The Trump administration has served notice that it will not renew the US-Mexico-Canada Agreement (USMCA) in its current form, increasing the likelihood that the free trade agreement will be allowed to lapse in ten years' time — potentially leading to higher prices, lower foreign investment and lost jobs for Texas in the interim.
"The United States will continue to engage with Mexico and Canada to address the agreement's shortcomings and our trade deficits with these countries," U.S. Trade Representative Jamieson Greer said, announcing the decision. "However, the agreement remains in force pending resolution of these issues or until the agreement's termination. As previously announced, the United States will meet with Mexico the week of July 20 for a third round of bilateral negotiations related to the USMCA joint review."
When Trump negotiated the USMCA during his first term as president, to serve as a replacement for the North American Free Trade Agreement (NAFTA), he called it the "fairest, most balanced, and beneficial trade agreement we have ever signed into law." In its current form, the USMCA is set to expire on July 1, 2036.
Major sticking points between the U.S. and the Mexican and Canadian delegations include the Trump administration's desire for higher tariffs on both Mexican and Canadian goods entering the U.S. and for higher U.S. content of vehicles manufactured in the free trade area. The automotive sector has grown highly integrated between the three trading partners since the advent of NAFTA more than 30 years ago, with vehicles regularly crossing borders at various stages of manufacturing.
"One of the reasons or one of the issues behind Trump’s economic program is, of course, to attract manufacturing to occasion some sort of manufacturing renaissance in the United States," said Tony Payan, director of the Claudio X. Gonzalez Center for the U.S. and Mexico at Rice University's Baker Institute. "Moving well into his second year, that has not happened. In fact, the U.S. has lost manufacturing jobs. Companies are withholding their investment. They’re beginning to try to figure out what they can plan on and what they cannot."
Those are just the economic concessions Trump hopes to extract, but there are also national security concerns involved.
"As climate change proceeds and the ice melts in a lot of the Canadian waters, the US will be seeking to have full access to passage in what’s called the Northwest Passage and in other places up there,” Payan said. “So, I’m sure that’s a more geostrategic issue that the United States has in mind. And, of course, with Mexico it's all about cooperation against organized crime."
Texas is the largest exporting state in the United States, and Mexico and Canada are respectively Texas' number one and number two foreign trading partners.
“Over a million jobs are tied to Texas exports,” said Garrick Taylor, spokesman for the Border Trade Alliance. “And don’t forget, it’s not just exports. Texas wins with imports too. Goods coming into this country create everything from logistics jobs, warehousing jobs, customs brokering jobs, and the savings are eventually passed on to Texas consumers.”
Payan said the fact that Texas' economy is so closely intertwined with Mexico's means that the state will have some protection in the event the USMCA is allowed to expire. But even if Trump gets his way and the USMCA is revised in such a way as to encourage more manufacturing to move to the United States, American workers and consumers could suffer consequences.
"If there’s a company that’s thinking about a manufacturing plant in Aguascalientes, because they can produce more cheaply there, and then now they have to think about Alabama, they’re going to have to charge prices according to what it costs to produce in Alabama as opposed to what can it be in Mexico," Payan said. "So, for the consumer, it may actually mean higher prices, fewer jobs, less investment."
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