Can the USMCA Compete in a Globalized World?

NAFTA, established in the early 1990s, was groundbreaking for its time, creating one of the world's largest free trade zones. But the renegotiation of NAFTA into the United States-Mexico-Canada Agreement (USMCA) emerged from a recognition of the evolving geopolitical landscape, which demanded updates to address new challenges and opportunities.

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Technological advancements such as the internet, changes in political power dynamics precipitated by globalization, and the desire to rectify perceived imbalances and shortcomings within NAFTA prompted a new framework for North American trade and labor dynamics.

Now entering its fifth year and arising amidst evolving geopolitical dynamics, including threats to liberal order and China's ascension as a formidable economic powerhouse, the USMCA seeks to adapt the principles of its predecessor, NAFTA, to the contemporary landscape. Importantly, it aims to leverage the combined economic might of its member states, each a significant player in the global economy. Together, the United States, with its advanced technology sectors, Canada, known for its natural resources and inclusive trade policies, and Mexico, offering regional supply chains from its growing manufacturing base, create a powerful economic bloc.

Internal Challenges: Legal and Industrial Incompatibility

A mid-year meeting held in January underscored the US, Mexico, and Canada’s commitment to adhering to the USMCA’s standards, focusing on areas such as labor rights and environmental protections. The assembly spotlighted the necessity for ongoing revisions and reforms within labor and environmental sectors, acknowledging the significant strides made by the USMCA while also recognizing the persistent internal challenges it faces.

Among these internal challenges is the effective enforcement of labor mechanisms, particularly in Mexico, where efforts towards organizational reform encounter obstacles entrenched by systemic corruption and violence. Similarly, automotive sectors grapple with inherence to complex regional value content rules, betraying the possibility that the agreement’s standards, while designed to uphold its integrity, may inadvertently complicate its enactment due to legal and industrial incompatibility across member states.

Addressing these issues is critical to the continuous improvement and effectiveness of the USMCA. It highlights the agreement's journey toward aligning ambitious international trade standards with the practicalities of market and policy environments. The sunset clause, requiring a renewal decision by 2026, injects a sense of urgency into resolving newfound challenges, emphasizing the need for active engagement from all stakeholders.

External Challenges

Resolving internal challenges within the USMCA’s framework is imperative to competing against and overcoming the external challenges facing North America. By the start of the 21st century, Western democratization and market policies crested with NAFTA, making it so that new alliances and global powers arose, pigeon-holing North America’s geostrategic solidity. In this late-market globalized era, rather than simply “counterbalance” political power, countries compete against each other by “wedging” between social, economic, symbolic, political, and cultural influences, ventriloquizing geopolitical dynamics.

While the USMCA alone cannot fully "overcome" external challenges, such as China's economic ascendancy, it plays an added role in enhancing the competitiveness and effective resilience of the US, Mexico, and Canada’s mutual economies. Wedging North America’s economic influences into the shifting global stage via the USMCA might look like ensuring diversified and resilient supply chains or advancing protections for intellectual property rights. By incentivizing the production and sourcing of goods within North America, the USMCA could reduce dependency on Chinese imports and enhance the self-sufficiency of the North American market. Additionally, advancing digital trade is integral to ensuring economic competitiveness in the 21st century. With specific provisions for digital commerce, the USMCA can work to safeguard data by enhancing cybersecurity measures, thereby doubly protecting intellectual property across North America and addressing critical areas of competition with China.

Outlook: Interdependence

Globalization is transforming the liberal international order, and multilateral frameworks are being subverted by networks of private actors. Thus, any collaborative effort by USMCA member states not only to compete with evolving geopolitical powers but to ensure the agreement’s stipulated domestic provisions requires interdependence. As it were, incompatible legal and institutional order among member states stands in the way of what collaboration is necessitated by developing a cohesive economic bloc through the USMCA. Without jockeying for power as in the authoritarian climate of NAFTA, member states must recognize solidarity to achieve any sort of multilateral foothold against private actors controlling geostrategic outcomes of supply chains, financial communications, energy markets, and so on.

Perhaps, the USMCA’s power will be determined by the joint efforts of member states to refine and implement its provisions effectively, ensuring it exists as a dynamic tool for North America’s economic integration and effective competitiveness against external powers. If so, member states ought to recognize that addressing the agreement's internal issues is inherently linked to navigating external changes in geopolitical dynamics de novo; that is, they must embrace the unprecedented economic and political realities of the present day in order to obliviate old and new challenges and maintain power in its contemporary context. Otherwise, as Hans Morgenthau famously writes in Politics Among Nations, “a gap will open between traditional patterns and new realities, and thought and action will be misguided.”

References:

https://ustr.gov/about-us/policy-offices/press-office/press-releases/2024/january/join t-statement-2024-usmca-mid-year-meeting https://www.brookings.edu/articles/introduction-usmca-forward-2024/ https://www.natlawreview.com/article/usmca-year-four-year-five https://www.brookings.edu/articles/labor-policy-in-mexico-and-the-usmca/ Farrell, H. and Newman, A.L., 2019. “Weaponized interdependence: How global economic networks shape state coercion”. International Security, 44(1), pp.42-79. Weiss, J.C. and Wallace, J.L., 2021. “Domestic politics, China's rise, and the future of the liberal international order. International Organization”, 75(2), pp.635-664. Morgenthau, H. J., Michelson, A. A., & Davis, L. (1973). Politics among nations: The struggle for power and peace. 5th ed. A.A. Knopf.