USMCA – Cliff Notes

October 29, 2021

usmca cliff notes

What Is USMCA?

The United States-Mexico-Canada Agreement, or the USMCA, is a trade agreement between the three respective nations that replaced the North American Free Trade Agreement, also known as NAFTA. NAFTA had been in effect since 1994, serving as a segway towards reduced trade restrictions and facilitating market access among the big three North American countries.

When Was USMCA Enacted?

The switch to USMCA was initiated on November 30, 2018 when the United States, Mexico, and Canada signed this new trade deal. However, the USMCA did not take effect until July 1, 2020. This new agreement was signed into effect with the intention of drastically improving some of the outdated policies outlined in NAFTA.

Why Was USMCA Created?

The economies of the three major North American nations were in need of a new trade agreement due to the inability of NAFTA to adapt to the economic, social, and technological changes that have occurred since the agreement was first adapted. Without any clause that cited an annual revision or renegotiation of terms, NAFTA, to its own fault, experienced no revisions during its terms. In 1994 when NAFTA was first made law, the Internet had recently been introduced to the public, Jeff Bezos would decide to create Amazon later that year, and Bill Clinton had just become the 42nd President of the United States. While a need for change due to differing conditions was evident, the main motivation of President Donald Trump in pushing out USMCA is because NAFTA caused certain disadvantages upon the United States. One disadvantage that NAFTA had been known to be blamed for was job losses, especially in areas known for their manufacturing. This issue was wrinkled out with the creation of USMCA with the new agreement’s increase in the required percent of automobile parts needing to be made within these countries by workers making at least $16 per hour (U.S.). This same policy and others are meant to cause an upward trend in wages for factory workers. The USMCA also includes a much needed Sunset Clause, meaning that the three countries are to meet every five years to renegotiate or possibly extend the agreement. While this clause is yet to be utilized, it should extend the lifetime of the USMCA as well as refine the agreement within its working lifetime.

The USMCA has experienced a relatively positive reception with studies such as the International Trade Commission’s which found that this new agreement will add $68.2B to the United States’ economy and contribute to a job growth of over 175,000. Reports like these speak to the positive economic impact that the USMCA is going to have for the United States as well as for Canada and Mexico. These impacts are induced by policies that now separate the USMCA from former NAFTA, with one of them being an updated agriculture section of the agreement. Canada has now increased their amount of imports, presenting the United States with an ease of access into the Canadian agricultural market, most notably Canada’s dairy and poultry imports. The USMCA also updates the intellectual property policies of NAFTA. These intellectual property rights are able to establish copyright laws for internet companies as well as bar any tariffs for digital media such as e-books and music. These policies highlight how the USMCA operates as a modernized NAFTA to boost the economies of the three North American signees.

Help With USMCA

Borderless Coverage enables international companies to conduct safe and profitable business in North America and across North American borders. We drive results and value. Our team consists of business minded cross border supply chain consultants, economists, insurance experts, lawyers, and global trade agreement negotiators including the most recent lead negotiators of USMCA from Mexico. We are well equipped to provide you the expertise and horsepower required to optimize your North American cross border supply chain strategy. Email now to set up a call with one of our experts.

The USMCA can be read in full using this link: