The U.S. International Trade Commission says the new North American free trade deal would increase jobs in the U.S. automotive sector but lead to a decrease in consumption due to higher vehicle costs.
The ITC’s report analyzing the effects of the United States-Mexico-Canada Agreement (USMCA) found that new requirements in the deal, including increased automotive rules of origin, would increase employment in the U.S. auto industry by more than 28,000 full-time jobs.
At the same time, the report found that the changes may increase the costs of new vehicles, leading to a decrease in sales in the U.S. According to the ITC, prices for vehicles in the U.S. would face a modest increase that ranges from 0.37 per cent for pickup trucks to 1.61 per cent for small cars. As a result, vehicle consumption in the U.S. would fall by more than 140,000 vehicles.
“USMCA’s requirements are estimated to increase U.S. production of automotive parts and employment in the sector, but also lead to a small increase in the prices and small decrease in the consumption of vehicles in the United States,” the report said.
Under USMCA, vehicles must contain at least 75 per cent North American content in order to qualify for duty-free access to the Canadian, American and Mexican markets, up from the current 62.5 per cent requirement under NAFTA. The new agreement also adds wage requirements and a more complicated process for qualifying automotive, steel and aluminium products for duty-free status.
The ITC analysis also found that U.S. imports of small cars from Canada will decrease by approximately 7,700, or 2.15 per cent, as a result of the changes under USMCA. However, imports of mid-to-full sized cars from Canada to the U.S. will increase by 3,000, or 1 per cent.
While U.S. administration on Thursday estimated that USMCA would create 76,000 jobs in the automotive sector as automakers invest $34 billion in new plants to comply with the new regional content rules, the ITC report disputes that figure.
“This estimate is larger than the Commission’s estimate, which predicts an increase of 28,000 jobs,” the report said. According to the ITC, this discrepancy could be in part due to the fact that the government found an increase in vehicle manufacturer jobs while the ITC found a decline. The administration also included a multiplier to cover “supply chain effects”, which the commission’s estimate did not do.
A Scotiabank Economics report from last year found that administrative and higher wage requirements introduced in the deal could raise the price of vehicles in North America. It also said USMCA could reduce competitiveness and lead to some automotive production shifting overseas.
Moderate gain to U.S. GDP
The report also found that the new trade deal would lead to a moderate real GDP increase in the U.S. of $68.2 billion, or 0.35 per cent, while employment would increase by 175,700, or 0.12 per cent.
Imports from the United States into Canada are also expected to increase by nearly $19.1 billion, or 4.8 per cent.
“The model estimates that the agreement would likely have a positive impact on all broad industry sectors within the U.S. economy,” the ITC said.
“Manufacturing would experience the largest percentage gains in output, exports, wages and employment, while in absolute terms, services would experience the largest gains in output and employment.”
The report also said the new trade deal would lead to “small increases in U.S. exports to Canada of dairy products, poultry, meat, eggs, and egg-containing products, as well as wheat and alcoholic beverages.” At the same time, the report notes that U.S. imports of sugar, sugar-containing products and dairy products from Canada would also increase.