A main focus of Vice President Mike Pence’s visit to Utah this week is to drum up support for congressional ratification of the U.S.-Mexico-Canada free trade agreement, otherwise known as USMCA. Utah offers a good showcase for that, as well as an example of why the agreement deserves ratification.
To be clear, the deal still could use some tweaking, but there are indications this could happen. If negotiations between the two major parties are successful, this could be an example of the type of political compromise that acts for the good of all.
Pence will speak at Merit Medical in South Jordan. He could have chosen any of several Utah companies that do trade with Mexico and Canada and made just as strong a case.
If negotiations between the two major parties are successful, this could be an example of the type of political compromise that acts for the good of all.
Utah companies exported $684 million in business to Mexico in 2017, and $1.2 billion to Canada, according to the International Trade Administration. That directly supported well over 50,000 Utah jobs — a number that is bound to grow as the state establishes an inland port and completes a new international airport in coming years.
Utah’s top export market is the United Kingdom, but it has long and well-established relationships with Mexico and Canada. The new agreement ought to be of keen interest to everyone in the Beehive State. Trade with those two nations indirectly affects all Utahns.
Despite President Trump’s withering criticisms of the 25-year-old North American Free Trade Agreement, the new USMCA could best be described as an upgrade to that pact. But that makes sense. The world was different in 1994, when NAFTA was drafted. Trade agreements ought to be revisited and updated from time to time. That doesn’t mean the USMCA is without challenges.
Chief among its provisions is a requirement that at least 40% of the parts of cars manufactured in each of the three nations be produced within that nation by workers who earn at least $16 per hour. In addition, 75% of each car must be produced in the country of origin in order for it to pass across borders duty-free.
These are meant as disincentives for U.S. manufacturers to move production plants to Mexico. But they could lead to unintended market distortions. For instance, many highly skilled workers in Mexico earn far less than $16 per hour. If less skilled workers at auto plants suddenly make more than people who have greater skills, it could be a threat to Mexico’s efforts to provide greater education and training to its workers.
In any event, the 40% rule would be difficult to enforce.
Democrats have objected because they feel the deal wouldn’t adequately guard against unfair labor practices, especially toward women. They complain it has weak enforcement mechanisms.
We would add that, although it may be good for U.S. manufacturers to have incentives to move operations back to the United States, doing so would not be good for the Mexican economy.
Democrats also want improvements to the deal’s environmental protections. This argument always raises concerns about the fairness of a wealthy nation imposing its own high standards on a poor, developing nation.
Meanwhile, the deal also would open Canadian dairy markets to U.S. farmers. It would provide greater protections for intellectual property and increase the amount a person could take across borders without duties.
Governments help trade best when they get out of the way.
We see reason for optimism, provided the president’s occasional threats to impose tariffs don’t get in the way and politicians on both sides are committed to results, not rhetoric. The House and the Senate ought to be able to work out their concerns with the original pact. Indeed, reports out of Washington are that Democrats and Republicans have been working to do so.
Meanwhile, many trade groups and business representatives have urged passage — a good sign that commerce believes the deal would be advantageous.
Governments help trade best when they get out of the way. The USMCA is hardly benign in that regard, but in the aggregate it could provide certainty, stimulate economic activity and help open markets to enrich the lives of many in each of the three nations.
Utah isn’t the only place where the vice president intends to make his argument for ratification, but it certainly is one of the most appropriate. If his speech elevates the conversation, galvanizes political will and helps deliver a win-win-win trade deal, it will be time well-spent.
Correction: A previous version mistakenly said Vice President Pence would speak at Merit Medical in Sandy. Merit Medical is located in South Jordan.