U.S. Negotiates Free Trade Agreement with Neighbors

There has always been a good argument for the effectiveness of democracy for producing harmonious neighbors. The question goes like this: can you imagine Canada and the U.S. or Mexico and the U.S. going to war with each other? The answer is an easy one and the point is to compare the sense of peace among neighboring democracies against neighboring countries that are not democracies. In regions where neighboring countries are not democracies, there is often tension and wars.

The U.S. and its neighbors share several things in common; they are free countries with elected leaders and they also engage in free trade and have trade agreements in place.

Since the mid-90s, trade between the U.S. and Mexico and Canada has been regulated by an agreement called NAFTA; the North American Free Trade Agreement. The agreement created one of the more successful trade zones in the world. It aided in increasing trade between the three countries.

Last year, the leaders of the three countries signed the new United States–Mexico–Canada Agreement (USMCA). The new agreement has strengthened and added chapters on digital trade, intellectual property protection and cross-border data flows. These additions to the original NAFTA agreement modernized the language of the law and made it relative to today’s technology.

American companies have located some of their manufacturing in the two neighboring countries. Many U.S.-branded cars and trucks are produced in Mexico or Canada for instance.

Mexico’s exports represent 37.8 percent of its GDP. Nearly 80 percent of Mexico’s exports go to the U.S. and Canada under NAFTA. Mexico’s unemployment rate is only 3.6 percent.

In addition to exporting vehicles, Mexico exports electrical machinery and equipment, computers, mineral fuels and medical equipment. Mexico saw a jump of 20.6 percent in vehicle exports from 2017 to 2018. For Canada, the total of exported goods and services represents 30.9 percent of the country’s GDP.

Crude oil heads the list for Canada’s exports. That is followed by vehicles and machinery. Canada’s unemployment rate is 5.8 percent.

The U.S.’s top exports include machinery, including computers, oil, electrical equipment and aircraft, followed by vehicles. U.S. companies, such as Walmart and Costco dominate the retail food space in Mexico with market share exceeding 50 percent.

Removing Obstacles to an Agreement

On May 17, 2019, the United States struck deals with Canada and Mexico to lift tariffs on steel and aluminum imports. This move removed a hurdle to an agreement on USMCA and its subsequent ratification.

The USMCA agreement was signed last November by the three countries and still requires approval from lawmakers in all three nations. The president has more recently suggested that an additional five percent tariff on Mexico would help convince Mexico to intervene with the many Central American caravans passing though the country to the U.S. border.

The circumstances of two Canadians being held by the Chinese has also entered the negotiations from Canada’s perspective as they pressure the U.S. to seek their release.

The hope of the new trade agreement is fairer trade for the U.S. and updated language that represents current technology and information capabilities. The agreement still has several hurdles to negotiate