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USMCA Implementation Today

Today marks the first day that the United States Mexico Canada Agreement (USMCA) goes into effect. We have not been discussing the USMCA on this blog for a simple reason: the deal was cut months ago as our PolicyScope users could see from the data earlier this spring as noted in the chart below. The more interesting issues now are geopolitical, as noted in our analysis published by the Atlantic Council today as noted below.

But first the data:

At the height of the pandemic lock down globally in March and April, trade officials regionally and bipartisan political cooperation in the United States converged upon the labor standards enforcement process compromise that permitted the trade agreement to move forward. The sustained inflection point (where action exceeds rhetoric) was under-reported in the media which understandably focused on the pandemic emergency. But our PolicyScope platform noticed. And our daily report subscribers were aware at the time. We have all moved on to focus on tomorrow's geopolitical issues.

The USMCA goes live in a much different world than existed when it was negotiated. We joined colleagues at the Atlantic Council to mark the occasion with these public comment in December 2019 and then again today in The New Atlanticist:

USMCA implementation arrives at an opportune moment, during a dreadful year for global trade and the global economy. The treaty establishes concrete commitments and next-generation standards regarding strategically significant 21st century trade policy priorities such as intellectual property, labor rights, supply chain management, data transfers, and pharmaceuticals production amid ongoing—and increasingly difficult—global WTO reform negotiations. The increased prominence provided to pharmaceuticals and medical supply production issues this year during the pandemic underscores the strategic importance of more diversified supply chain relationships. The USMCA will help accelerate supply chain diversification as it goes into force today. The treaty seems also likely to provide a foundation for economic security and diversification in Mexico and Canada amid a global shift away from carbon-based energy that will take a toll on their economies in the near term. Many additionally hope that the energy, pharmaceutical, and labor market provisions together with tough new enforcement mechanisms will create concrete incentives for sectoral reform in the North American region. 

“The multi-decade shift towards regional (rather than global) trade agreements has been accelerated by the regrettable and troubling rise of economic nationalism in the United States and other countries around the world. Part of that rise relates to perceptions that the benefits of global economic interoperability deliver asymmetric benefits. Part of the backlash against global trade also relates to perceptions that classic trade agreements do not adequately address modern regulatory and policy priorities associated with the increasingly digital knowledge economy. The USMCA, for all its faults, establishes high standards that can help forward-looking trade negotiators in Geneva and the Ottawa Group advance free trade priorities regarding intellectual property and data transfers at the global table alongside advanced labor and other regulatory standards.

“Finally, the USMCA goes into force just in time to provide a deeper foundation for potential cross-border economic cooperation as European, Japanese, and North American leaders sharpen their efforts to challenge China’s alternative vision for how the global trade and economic relationships should function.

How do we know that the United States, Japan, and Europe remain united and undivided relative to China? We have been seeing the daily diplomatic and geopolitical positioning in the PolicyScope Platform and writing about it in the daily PolicyScope Risk Monitor.

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