USMCA does a better job than Nafta of keeping the benefits of North American trade inside North America. But USCMA leaves economies outside North America, especially China, too many opportunities to sell to the enormous North American market without producing inside it or creating any jobs. Worse, outsiders enjoy these benefits without incurring any of USMCA’s market-opening obligations.
The solution is to raise North American trade barriers to imports from outside the USCMA area. The mechanism for this is the trade deal’s ‘rules of origin’. The US, Mexico and Canada should grant duty-free privileges only to goods made, or almost entirely made, within North America. This would create plenty of business and jobs in all three countries, even though commerce between them would be unfettered. Businesses everywhere would have powerful incentives to comply, by building factories inside North America in order to sell to this enormous, albeit overwhelmingly American, market.
Many of these plants and jobs would move to North America from China and elsewhere in Asia, thus contributing to Mr Trump’s trade diversion goals. And many of the industries involved would be ideal investors and employers in Mexican and Central American economies desperate for growth and jobs. How better to weaken a prime engine of illegal immigration over the long term?