USMCA, the revamped North American trade pact, launches under growing threat of disputes

The revamped trade pact between the United States, Canada and Mexico taking effect on Wednesday was meant to create a kind of fortress North America, boosting the region’s competitiveness – but cracks were already starting to show in the foundation.

As the deal kicks in, the Trump administration was threatening Canada with new aluminium tariffs, and a prominent Mexican labour activist has been jailed, underscoring concerns about crucial labour reforms in the replacement for the 26-year-old North American Free Trade Agreement (Nafta). The risk of disputes among the three trading partners is growing, analysts say.

The US-Mexico-Canada Agreement (USMCA) includes tighter North American content rules for autos, new protections for intellectual property, prohibitions against currency manipulation and new rules on digital commerce that did not exist when Nafta launched in 1994, an agreement US President Donald Trump has lambasted as the “worst trade deal ever made”.

The coronavirus has all three countries mired in a deep recession, cutting their April goods trade flows – normally about US$1.2 trillion annually – to the lowest monthly level in a decade.

“The champagne isn’t quite as fizzy as we might have expected – even under the best of circumstances – and there’s trouble coming from all sides,” said Mary Lovely, a Syracuse University economics professor and senior fellow at the Peterson Institute for International Economics in Washington. “This could be a trade agreement that quickly ends up in dispute and higher trade barriers.”

The deal nonetheless gives Trump – who has pursued multiple trade disputes, notably with China and the European Union – an accomplishment to campaign on ahead of what is expected to be a tough re-election battle in November.