Congress has been sitting on the United States-Mexico-Canada Agreement, or USMCA, for months. A badly needed update to NAFTA, the USMCA is in danger of being talked to death by Democratic House Speaker Nancy Pelosi, despite the free trade agreement enjoying broad bipartisan support. Many fear that if USMCA is not passed soon, it will fall victim to presidential politics and autumnal congressional budgetary brinksmanship. It goes without saying that most conservatives support it, as they do virtually any free trade pact.
But there’s another reason conservatives should get behind the USMCA: economic growth. According to the U.S. International Trade Commission, an independent federal agency that analyzes trade deals, the USMCA would create 176,000 new jobs and permanently increase the size of our economy by $68.2 billion, or 0.35%. That’s like giving $200 to every man, woman, and child in America, every year.
The pro-growth effects of passing USMCA are not generally well known despite the fact we’re talking about a tax cut on imports and exports — after all, tariffs are taxes. It’s possible to compare the growth effects of the USMCA with roughly equivalent pro-growth tax relief. It turns out passing USMCA has about the same economic impact as cutting the corporate income tax rate from 21% to 17%. That’s according to a rough estimate by Tax Foundation modeling expert Kyle Pomerleau.
In a divided Congress, that’s a tax cut we should take in a heartbeat.
U.S. trade with the rest of the world is very top-heavy. About 45% of our trade occurs with three countries in roughly equal measures: Canada, Mexico, and China. Our other major trading partners (Japan, Germany, South Korea, the United Kingdom, France, India, and Taiwan) are combined only half the trading power of the “Big Three.” It’s no wonder that President Trump has spent most of his trade attention on China and the USMCA.
Conservatives unhappy with the president on the China trade front should remember that Mexico and Canada, the scope of the USMCA, are twice as important to our trade economy as China is. That doesn’t mean China isn’t important, or that conservatives need to agree with Trump on China. It does, however, require conservatives to walk and chew gum at the same time and to focus a proportional amount of attention and energy on our biggest two trading partners, Canada and Mexico.
The USMCA would increase annual U.S. exports to Canada by over $19 billion and annual exports to Mexico by over $14 billion, an increase of 5%-10% above current levels. The independent U.S. International Trade Commission estimates that the agreement would likely have a positive effect on all broad industry sectors within the U.S. economy. Manufacturing would experience the largest percentage gains in output, exports, wages, and employment, while in absolute terms, services would experience the biggest benefits.
One of the other reasons the USMCA is good for economic growth is that it updates and protects intellectual property much better than the NAFTA structure does. The intellectual property chapter of the agreement contains strong and enforceable intellectual property rights that will make sure U.S. manufacturers and other creators don’t get their work stolen across borders. There’s also a new chapter on digital trade, something that didn’t even exist nearly three decades ago when NAFTA was first negotiated.
In many ways, the USMCA is a road map for future free trade agreements. Vice President Mike Pence has begun discussions with Japan and a post-Brexit United Kingdom, and in a second Trump term, these agreements will hopefully be hammered out along the pro-growth lines of the USMCA.
Conservatives need to push for USMCA passage as soon as possible, not just because we’re for free trade, but because we’re for pro-growth economic policy. The Trump administration has seen a surge in economic growth, wages, and job creation for a reason. Deregulation has been the steepest since the early days of President Ronald Reagan. The Tax Cuts and Jobs Act reduced tax rates on families and businesses, and decisively moved toward full expensing of capital purchases. The Trump administration is reportedly considering taking executive action to remove inflation from the capital gains tax, the equivalent of cutting the capital gains rate by a third.
USMCA is part and parcel of this bullish prosperity portfolio. Passing it, and passing it now, will help keep the economy and the stock market in the record territory we’re all benefiting from