New NAFTA could add $62B to U.S. GDP, boost jobs, Congress told

The case for ratifying the revised North American trade agreement got a boost Thursday with the release of a new analysis by the U.S. International Trade Commission that predicted economic gains for all three partners if its changes are implemented.

International Trade Commission analysis suggests 'moderate' impact on U.S. economy

(Right to left) Prime Minister Justin Trudeau, Foreign Affairs Minister Chrystia Freeland, United States Trade Representative Robert Lighthizer, President of the United States Donald Trump, Mexico's Secretary of Economy Ildefonso Guajardo Villarreal and President of Mexico Enrique Pena Nieto participate in a signing ceremony for the new United States-Mexico-Canada Agreement in Buenos Aires, Argentina on Friday, Nov. 30, 2018. (Sean Kilpatrick/The Canadian Press)

The case for ratifying the revised North American trade agreement got a boost Thursday with the release of a new analysis by the U.S. International Trade Commission that predicted economic gains for all three partners if its changes are implemented.

"In light of the size of the U.S. economy relative to the size of the Mexican and Canadian economies, as well as the reduction in tariff and non-tariff barriers that has already taken place among the three countries under NAFTA, the impact of the agreement on the U.S. economy is likely to be moderate," the ITC concluded in its report.

Still, the ITC's model suggests the revised trade deal offers both economic growth — a 0.35 per cent boost to U.S. real gross domestic product (GDP), worth $68.2 billion — and employment growth (an estimated 176,000 jobs).

On the politically-sensitive matter of employment, the commission says the greatest gains likely would be for American workers with between 10 and 15 years of education. Workers with all levels of education may see their wages rise by an average of 0.27 per cent, the analysis concluded, with workers in manufacturing and mining benefitting the most. 

U.S. exports of goods and services to Canada are expected to increase by 5.9 per cent annually under the new deal. U.S. imports from Canada are estimated to rise by 4.8 per cent.

U.S. trade with the rest of the world is also expected to increase, but trade with NAFTA partners would represent a larger share of total U.S. trade, the ITC projects.

The study was requested and required by the U.S. Congress as part of its "fast-track" ratification process. American politicians now have an opportunity to review its findings before proceeding with legislation to approve the new agreement.

Its findings are good news for proponents of the deal eager for evidence that replacing the existing NAFTA would benefit all three countries.

Trade uncertainty costly

The study modelled the changes in tariffs and quotas that will affect trade in goods. But it also included a qualitative analysis of the significant measures on things like intellectual property and e-commerce.

Under the existing NAFTA, most tariffs on goods were already eliminated, so the net impact of the tariff changes is relatively small compared to the overall size of the U.S. economy. Much of the revised agreement deals with non-tariff barriers to trade and the rising importance of trade in services.

The ITC says it believes the parts of the agreement likely to have the most significant effects are the provisions that "reduce policy uncertainty about digital trade" and the substantial new rules of origin for tariff-free trade in the automotive sector.

The relatively rosy increase projected for U.S. GDP is based on the commission's decision to apply recent economic research on the benefits of reducing policy uncertainty to its estimation of impacts from international data transfer, cross-border services and investment.

Without this reduction in uncertainty, the report suggests, the U.S. economy could lose 0.12 per cent of its GDP.

U.S. Trade Representative Robert Lighthizer's office released a competing economic analysis of the impact of the USMCA Thursday, saying its findings were based on information provided confidentially by authomotive manufacturers. (Kevin Lamarque/Reuters)

Some economists expressed skepticism on social media Thursday about portions of the ITC's analysis.

The ITC's positive overall outlook is at odds with a working paper released last month by the International Monetary Fund, which used the same kind of economic modelling as the ITC did to predict the economic effects of changes to quotas and tariffs on goods.

Not only did the IMF paper find that the aggregate effects of the new deal are relatively small, it also concluded its measures could contribute to less economic integration and reduced trade.

The automotive changes — such as tougher requirements for regionally-sourced components and a $16 minimum wage — make vehicles more expensive to build and the sector as a whole less efficient. The IMF found that the net negative effect of the automotive chapter was larger than the deal's gains elsewhere, such as the boost in trade for dairy products.

Ratification unclear

"This report confirms what has been clear since this deal was announced," Oregon Senator Ron Wyden, the senior Democrat on the finance committee, said in a statement. "Donald Trump's NAFTA represents at best a minor update to NAFTA."

But the Republican chair of that committee, Chuck Grassley, said he was glad to see the ITC document the deal's benefits, particularly in "reducing non-tariff barriers and implementing rules and fair practices." 

So, will this report help United States Trade Representative Robert Lighthizer persuade both parties to proceed with ratification legislation?

"I don't think it will matter much to Lighthizer," said Daniel Pearson, a former chair of the ITC who now works as a trade consultant. "He's not an economist, he's an attorney. He's done what his boss wanted."

Tariffs on steel and aluminum and ongoing trade disputes with China are far more economically significant to the U.S., Pearson said.

"In the incredibly political world that the United States is in now, if [President] Trump wants it, that portion of his tribe will say, 'It's wonderful, let's do it,'" Pearson said.

Democrats, on the other hand, may be more influenced by what organized labour thinks of the deal, Pearson said.

Canadian analysis coming

"It's premature to talk about [ratification] being this spring because Mexico has not completed its labour law reform process," Celeste Drake of the American Federation of Labor and Congress of Industrial Organizations told CBC News recently. 

And that's not the only issue that could prevent ratifying the deal as-is. 

"There's a huge interest in the Democratic majority on the issue of drug pricing," Drake said.

The new NAFTA lengthens the period before cheaper, generic alternatives are available for biologic drugs. Drake is among those lobbying to remove this from the deal, but Canada and Mexico have ruled out re-opening negotiations — something Foreign Affairs Minister Chrystia Freeland recently called a "Pandora's Box."

"That's a negotiating position, saying there will be no more negotiation," Drake said. "I think that it's going to be difficult for [Trudeau's government] to explain, why you're going to have greater monopoly periods for brand name pharmaceutical companies that will cost anyone who's paying for drugs."

With several competing economic analyses now in circulation, including another paper released Thursday by the USTR, CBC News asked Global Affairs Canada whether the Canadian government was crunching its own numbers.

"As with all other recent trade deals negotiated by Canada, an economic analysis will be released in due course," said spokesperson John Babcock.