The President of the United States and his counterparts from continental neighbors signed a trade deal to replace the North American Free Trade Act back in November. The provisions included in it would require that 75 percent of an automobile’s parts be made in North America to avoid customs charges, up from 62.5 percent, as well as that at least 40 percent of automobile content be made by workers who make more than $16 per hour.
Now the US-Mexico-Canada Agreement has to be ratified by each nation’s respective legislatures, but a Kansas State University agricultural economist told Kansas State Research and Extension that until the details are solidified an element of uncertainty remains.
Dr. Vincent Amanor-Boadu, trade policy expert, says that he’s concerned about the implications of that uncertainty on business owners and the economy.
“If you are a farm business and you had a business to supply alfalfa to Northern Mexico dairy farms under the NAFTA agreement and so you made investments to grow alfalfa, harvest it, cube it, do whatever, process it and ship it and all of a sudden the game has changed,” says Amanor-Boadu. “How does that influence your investments under this uncertain environment?”
And as multiple legislatures debate and edit the agreement, the chance of those bodies failing to come to a consensus remains. Some in congress are pushing for changes that would include exempting Canada and Mexico from tariffs on steel and aluminum. House Speaker Nancy Pelosi has said the deal needs stronger enforcement provisions and that Mexico must pass labor reforms that the deal calls for before the House takes up the bill.
“If it’s not ratified, do we go back to the old one or do we operate in a vacuum?” asks Amanor-Boadu. “And those are the challenges that affect somebody who is actually making investments and selling a product in an environment where now there is uncertainty.”
NAFTA went into effect in 1994. Amanor-Boadu says that in the generation that followed, business models were built with the assumption that such an agreement would be in place and significant investments in those businesses have been made.
“For us to throw those back creates a lot of uncertainty for these businesses that have built their whole business model around what I call the I-35 trade route,” says Amanor-Boadu.