The countries’ leaders that form the CUSMA, USMCA, T-MEC will meet for the first time.
Three countries agreed to lift trade barriers promoting a regional economic integration. The North American Free Trade Agreement (NAFTA) came into force on January 1, 1994. Canada, Mexico, and the United States created a trilateral trade bloc in North America. Canada and the United States have already had a previous free trade agreement since 1988. The successor of NAFTA since July of 2020 for both Canada (CUSMA) and the United States (USMCA) is considered an Agreement, whereas Mexico calls it a Treaty (T-MEC).
The aspiration was that freer trade would bring stronger and steadier economic growth to Mexico by providing new jobs and opportunities for its growing workforce and discouraging illegal migration. For the United States and Canada, Mexico was seen both as a promising market for exports and as a lower-cost investment location that could enhance the competitiveness of U.S. and Canadian companies.
pub4889 CUSMA-impact-repercussion-enTogether the three countries account for one of the largest economic regions in the world, with a combined GDP representing 30% of the world’s economy, with only 6% of its population and 16 percent of the world’s land territory. Many sectors of their economies have integrated, and their inter-trade makes them mutually its most important economic partners.
These three nations have their own culture, ethnic compositions, currencies, languages, histories, forms of government, religions, legal systems, and climates. There are disparities between them, like the level of education, which impact the income levels of their populations and their welfare. Two of them have a fully developed economy; one is emerging; four official languages, several indigenous dialects. Two of them declared their independence centuries ago; one severed its colonial ties less than four decades ago while staying part of a Commonwealth realm, as a federal parliamentary democracy under a constitutional monarchy.
The Agreement’s importance is asymmetric; it is more important to Mexico and Canada than it is to the U.S. The exports of goods and services from the United States contributed close to 12% to its GDP. In contrast, Canada’s exports represented 29% of its GDP, and Mexico’s total exports represented 39% of its GDP. U.S. exports to Canada and Mexico represent 34% of its total exports and 26% of its total imports. Canada’s exports to the U.S. represent 71.8% of its total exports and 62% of its imports. Mexico’s exports to the U.S. represent 80% of its total exports. The U.S. has a permanent trade deficit with the partners, while Mexico and Canada enjoy a surplus from 2012 onwards.
Canada-United-States-Trade-Representativehttps://ustr.gov/countries-regions/americas/canada
Mexico-United-States-Trade-Representativehttps://ustr.gov/countries-regions/americas/mexico
NAFTA brought about significant effects in establishing North American production chains located on the U.S. Mexico border and within Mexico. The US is Mexico’s leading trading partner, with the country’s main exports being auto parts and cars. Manufacturing weighs 15.5% of Mexico’s GDP and employs around 27.5% of the total formal workforce, and Mexico’s dependence on exports to the U.S. market makes it vulnerable.
RL32934Canadians take matters such as fair and sustainable trade, clean water, climate justice, democracy, and stronger public health care more seriously than Mexicans who have other priorities. Mexico is a young country. Around 45% of its population is under 25, and the average age is 29. The wealthiest 20% of the population holds over 52% of the national income, while the poorest 20% only has 5% of Mexico’s total revenue. Only 36.5% of the population between 25 and 64 years old in Mexico has upper secondary education or above, significantly below the 78.9% OECD average. Close to 56% of the employed population in Mexico is working in the informal sector. Mexico’s output per worker remains the lowest within the OECD, evidencing the low rate of labor productivity.
The main driver of growth continues to be the integration of some companies into the North American supply chains located in the country’s north. Growth occurs where the population is more educated, where there is more formality and where more companies are created. In 2020, 40 billion dollars went to Mexico as remittances from migrant workers to help support their families; this amounts to 3.8 percent of GDP and is the second most important source of foreign exchange. Another serious vulnerability. Investment as a share of GDP is on a downward trend. Mexico’s gross fixed investment accounted for about 22% of GDP over the past few years but downshifted to 17% placing it well below the world average of 23% (as of 2019).
The current administration maintains a populist approach and a belligerent stance with the domestic and foreign private sector. It gives a blind eye to the security crisis (33,000 homicides in 2020), pretending to fight corruption while assigning directly over 80% of all contracts without public bidding, reserving as classified the data of all their actions for a minimum of 5 years. Also, the intention to reverse the energy reforms that attracted billions of foreign and domestic investment imperils the economic growth perspective and strains the trilateral relation. Sadly, the government is not committed to moving ahead with structural changes required to modernize Mexico’s supply chains and invest more in education and technology.
From the geopolitical perspective of a highly qualified expert, the following are the highlights of a document by George Friedman published by Geopolitical Futures (geopoliticalfutures.com) that can be read entirely following the link or opening the pdf at the end of this paragraphs:
“The U.S. fought numerous times with Mexico in the 19th and very early 20th centuries, and in the 1960s, the Quebec independence movement prompted fears in the U.S. that an independent Quebec might align with the Soviet Union. But today, neither country can attack the U.S. itself, hence the first layer of American security. The second layer is that neither country wants to align with powers hostile to the United States….in any discussion of American strategy and of its strategic priorities, the most important issue is not the South China Sea or NATO but the maintenance of relations with Canada and Mexico. It’s true that at the moment each country has an overriding interest in maintaining their relationship, for reasons ranging from trade to social links.
“Given the overwhelming importance to the U.S. that neither neighbor shift its national strategy, the comfortable assumption of continuity is perhaps the most reckless element of U.S. policy. Certainly, there is no current danger of a shift, nor any danger on the horizon. But this is precisely the time when a prudent power devotes significant attention to an issue. Reversing a shift in policy is far more difficult than preventing one.
“There are forces driving the U.S. apart from these two countries, countries that are not in a position to cause a break, but which in the future, when other issues are added to them and enticing new relationships show themselves, might change the equation. In the case of Canada, the manner in which the United States canceled the Keystone XL pipeline, a project that was important to Canada, signaled a profound indifference to Canada’s interests. There was little consultation, no offer of compensation, nor any attempt to create an alternative project. By itself, this is not enough to cause a break with the United States, but it certainly reminds Canada that Washington sees it as subordinate to its interests rather than as the object of its interests.
“In the case of Mexico, the U.S. obsesses over immigration, an issue that is nonessential to Mexican interests. There has been a surge of migrants at that border, most on their way to the United States, but all creating significant problems on their way north. The United States views Mexico as a source of illegal immigration. Mexico sees the problem of immigration as having its origin at Mexico’s southern border with Guatemala. Mexico has therefore requested American help in closing its southern border, which has been refused. Instead, Mexico is demonized for the immigration the U.S. will not help stop.
“For the United States, obsessing without alienating either Canada or Mexico is essential to its national interest, if not its national policy. The physical security of the United States and its trade system depends on these two countries. A rational policy of extreme awareness of their internal processes and a willingness to indulge their needs even to the disadvantage of the United States is a low-cost, high-return policy. “…
canada-mexico-and-americas-reality-geopoliticalfutures-comFurther reading:
https://www.cfr.org/backgrounder/naftas-economic-impact
https://www.tradecommissioner.gc.ca/canadexport/0006090.aspx?lang=eng