December 26, 2019

Javier Diaz de Leon, Dennis Lockhart, and Nadia Theodore (left to right) discuss North American trade. Photo by David Fine

The new trade agreement among the United States, Canada, and Mexico will bring much-needed clarity to critical commercial relationships in North America, according to diplomats appearing at the Federal Reserve Bank of Atlanta on December 11.

It's unclear whether the United States-Mexico-Canada Agreement (USMCA), which recently cleared a big hurdle in the U.S. Congress, will be a major turning point for North America, said Javier Diaz de Leon, consul general of Mexico in Atlanta. Certainly, though, the deal improves the 25-year-old North American Free Trade Agreement and clarifies commercial ground rules on the continent, he added.

"Certainty is not a small thing," the consul general explained. "We have certainty now in North America. I can't say the same for most large economies in the world."

Trade relationships' importance fosters persistence

Reaching an agreement at all amid political differences between the United States and Canada demonstrates the enormous value of the trade relationships, said Nadia Theodore, consul general of Canada in Atlanta, during a luncheon cosponsored by the Atlanta Economics Club and the Atlanta Fed's Americas Center.

Former Atlanta Fed president Dennis Lockhart moderated the discussion between the consuls general. Lockhart is now a distinguished professor in the Sam Nunn School of International Affairs at Georgia Tech.

Theodore identified persistence as the most important lesson to draw from the USMCA negotiations. Despite sometimes-clashing objectives and political philosophies, representatives from the three nations kept pursuing common goals and then codified those aims through constant communication, she remarked.

For instance, American and Mexican officials negotiated at length before finally settling on mechanisms to resolve disputes over labor practices in their respective countries, Diaz de Leon said.

Major step forward this month

The USMCA took a major step forward on December 10, when the U.S. presidential administration and House Democrats reached an agreement to strengthen various provisions in the trade pact. News reports indicated this milestone means the deal is almost certain to become law. The governments of the United States, Canada, and Mexico reached agreement last year, but legislatures in each country must ratify the USMCA. Mexico’s Senate ratified it in June and is expected to also approve the revised deal, but the U.S. and Canadian legislatures have yet to do so.

Lockhart pointed out that in international trade, global supply chains are losing ground to regional networks. Since NAFTA, North America has developed just such a "regional platform," the consuls general noted. For example, Toyota ships engines it manufactures in Huntsville, Alabama, to be installed in vehicles at an assembly plant in Tijuana, Mexico. In fact, Diaz de Leon added, the typical car produced in either country crosses the border at least eight times during the manufacturing process.

"This is a supply chain that comes and goes between our countries," he said.

photo of Charles Davidson
Charles Davidson

Staff writer for Economy Matters