The New USMCA – What It Means And How We Got Here

Economic Capability | CFEE | 10.23.18

In the beginning

On January 1st, 1993, the North American Free Trade Agreement – otherwise known as NAFTA – came into effect. That agreement, involving Canada, the U.S. and Mexico established the framework for trade within the three countries.  Not all trade was free trade – that is, with no tariffs, duties, quotas, etc. – but much more was free of such barriers than was the case before.  And, beyond the goods and services that were free to move across the borders, the limits/tariffs on other things were clarified and set out.

All in all, it significantly improved the trade relationship among the three countries and trade among them has grown.

The Challenge of Economic Adjustment

At the time of signing, though, a challenge was set forth.  Producers of various goods and services were challenged to adjust to new competition from the other partners in NAFTA. Whenever trading relationships change, some producers will face greater challenges than others to adjust to new competition. If those  companies do not adjust effectively in terms of how they produce, the quality of what they produce, the price they charge, the costs they face, etc. they may find they are doing worse than before. Some may even fail.

At the same time, other companies may flourish and grow as a result of new opportunities.

So economic adjustment is a key factor when trade relationships change.  When industries or companies struggle to adjust, and possibly fail, governments are likely to hear loud and clear from them that the new trading relationship is a problem.


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