Why Congress Needs to Pass the United States-Mexico-Canada Agreement (USMCA)

Monday, July 22, 2019

By Ann Wilson, senior vice president, government affairs, Motor & Equipment Manufacturers Association (MEMA) and its aftermarket division, the Automotive Aftermarket Suppliers Association (AASA)    

One of the first actions the Trump administration took in 2017 was to trigger the renegotiation of the North American Free Trade Agreement (NAFTA). It was time. At almost a quarter of a century old, the agreement predated the internet. It did not adequately address digital trade, services liberalization, state enterprise restrictions, or emerging labor and environmental issues. It was ready for an update.

The three countries got together and did the hard work necessary to create a new North American trade deal, now called the United States-Mexico-Canada Agreement (USMCA). It was signed in November 2018, but the agreement must be ratified by all three countries before it can take effect. Mexico ratified the agreement earlier this year, but the United States and Canada have not as of yet. I cannot over emphasize how important it is that they do.

The motor vehicle parts manufacturing industry has flourished for a generation under NAFTA, and now it is the largest sector of manufacturing jobs in the United States. Together, parts makers are bigger than the auto makers themselves. As an industry, we represent almost 3 percent of the U.S. GDP and a total of 4.26 million jobs. This strength is only possible if a reliable trade agreement with Mexico and Canada is in place. They are our largest trade partners. Our neighbors to the north and the south purchase 20 percent of the total value of U.S. manufacturing output – more than the next 11 countries combined—and this supports about 2 million American manufacturing jobs and 43,000 small- and medium-sized businesses in the United States, according to the National Association of Manufacturers. Much of what you see at AAPEX is made possible because of a reliable North American trade agreement. We simply cannot afford a good trade agreement with Canada and Mexico to fail. But there’s more to it than that.

Let’s look at it from another angle: Every other major manufacturing hub around the world, such as Asia and Europe, has a similar trade agreement with its neighbors. Eliminating a North American trade agreement would simply put U.S. companies at a significant disadvantage to their competitors abroad. The playing field would not be even.

Here’s a good metaphor for the situation: Imagine you owned a lemonade stand, and someone in the next neighborhood owned one, too. Your neighbor is able to purchase lemons for $5 a bushel from the farm next door, but you have to go clear across town to buy lemons and pay twice the price. The competing lemonade stand can charge 50 cents for a glass of lemonade and still make a modest profit. But you have to charge $1 just to break even. Even if your lemonade tasted better, sales would plummet. You would be unable to compete. It would not be long before you had to lay off your lemonade makers and close your lemonade stand. This may be oversimplifying the case, but we do not want employers in the United States to struggle this way on the global “block.” We want them to get their lemons at a good price and right next door.

Finally, with stability comes investments. Putting a North American trade deal at risk puts investments at risk. Without a reliable agreement, companies will become wary of building or expanding production facilities here in the United States and will simply move them to where they feel more secure. And with that will go the technologies and advancements that have propelled our industry and set it on the right foot for the future. The United States will lose its leading technological edge along with desirable, high-quality jobs. 

Of course, there are many other factors at work creating today’s tumultuous international trade environment. But there is no doubt that the first step we need to take is to stabilize trade with our North American neighbors. It is critical. For this reason, MEMA/AASA has encouraged Congress to pass the United States-Mexico-Canada Agreement without delay. We live and work in a global marketplace, and we need to make sure our companies can compete.

To learn more about this issue and get up-to-date information on North American trade at AAPEX 2019, attend the session titled “Trade, Regulation, and Other Policies Impacting Your Business” on Wednesday, Nov. 6 from 11:30 a.m. to 12:30 p.m. You can find that AAPEXedu session and many more at https://www.aapexshow.local/attendee/aapexedu/.