Enter USMCA and a New Trade Debate

by William Reinsch and  Jack Caporal

This week, the Senate followed the House and passed the United States-Mexico-Canada Agreement to replace the 25-year old NAFTA. Days before, Democratic presidential candidates sparred over the deal in the last debate before next month’s Iowa caucuses. The USMCA has enjoyed more support in Congress than any trade agreement for decades and will likely set a precedent for future comprehensive U.S. trade agreements. The USMCA vote and recent presidential debate also threw a spotlight on opposition to the agreement. That opposition was sharply focused on the absence of climate change commitments in the deal. The debate over the USMCA that occurred in the halls of Congress and on the debate stage suggests U.S. trade policy has entered a new phase, albeit one full of unanswered questions.

Climate Change and the Changing Trade Climate

Although environmental rules have been in every preferential trade agreement negotiated by the United States since Democrats and the Bush administration reached the so-called May 10th agreement in 2007, climate change has not been explicitly addressed. Environmental rules in trade agreements have aimed to reiterate commitments to environmental treaties the trading partners have already signed and to prevent disparities in environmental regulation among trading partners from creating an unlevel playing field.

The question of whether trade agreements should include commitments to combat climate change is relatively new and certainly not settled. Climate change and trade have traditionally been viewed as separate issues; however, Senator Bernie Sanders’ (I-VT) view expressed during the last presidential debate that “they are the same issue” may become more mainstream as the climate crisis gains attention and urgency.

Increasingly, lawmakers and some heads of state are conditioning support for trade agreements on whether they include climate commitments. French president Emmanuel Macron has pledged to reject trade agreements with countries not party to the Paris climate accord, a clear shot at the United States. In Congress, the nine Democratic or Independent senators that voted against the USMCA did so largely on the grounds that the deal did not include climate change provisions.

And Yet, Support

The USMCA still received strong support in Congress and among the Democratic candidates. Aside from Sanders, the only other candidate to oppose the deal was Tom Steyer, who also did so on climate grounds. Mayor Pete Buttigieg, Senator Amy Klobuchar (D-MN), former vice president Joe Biden, and Senator Elizabeth Warren (D-MA) came out in support of the deal. Notably, Warren voted for the agreement even though neither Canada nor Mexico meet the conditions laid out in her trade platform necessary to negotiate with the United States.

Regardless, support among the Democratic candidates was driven by improvements to labor rules and enforcement, pushed by House Democrats, and by their desire to provide some relief and certainty to farmers, who have borne the brunt of the Trump administration’s various trade campaigns.

WHAT THEY’RE SAYING

On the USMCA

Bernie Sanders

“This deal—and I think the proponents of it acknowledge—will result in the continuation of the loss of hundreds of thousands of good-paying jobs as a result of outsourcing . . . Every major environmental organization has said no to this new trade agreement because it does not even have the phrase “climate change” in it. And given the fact that climate change is right now the greatest threat facing this planet, I will not vote for a trade agreement that does not incorporate very, very strong principles to significantly lower fossil fuel emissions in the world. ”

 

Elizabeth Warren

“We have workers who are hurting because the agreements that have already been cut really don’t have enforcement on workers’ rights. This new trade deal is a modest improvement . . . It will give some relief to our farmers. It will give some relief to our workers. I believe we accept that relief, we try to help the people who need help, and we get up the next day and fight for a better trade deal.”

 

Amy Klobuchar

“These are real people hurt by Donald Trump’s trade war. So, what we should do, and I support the USMCA, I am glad that these improvements were made that are supported by people like Richard Trumka and Sherrod Brown on labor and environment and on pharma.”

 

Pete Buttigieg

“Yes, it has been improved, it is not perfect. But when you sit down with the people who are most impacted, they share just how much harm has been done to them by things like the trade war and just how much we can benefit, American consumers and workers and farmers, by making sure we have the right kind of labor and enforceability, as Democrats ensured we got in this USMCA.”

 

Joe Biden

“There will be no trade agreements signed in my administration without environmentalists and labor at the table. And there will be no trade agreement until we invest more in American workers.”

 

Tom Steyer

“I would not sign this deal, because if climate is your number one priority, you can’t sign a deal, even if it’s marginally better for working people until climate is also taken into consideration . . . We cannot put climate on the backseat all the time and say we’re going to sign this one more deal, we’re going to do one more thing without putting climate first.”

From the USMCA and Debate Stage to Where?

It’s the end of the road for the USMCA in Congress (for now—there will be ample opportunity for future presidents to renegotiate the agreement), but the deal raises some fundamental questions about the future of U.S. trade policy. Support for the USMCA, despite its inclusion of automotive rules that tilt in the direction of managed trade, raises questions about how much managed trade can be stomached by politicians and the private sector and whether rules of origin in trade agreements may become vehicles for industrial policy-lite. Another open question is whether future U.S. comprehensive trade agreements will include a built-in sunset clause as is present in the USMCA. The USMCA is potentially precedent setting in other areas, including currency, the treatment of trade negotiations with non-market economies, labor, and digital trade.

Other questions are reflected in the disagreement among Democratic presidential candidates, such as how trade and climate change should be prioritized. At its core, the proposition that trade agreements must include climate change commitments is fraught with policy questions that should be carefully considered. A fundamental question arises out of how to balance the two objectives of mitigating climate change while expanding trade. A number of studies suggest a link between trade liberalization and increased emissions, although development levels among trading partners and the adoption of renewable energy are important variables. How should a trade agreement be weighed if it includes strict climate change requirements that ultimately limit trade?

A second set of questions arises when considering how to treat goods and services that limit emissions or otherwise mitigate climate change. Should those products be granted exceptions to trade rules, shielded from antidumping duties, countervailing duties, and global safeguards and be off-limits from World Trade Organization litigation? Warren’s plan for trade policy suggests such an approach.

With changes in U.S. trade policy abound, it appears a corner has been turned. The USMCA has created a new measuring stick for future agreements and simultaneously drawn attention to the demand that trade agreements include climate change commitments. Whether the USMCA model is sustainable and how trade negotiators grapple with the increasingly urgent climate crisis are two large uncertainties that suggest the road ahead is likely full of more twists and turns.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Jack Caporal is an associate fellow with the CSIS Scholl Chair.

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