Developing a roadmap for USMCA success

Introduction

The passage of the United States-Mexico-Canada Agreement (USMCA) through the U.S. Congress with overwhelming bipartisan support, as well as with strong political backing in Canada and Mexico, underscored the importance of USMCA for North American trade and economic relations.¹ It builds on the North American Free Trade Agreement (NAFTA) and largely retains NAFTA’s commitment to lowering trade barriers although it rolls back trade openness in the auto sector. USMCA also adds robust new and timely commitments, particularly on digital trade, labor, and the environment.

The importance of USMCA for regional economic relations is amplified by growing geopolitical competition with China and the COVID-19 pandemic. This competition is over whether China will develop the world’s largest and most innovative economy in this century with attendant military prowess, or whether the U.S., and the West more broadly, will retain its economic lead and dynamism. These tensions are leading to calls to reduce North America’s economic reliance on China. The pandemic has also underscored the importance of expanding and deepening resilient supply chains, of which reshoring activities within North America will be vital to the region’s economic health and sustainability.

USMCA presents an opportunity for the three countries—U.S., Mexico, and Canada—to “build back better” and leverage the region’s collective talents, capital, and expertise to develop a more competitive, sustainable, and inclusive North American economy, which can rival some of its fiercest competitors. Ideally, USMCA will also provide a sustainable framework for the region to work as key partners on important and forward-looking issues.

At this critical juncture, the Global Economy and Development program at Brookings established the USMCA project to research, monitor, and support the development of an ambitious but achievable USMCA agenda. This work includes a website that will house the interactive data on North American trade and investment flows, track USMCA committees and dispute settlement action, and follow compliance with USMCA commitments. It will also publish an annual report that will assess progress and identify opportunities.

Maximizing the opportunities that USMCA presents the region will require the three countries to see each other as true partners with a common cause. It would also be vital to develop a new narrative for the agreement that articulates both the economic and political importance of the USMCA for U.S., Mexico, and Canada relations. This view was widely shared by several participants at a recent Brookings roundtable—participants comprised of senior representatives from business, civil society, and former government officials from the three USMCA countries. The USMCA provides the framework for this robust partnership among the three countries.

This paper will provide background on NAFTA and how it has evolved into present day USMCA. It will then focus on five priority areas where progress is still needed and where USMCA could have the most impact:

1. Building a more competitive North American economy, including by growing trade and investment;
2. Ensuring resilient supply chains;
3. Expanding digital trade;
4. Supporting improvements in wages and working conditions; and
5. Addressing climate change.

The conclusion provides recommendations on how USMCA can help the region advance on each of these priority areas.

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