NAFTA, is called the United States, Mexico, Canada Agreement, or USMCA.

" /> NAFTA, is called the United States, Mexico, Canada Agreement, or USMCA.

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Economics expert speaks on how new trade policy will impact Kentuckians

10/03/2018 02:09 PM

LEXINGTON— After weeks of uncertainty, people all over North America woke up to news of a new trade deal between the United States, Mexico and Canada.
The agreement, which replaces NAFTA, is called the United States, Mexico, Canada Agreement, or USMCA.

It was a celebration on Wall Street as stocks jumped following an 11th hour trade agreement between Mexico, the United States, and Canada.

“Once approved by Congress, this new deal will be the most modern, up to date and balanced trade agreement in the history of our country, with the most advanced protections for workers ever developed,” President Trump told a crowd at the White House.

The new trade agreement is one of the few times where Trump and Canadian Prime Minister Justin Trudeau have agreed. Trudeau said, “It’s an agreement that
when enacted will be good for Canadian workers, good for Canadian
business, and good for Canadian families.”

Kathleen Montgomery, the head of the University of Kentucky’s Patterson School of Diplomacy and International Commerce spent the day looking over the agreement. She explained, “These are moderate changes, small changes over what NAFTA was, and the changes incorporate a lot of what the US would have gotten under the Transpacific Partnership.”

Trump was against the TPP, a trade agreement that would have included 12 countries. Montgomery explained, there is one main difference between the TPP and USMCA. “The feeling of the current administration, and to be fair administrations prior to it, particularly under George W. Bush, has been bilateral trade deals provide a more effective negotiating position for the U.S. and that is the position of the trump administration. So this administration seems to prefer bilateral, or in this case, tri-lateral trade agreements to more multilateral trade negotiations.”

Montgomery says, having a trade deal in place is imperative for Kentucky. ““Canada is Kentucky’s biggest trade partner. About 25 percent of Kentucky’s exports overall go to Canada and that has been increasing in recent years, up about 11 percent in the last two years. Mexico accounts for about 7 percent of Kentucky’s exports. So together, Canada and Mexico represent about a third of Kentucky’s exports across a range of products.”

One of the main places that will impact Kentucky is dairy products, which account for about $40 million worth of exports. Montgomery explained, “Protection of the dairy industry in Canada was one of President Trump’s main complaints about the agreement with Canada, so Canada has relaxed some of the restrictions on specific categories of milk products.“

Another possible impact would be with the new requirements for auto manufacturing. As Montgomery explained, they include “An increase in percentage of cars that must be produced within North America, from 60 percent to 75 percent. And in addition, a significant portion of automotive manufacturing must be carried out by plants where workers earn on average $16 an hour. That is about three times what the going Mexican wage is.”


Montgomery says that could impact more than just the auto industry. “We could see some increases in car prices. We might see a decrease in the variety of cars that are produced here, particularly smaller automobiles. Additionally, cars that might have been produced within NAFTA for export to countries out of NAFTA might shift their production.”

However, Montgomery says overall, people shouldn’t see too much of a change happen with the new agreement. “This is very close to what the original agreement was, but it includes relaxation in specific sectors, however the steel and aluminum tariffs on Canada and Mexico have hot been lifted, so that remains. But it also heads any concerns about a future trade war and we saw the markets respond today on news of NAFTA and we saw both the Peso and the Canadian dollar strengthen in response to that news.”

While that is the case, Trudeau warned of celebrating too quickly. At a news conference, Trudeau warned, “A word of caution – we’re not yet at the finish line. This agreement still needs to be ratified, in Mexico, in the United States and in Canada. But, what I can say is that free and fair trade in North America, a trading zone that accounts for more than a quarter of the world’s economy with just 7% of it’s population, is in a much more stable place than it was yesterday.”

The agreement will still have to be approved by Congress, and they will not get to it until the next year.

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