How NAFTA 2.0 will shake up business as usual in the US

Associated Press

WASHINGTON

American dairy farmers get more access to the Canadian market. U.S. drug companies can fend off generic competition for a few more years. Automakers are under pressure to build more cars where workers earn decent wages.

The North American trade agreement hammered out late Sunday between the United States and Canada, following an earlier U.S.-Mexico deal, shakes up – but likely won’t revolutionize – the way businesses operate within the three-country trade bloc.

The new United States-Mexico-Canada Agreement replaces the 24-year-old North American Free Trade Agreement, which tore down trade barriers between the three countries. But NAFTA encouraged factories to move to Mexico to take advantage of low-wage labor in what President Donald Trump called a job-killing “disaster” for the United States.

Sunday’s agreement is meant to bring manufacturing back to the United States. The president, never known for understatement, said the new deal would “transform North America back into a manufacturing powerhouse.”

But America had to make some concessions, too. For example, it agreed to retain a NAFTA dispute-resolution process that it wanted to jettison but Canada insisted on keeping.

Economists, trade attorneys and businesses are still parsing the agreement. But here’s an early look at what it means for different players.

DAIRY FARMERS

Trump has raged about Canada’s tariffs on dairy imports, which can approach 300 percent. American dairy farmers have also complained about Canadian policies that priced the U.S. out of the market for some dairy powders and allowed Canada to flood world markets with its own versions.

The new agreement ends the discriminatory pricing and restricts Canadian exports of dairy powders.

AUTOMAKERS

NAFTA remade the North American auto market. Automakers built complicated supply chains that straddled NAFTA borders. In doing so, they took advantage of each country’s strengths – cheap labor in Mexico, and skilled workers and proximity to customers in the United States and Canada. The new agreement changes things up. For one thing, the percentage of a car’s content that must be built within the trade bloc to qualify for duty-free status rises to 75 percent from 62.5 percent. A bolder provision requires that 40 percent to 45 percent of a car’s content be built where workers earn $16 an hour.

DRUG COMPANIES

The new trade pact delivers a windfall to pharmaceutical companies that make biologics – ultra-expensive drugs produced in living cells. It gives them 10 years of protection from generic competition, up from eight the Obama administration had negotiated in the TPP. But good news for the pharmaceutical industry could be bad news for users of the drugs and for government policymakers trying to hold down health-care costs.