The Future of North American Economic Integration

Jeffrey J. Schott (PIIE), Gary Clyde Hufbauer (PIIE), Sherman Robinson (PIIE), Raul Hinojosa-Ojeda (UCLA North American Integration and Development Center) and Euijin Jung (PIIE)

 

Chapter in the volume Implementing the USMCA: A Test for North America, a project led by the Mexican Senate with the collaboration of the Ministry of the Economy of Mexico

January 14, 2021

Abstract

The United States-Mexico-Canada Agreement (USMCA) will modestly set back economic integration. The new pact is part-TPP, part-original NAFTA, and also includes some protectionist measures that will likely have a small negative impact on the U.S. economy and hurt the Mexican auto sector compared to NAFTA. Nevertheless, the pact has a big plus: thanks to the name change and the buy-in from U.S. Congressional Democrats, the USMCA has mitigated much of the political opposition that complicated North American trade and investment relations. Our paper enumerates the problems created by USMCA before examining the opportunities to work together now that the stigma of the old NAFTA has been removed.

The second part of the paper examines opportunities created by the new, more cooperative, political atmosphere within North America. Priority should be given to cooperation on energy, including renewables and carbon emission standards. In addition, the USMCA partners should expand NADBank programs and substantially increase its capital. Infrastructure investment also should be a priority, although regional cooperation could be complicated by Buy American procurement requirements and new U.S. tax policies. Considering the Cold War that is likely to continue between the United States and China, Mexico and Canada must decide how to play their own China cards, recognizing the implications that export controls have on relations with the European Union and other important trading partners.

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Jeffrey J. Schott Senior Research Staff
Gary Clyde Hufbauer Senior Research Staff
Sherman Robinson Senior Research Staff
Euijin Jung Former Research Staff