New N. American trade deal modestly boosts U.S. economy, trade panel finds
By David Lawder and David Shepardson
WASHINGTON, April 18 (Reuters) - The new North American free
trade pact would modestly boost the U.S. economy, especially
auto parts production, but may curb vehicle assembly and limit
consumer choice in cars, a hotly anticipated analysis from the
U.S. International Trade Commission showed on Thursday.
The ITC report is a crucial step in the push for Congress to
consider ratification of the U.S.-Mexico-Canada Agreement,
signed by President Donald Trump and the leaders of the other
two countries last year to replace the 25-year-old North
American Free Trade Agreement.
The report estimates that U.S. real gross domestic product
would increase by 0.35 percent, or $68.5 billion, on an annual
basis compared to a NAFTA baseline, and would add 176,000 U.S.
jobs, while raising U.S. exports.
The ITC's estimates are for year six of the trade deal, once
it is fully implemented.
The trade deal's success or failure in Congress could be
determined by how it is expected to affect the U.S. auto
industry, a sector that steadily drained jobs to Mexico under
NAFTA. The USMCA deal contains much tighter regional content
rules, requiring that 75 percent of a vehicle's value be sourced
in North American versus 62.5 percent currently, and 40-45
percent produced in high-wage areas, namely the United States
Auto industry employment would rise by 30,000 jobs for parts
and engine production, but U.S. vehicle assembly would decline.
U.S. vehicle prices would rise up to 1.6 percent, causing
consumption to fall by 140,000 units per year, or about 1.25
percent of 2017 sales, the report said.
SIGH OF RELIEF
The report overall was more positive than initially
anticipated by economists, who said the traditional economic
models used by the ITC to measure previous trade deals would
result in minimal gains for the United States.
White House economic adviser Kevin Hassett told Reuters that
he was pleasantly surprised by the results, which used different
modeling methods that he called "accurate and well done."
"Their estimate is a lot closer to what we think USMCA will
do than I expected," Hassett in a telephone interview. "This is
very strong argument for passing the USMCA."
The U.S. Trade Representative's office had prepared a
separate analysis of the USMCA's automotive benefits that was
described as a rosier "alternative analysis" aimed at limiting
any potential damage from the ITC report.
USTR estimated that the trade deal would create 76,000
automotive sector jobs within five years as automakers invest
some $34 billion in new plants to comply with the pact's
regional content rules. The total includes about $15 billion in
projects already announced.
USTR officials said their analysis was based on plans
disclosed by automakers to the trade agency for compliance with
the new agreement's tighter rules of origin.
"They have verbally committed to us that they intend to
comply with the rules," a senior USTR official said. "And they
have told us that this is not going to have significant upward
pressure on vehicle prices."
But the ITC report said some automakers may decide not to
offer vehicles that would be too expensive to bring into
compliance with the deal, reducing consumer choice in the U.S.
Discrepancies between the two reports could provide
ammunition for lawmakers to oppose USMCA.
Democrats, who control the House of Representatives, have
greeted the trade deal coolly due to concerns about the
enforceability of new labor provisions that aim to drive up
wages in Mexico and concerns that data protections for biologic
drug makers could drive up health care costs.
The ITC report said Mexican union wages would rise by 17.2
percent if the labor provisions agreed in the USMCA are
enforced. Even so, Mexican factory wages remain far lower than
those in the United States.
AGRICULTURE AND SERVICES
The deal will lead to new access for U.S. exports of dairy,
poultry and egg products to Canada and U.S. imports of sugar and
sugar-containing products from Canada, the ITC said. USTR touted
the dairy and poultry sectors as key beneficiaries of the deal
when it was announced last year.
The ITC's forecast estimated total U.S. dairy product output
would increase by $226.8 million, or 0.1 percent. U.S.
agriculture and food exports overall would increase by $435
Senator Chuck Grassley, a Republican from Iowa, a top
farming state, who chairs the Senate Finance Committee, praised
the report for recognizing the deal's benefits.
"Many of the significant improvements in USMCA are reducing
non-tariff barriers and implementing rules and fair practices
that will help U.S. workers, jobs and businesses tremendously
over the coming years," Grassley said in an emailed statement.
(Reporting by David Lawder and David Shepardson in Washington
Additional reporting and writing by Chris Prentice in New York
Editing by Leslie Adler)
First Published: 2019-04-18 01:05:01
Updated 2019-04-18 22:54:49
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