Proposed Trade Deal Has Big Arizona Implications

The proposed United States-Mexico-Canada Agreement, which would take the place of the North American Free Trade Agreement, would shape how Arizona imports and exports with Canada and Mexico — the state's largest international trading partner.
Sept. 23, 2019
Jeff Kucik
Jeff Kucik
Sergio Puig
Sergio Puig

There is a lot at stake for companies throughout Arizona and the United States when it comes to the proposed United States-Mexico-Canada Agreement, or USMCA, say University of Arizona experts. The signed-but-not-yet-ratified agreement would take the place of the North American Free Trade Agreement.

In general, the USMCA — called CUSMA in Canada and T-MEC in Mexico — aims to promote free trade among the three countries by limiting tariffs and the use of regulatory powers on the exchange of goods and services.

“The general consensus is the USMCA looks a lot like the original NAFTA,” said Jeff Kucik, associate professor in the School of Government and Public Policy. “There was a lot of talk about how the White House wanted something different out of a renegotiated deal than Canada and Mexico, but what we actually saw was an agreement that adopts a lot of the original NAFTA text.”

There are some key differences, though, particularly in the automotive industry. One of the core changes is that 40 percent of passenger vehicles must be produced in North American facilities where workers make an average of $16 per hour.

“You could claim it’s a victory for manufacturing workers, because it looks like a minimum wage,” Kucik said. “But it’s more of a trade protection. U.S. manufacturing employees make much more than that on average. Mexican workers make much less and are not likely to get a raise to $16 per hour. So it limits the relocation of manufacturing jobs.”

Arizona-based companies exported nearly $250 million worth of automotive parts to Mexico in 2018, according to the Eller College of Management Arizona-Mexico Economic Indicators data.

Arizona’s produce growers are also keeping a close eye on the agreement. Like NAFTA, the USMCA calls for zero tariffs on most produce. The biggest worry for Arizona agriculture and other industries, says Sergio Puig, professor in the James E. Rogers College of Law, is the potential of not having an agreement in place at all.

“The lack of a free trade agreement with Mexico would be devastating for the economy of Arizona,” Puig said. “In essence, the economy of Arizona depends on exports to and imports from Mexico.”

According to the Office of the United States Trade Representative, Arizona exported $7.6 billion in goods to Mexico in 2018, making it by far the state’s largest international trading partner.

“If the USMCA doesn’t get ratified and we maintain NAFTA, Arizona can live with that and continue business as normal,” Puig said. “However, the USMCA creates some new modernizations that may facilitate even more trade.”

Puig says those modernizations include trade facilitation, digital trade and e-commerce provisions. It also includes better labor, social and environmental protections, which, depending on the final text, may be easier to enforce than in the past. He says one goal is to limit the abuse of regulatory powers of governments, which can make trade more difficult.

In a letter to Arizona Governor Doug Ducey in support of the USMCA, University of Arizona President Robert C. Robbins said the agreement “will increase the competitive advantage of Arizona and North America with provisions designed for today’s economy, accounting for e-commerce, intellectual property protections, advanced rules of origin for the manufacturing sector and expanded access for agriculture.”

The impacts of not having a free trade agreement would be felt across the board.

“Trade policy affects all levels of the market,” Kucik said. “It affects governments, it affects big multinational firms, but it also affects small mom and pop shops and individual workers.”

For example, while steel tariffs impact high-profile companies like Caterpillar, Ford and Boeing, Kucik said, they also affect a city like Tucson that has a lot of craft breweries, which could be impacted if prices increase on the metals that go into distillery equipment, kegs or cans.

For the average Arizona resident, increased foreign trade can present a mixed bag, Kucik said. Consumers often benefit from free trade because of increased access to cheaper foreign goods.

“However, if we buy more stuff from abroad, we’re buying fewer things made at home,” Kucik said. “So the political tradeoff is foreign goods versus U.S. jobs, and everyone has to make that political decision for themselves.”