US: Potential effects if Congress rejects the USMCA - Wells Fargo
|The US Congress has to ratify the United States-Mexico-Canada Agreement (USMCA), if it fails to do so, the US could likely withdraw from NAFTA. Analysts at Wells Fargo point out that it would not have meaningful macroeconomic effects for the US economy in the short run, but they warn it could lead to significant adjustment costs for individual industries, especially for the automotive industry.
Key Quotes:
“The leaders of the United States, Mexico and Canada reached agreement late last year on a trade deal that would reform NAFTA, but the U.S. Congress has not yet ratified the accord. If Congress does not ratify the USMCA, the Trump administration could potentially withdraw the United States from NAFTA. In that event, trade between the United States and its North American neighbors would no longer be duty free, as it has been over the past 25 years.”
“Revocation of duty-free trade likely would not have meaningful macro effects, at least not in the short run, on the U.S. economy. The United States levies single-digit tariff rates on imports of goods from most countries, so inflation likely would not rise significantly if duties would be imposed on Canadian and Mexican goods. Tariffs would raise the prices on American goods entering Canada and Mexico, but final spending in those two countries accounts for only 2% of the value added that is created in the U.S. economy.”
“The inefficiencies that are associated with the pricedistorting effects of tariffs could compound the negative macroeconomic effects over time. Moreover, individual industries, especially the automotive industry, could be significantly affected if trade between the United States and its North American neighbors is no longer duty free.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.