ITC Says New NAFTA Will Add Jobs, Raise GDP, Increase Exports and Imports in Region

It also estimated that the U.S.-Mexico-Canada Agreement would increase real GDP by 0.35 percent by that point. Imports from Canada would increase by $19.1 billion, and exports to Canada would increase by the same amount. Imports from Mexico would increase by $12.4 billion, while exports to Mexico would increase by $14.2 billion. The 379-page report, which is mandated under Trade Promotion Authority, is an independent assessment of whether the trade deal will do what the administration has promised -- bring back auto jobs to the U.S., slow other manufacturing outsourcing to Mexico and increase sales for farmers.

On the first two, the ITC agrees. The tighter rules of origin would lead to increased auto parts production, and even though their modeling suggests Americans would buy 1.25 percent fewer cars than they did in 2017 because the rules would make vehicles more expensive, that would have little effect on the net gains.

The ITC estimates that by year 6 -- there is a five-year transition for rules of origin -- there would be a net increase of more than 28,000 auto parts workers, or a 5.5 percent increase.

Currently, about 61 percent of auto parts used in manufacturing (aftermarket parts are about one-quarter of all parts) are produced in the U.S., and another 24 percent are sourced from either Canada or Mexico. The commission, after interviewing industry representatives, believes more engines and transmissions would be built in the U.S. rather than their current locations.

ITC's modeling, however, said there would be an overall loss of welfare because the additional cost of new cars would outpace wage growth. Moreover, it said that the need to expand parts manufacturing would drive inflation in other manufacturing sectors, which would then decrease export sales. ITC Commissioner Jason Kearns, who formerly served as chief trade counsel to the House Ways and Means Committee, questioned this analysis, the report noted.

The Office of the U.S. Trade Representative produced its own report (see 1904180039), which estimated that by the end of five years, there would be an additional 22,800 vehicle assembly jobs and 8,000 advanced battery supplier jobs. The USTR then estimated that there would need to be two new domestic parts manufacturing jobs for every assembly job, and came up with what it called a conservative total of 76,000 new jobs. "What we have is the benefit of the companies’ actual business plans," a senior USTR official told reporters on a call April 18.

Back at the ITC, economists projected there would be nearly 50,000 more manufacturing jobs. It said that the sharp curtailment of investor-state dispute settlement would lead to less investment in Mexico by manufacturers and more investment in the United States.

In agriculture, the ITC said the gains would be quite modest. "Overall, USMCA will likely increase annual U.S. agricultural and food exports to the world by $2.2 billion (1.1 percent) when fully implemented," the report said.

Senate Finance Committee Chairman Chuck Grassley, R-Iowa, issued a statement indicating that he is glad the report found a positive economic benefit, and added, "The USMCA makes critical updates to rules on intellectual property, currency practices, digital trade, customs, state-owned enterprises, sanitary and phytosanitary measures and technical barriers to trade that will be valuable to many American farmers and businesses, even though their impact on GDP has historically been inherently difficult for economists to measure."

Farmers for Free Trade also dismissed the small impact in the ITC analysis. "The true benefit that USMCA delivers for American farmers is certainty and stability," the group said.

Grassley's Democratic counterpart, ranking member Ron Wyden, D-Ore., issued a statement that said: "This report confirms what has been clear since this deal was announced -- Donald Trump’s NAFTA represents at best a minor update to NAFTA, which will offer only limited benefits to U.S. workers."

That may be so, but the commission estimated that the benefits to Mexican workers could be quite profound if that country implements the labor reforms that have already passed the lower chamber of its legislature. "These provisions would increase Mexican union wages by 17.2 percent," the report said.

House Ways and Means Chairman Richard Neal, D-Mass., said he'll continue to read the report, but said it's "notable that the Commission consistently highlights the inclusion of enforcement provisions as the key factor in determining whether labor standards and rights will actually be strengthened in Mexico."

Outside manufacturing and agriculture, the report said much of the benefit of USMCA comes from the fact that businesses know they will be able to have free cross-border data flows. It also said that trade facilitation measures will lead to trade cost reductions of 0.1 percent across the economy, and in many specific cases, much larger savings.

The report modeled how much e-commerce would increase with Canada's and Mexico's higher de minimis levels. It said it expects there would be 6 percent more e-commerce shipments from the U.S. to Canada after ratification and 4.7 percent more e-commerce shipments to Mexico, with a combined increase in sales of $424 million. This would all go to the benefit of express shippers, as postal packages between the U.S. and Canada are not affected by de minimis thresholds.