For 13 months the United States and Canada have been involved in what some might consider to be a trade dispute. The President has consistently attacked the North American Free Trade Agreement (NAFTA), the trade agreement between Canada, the United States and Mexico. His goal has been to rework this deal to make it more beneficial to the United States. In his quest to do this, Mr. Trump has threatened tariffs on both Canadian and Mexican imports, while increasing his harsh rhetoric towards these two key allies.
Late last night, it appears as if Mr. Trump got his wish, a deal to replace NAFTA called USMCA. USMCA stands for the United States-Mexico-Canada Agreement, and it is incredibly similar to NAFTA in nearly every way.
The key concession that Trump has won from Canada is that the Canadian dairy market will be opened up for more American products. Under this portion of the agreement, the United States will have access to 3.6% of the Canadian dairy market, which will help US dairy farmers, but only by a very small margin. In fact, if the United States remained in the Trans-Pacific Partnership, this figure would have been 3.25%. Additionally Canada had only closed this market to the United States 18 months ago, after Trump had been inaugurated, in order to help their domestic dairy industry. Dairy makes up just 0.06% of our overall trade with Canada, or to put it in more general terms, for every $1000 in trade with Canada, dairy makes up $0.60 of it. Canada has also agreed to eliminate its “Class 7” pricing system for certain milk ingredients.
This rather insignificant portion of the deal, which appears to be the biggest change from NAFTA, did come with concessions on the part of the United States. The United States has in turn agreed to Canadian demands of allowing them to keep in place protections of cultural industries and of maintaining the existing tariff settlement system that they have. This portion of the agreement was a big win for Canada. Also the new USMCA agreement offers significant protection for Canada against the auto tariffs that Trump has been threatening them with over the last several months.
While there are other very minor changes to the agreement, including new rules to phase out Chapter 11 lawsuits and changes to the automobile trade, they are mainly just cosmetic in nature.