Trump has renegotiated NAFTA, awaits congressional approval

After two years of negotiations, President Donald Trump signed a new treaty with Mexico and Canada to replace what he called "the single worst trade deal ever approved in this country," the North American Free Trade Agreement.

The most important hurdle remains to be cleared, however: Congress must pass the deal for it to go into effect.

Trump formally signed the United States-Mexico-Canada Agreement, or USMCA, alongside former Mexican president Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau at the G20 summit in Buenos Aires, Argentina, on Nov. 30.

Trump will need the next House speaker to bring the legislation before the Democrat-controlled floor. Former Speaker Nancy Pelosi impeded trade deals with Colombia, Panama, and South Korea in 2007 by blocking precisely that step, according to Phil Levy, senior fellow on the global economy at The Chicago Council on Global Affairs.

If the House Rules Committee finds Trump met the requirements of Trade Promotion Authority, the 2015 law that governs U.S. trade negotiations, the trade deal would need a simple majority in the House and Senate. No amendments would be allowed, nor any filibusters. If TPA is deemed not to apply, then Congress does not need to move the bill forward. It could also be amended, and filibustered in the Senate.

Democrats and Republicans in both chambers have voiced reservations; Democrats see insufficient protection of American jobs and workers, and some Republican free traders see it as overly protectionist.

To turn up the heat on Congress, Trump has threatened to terminate NAFTA.

"I'll be terminating it within a relatively short period of time," Trump said shortly after the signing ceremony. "We get rid of NAFTA. It's been a disaster for the United States."

Trump could invoke Article 2205 of NAFTA to leave the pact. That opens up a six-month window during which he could change his mind. The administration has already threatened withdrawal for the same reason, but never followed through.

Whether Trump can simply withdraw the United States from NAFTA is subject to heavy debate. According to Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, ending implementation of NAFTA would require Congress to change U.S. laws, so Trump's own announcement might not mean all that much.

On the other hand, Trump's threat of scuttling the agreement brings forth uncertainty for businesses, which is bad news for all three economies, Kirkegaard said.

Experts told us the new NAFTA varies only slightly from the old one, which came into force in 1994. Most of the new provisions favor the United States.

The USMCA touches a variety of economic dimensions. It increases the United States' reach into Canadian milk and pharmaceutical markets, bolsters labor and environmental rights, and broadens protections over intellectual property. Perhaps most significantly, it aims to substantially increase the share of car and truck parts made in North America.

Under NAFTA, a little less than two-thirds of a car's parts had to originate from North America for the car to be eligible for duty-free status. Anything short of that, and the car is not considered a "North American good."

The new agreement raises that threshold, with cars needing three-fourths of their parts originating in North America to move freely between the three countries.

The new deal also requires that at least 40-to-45 percent of the value of vehicles be produced in factories paying $16 hourly wages by 2023. That's significantly higher than Mexico's minimum wage, roughly $4.15. Under NAFTA, no such wage provision existed.

The new deal also allows the United States to supply the equivalent of 3.6 percent of Canada's dairy market tariff-free, up from the existing 1 percent. It also eliminates a milk ingredient pricing policy that incentivized Canadian cheese producers to use local ingredients.

American wine producers will also benefit from grocery store shelf space in British Columbia, which was previously inaccessible.

Trump's promise to renegotiate NAFTA has moved along considerably. With approval of Congress as the final hurdle, we rate it In the Works.