US-Mexico-Canada Trade Agreement Targets China’s Bad Practices

By Frank Fang
Frank Fang
Frank Fang
Frank Fang is a Taiwan-based journalist. He covers U.S., China, and Taiwan news. He holds a master's degree in materials science from Tsinghua University in Taiwan.
October 3, 2018Updated: October 4, 2018

The new trade deal between Canada, Mexico, and the United States has put China on notice about some of its most egregious business practices, experts say.

Named the U.S.–Mexico–Canada Agreement, or USMCA, the pact will replace the 24-year-old North American Free Trade Agreement (NAFTA). While the new agreement still needs approval from Congress before it comes into effect, President Donald Trump has high hopes that it will allow North America to be transformed into a “manufacturing powerhouse.”

“I believe this agreement will boost productivity and economy in both Canada and Mexico,” said Frank Xie, a business professor at the University of South Carolina–Aiken, in an interview with the Chinese-language Epoch Times.

Under NAFTA, Xie explained, many Mexican products sold in the U.S. market were the result of packaging cheap components imported from elsewhere, such as China. Now, under the deal, Mexico won’t be able to rely on cheap components anymore, and subsequently, that will drive an upgrade of the Mexican industry.

“There were holes in NAFTA that were damaging to the U.S. industry,” said Xie, noting that cheap parts from China allowed Mexican products to be sold for reduced prices, thus undermining competition with U.S. goods. “Now, the new agreement is to close those holes. Much like the current trade war with China, Trump doesn’t want China to exploit those holes anymore,” he said.

While under NAFTA,  Chinese companies were able to evade tariffs by selling components to Canada or Mexico, then shipping those products tariff-free into the U.S. market, trade experts have also pointed out that the new agreement with Mexico and Canada includes a provision that targets China’s bad practices.

The provision specifies that if one of the current NAFTA partners enters a free-trade deal with a “non-market” country such as China, the other two can quit in six months and form their own bilateral trade pact with each other, according to Reuters.

Derek Scissors, a China scholar at the American Enterprise Institute in Washington, said the provision gave the Trump administration an effective veto over any China trade deal by Canada or Mexico.

If repeated in other U.S. negotiations with the European Union and Japan, it could isolate Beijing in the global trading system.

“For both Canada and Mexico, we have a reason to think an FTA [free trade agreement] with China is a possibility. It’s not imminent, but this is a very elegant way of dealing with that,” Scissors said in an interview with Reuters. “There’s no China deal that’s worth losing a ratified USMCA.”

Trump, who most recently slapped tariffs on $200 billion in Chinese goods, has said the tariffs are designed to protect U.S. interests from Chinese actions, such as the theft of American intellectual property—which is estimated to cost the U.S. economy $180 million to $540 billion annually, according to 2017 estimates by the IP Commission of the National Bureau of Asian Research, an independent research organization.

Reactions From Inside China

While Beijing hasn’t officially issued a statement about the USMCA, Chinese media have been critical.

Wang Peng, a lecturer at Xi’an Jiaotong University, located in northwestern China’s Shaanxi Province, wrote in an Oct. 2 article published on Guancha, a nationalistic Chinese news site, that the agreement was the result of coercion by Trump, for the purpose of getting back at China.

Li Guangman, a freelance writer and columnist for Chinese news opinion portal CWZG, wrote that Mexico and Canada were simply “corpses that have been killed by the big bat of the U.S. trade war” and China “should not show any sympathy towards them [Mexico and Canada].”  

Li also took a jab at Canadian Prime Minister Justin Trudeau, calling his remark of “it’s a good day for Canada” after agreeing to the USMCA “self-comforting.” Li suggested that Beijing should work with other developed countries other than the United States, and “disintegrate any economic alliance in the world that might target China.”

Wenweipo, a pro-Beijing newspaper based in Hong Kong, ran an article on Oct. 2, titled, “Canada and the U.S. Got What They Need and Mexico is the Loser,” arguing that the terms of the new agreement were akin to concessions that would hurt Mexico’s economy.

Unlike the NAFTA and the Trans-Pacific Partnership, the USMCA imposes stronger rules of origin for vehicles and automotive parts. That is, automakers will enjoy zero tariffs if 75 percent of auto parts making up their automobiles are manufactured in Canada, Mexico, and the United States, an increase from the original threshold of 62.5 percent under NAFTA.

Additionally, the deal requires that 40 percent of a vehicle eligible for duty-free importing must be made by workers earning a minimum of $16 an hour.

Reuters contributed to this report.