions or having an exit strategy.
“The reason why we built a review period into USMCA was in case we needed to revise it, review it or exit it,” – Jamieson Greer
Critics of any possible move to terminate USMCA completely point to the much larger, retaliatory implications for the health of the U.S. economy. Chris Mitchell, a representative of the electronics industry, states that removing the agreement would disrupt the production system that U.S. manufacturers rely on.
“USMCA is a cornerstone of North America’s electronics manufacturing ecosystem. Terminating it would disrupt the production system that US manufacturers rely on, leading to longer lead times and higher input costs,” – Chris Mitchell
The increasing integration of supply chains across the U.S., Mexico, and Canada makes this issue even more complicated. Hot goods, like consumer electronics and automobiles, may be stung with price increases. If the USMCA exemptions are amended or rescinded, that is exactly what would be needed. As experts have repeatedly warned, unexpected, severe disruptions to the supply chain—including from the pandemic—create longer production lead times. Second, they point out that these disruptions will increase input costs for American manufacturers.
Most notably, Trump has repeatedly signaled his intent to withdraw from the deal. He could do one or the other, allowing it to expire or re-opening negotiations with Mexico and Canada.
“We’ll either let it expire or we’ll maybe work out another deal with Mexico and Canada,” – Donald Trump
As talks to amend the terms of USMCA go on through the TPA, stakeholders are worried what change means for American workers and businesses. Finally, York warns that withdrawing from the agreement would damage the competitiveness of U.S. firms. This would create huge financial burden on American workers.
“That would make American workers poorer and American businesses less competitive, and for no good reason,” – Erica York