IMF Analysis Of Nafta 2.0 = Potemkin Trade Deal


  • IMF published a working paper on NAFTA 2.0 or the USMCA on March 26th
  • The trade deal still needs Congressional approval
  • The impact on GDP is negligible and the effects are relatively small at the aggregate level
  • Trade is reduced between all three nations with trade deficits in the U.S. and Canda rising slightly
  • Real wages in Mexico decline slightly and are unaffected in Canada and the U.S.
  • Automobile and parts production will be incentivized to move out of North America
  • Consumers will pay higher vehicle prices and resulting in lower demand and production
  • In other words, the deal sucks and is, at best, Potemkin, which confirmed our suspicions when it was announced.

The IMF goes deep on NAFTA 2.0 and confirms our initial conclusions from October,

More Potemkin than real beef.  Or, as they say in Texas, “big hat, no cattle.”

At first glance, with our limited information,  our conclusions are the negotiations were a huge waste of time, energy, and diplomatic capital resulting in a nugacity of a new agreement.   High drama all for naught, in our opinion.  – GMM, October 1st

IMF Conclusions

IMF economists’ main conclusions on Nafta 2.0 (see the full report here ):

  1. At the aggregate level, effects of the agreement  are relatively small
  2. Reduces trade among the three North American partners by more than US$4 billion (0.4 percent) while offering members a combined welfare gain of US$538 million
  3. Trade deficits will widen slightly in Canada ($36 million) and the United States ($275 million) but that of Mexico improves modestly
  4. Effects on real GDP are negligible
  5. Most of the benefits will come from trade facilitation measures that modernize and integrate customs procedures to further reduce trade costs and border inefficiencies
  6. Changes in trade flows will lead to structural changes in the composition of production across North America
  7. Some sectors benefit from greater trade integration while others
    experience declines in output and job losses
  8. Changes in industrial structure that result from changing trade flows prompt employees to move from contracting to expanding sectors
  9. Real wages for skilled and unskilled workers in Mexico decline slightly but wages are unaffected in Canada and the United States
  10. Tighter rules of origin in the auto sector and the labor value content
    requirement will not achieve their desired outcomes and lead to a decline in the production of vehicles and parts in all three North-American countries, with shifts toward greater sourcing of both vehicles and parts from outside of the region
  11. Consumers will face higher vehicle prices and respond with lower demanded quantities

 True to form for the Art of the Deal – little gain, lots of pain. 

Potemkin Mexico Canada Deal


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