Four months after the final ratification took place in Canada, The United States-Mexico-Canada Agreement (USMCA) became effective on Wednesday, July 1, 2020 as the successor of the North American Free Trade Agreement (NAFTA). The purpose of the new agreement is to support “North American manufacturing and mutually beneficial trade.”
There have been several key changes that allow for economic growth for the United States, and the trucking industry is one of the main benefactors. With the USMCA, 75% of auto parts of a vehicle (including trucks) are required to be made in North America, which closes the gap in NAFTA that incentivized low wages in the production of automobiles and its parts; with this stipulation, truck manufacturers like Freightliner and Mack will greatly benefit.
The trucking industry will become busier and see direct growth with now more relaxed trade restrictions and increased emphasis on domestic production and manufacturing. More U.S. agricultural products will be allowed into Canada. The full range of U.S. dairy products will have unprecedented market access into Canada as well.
American truckers will get a home-field advantage with this new agreement, by reducing foreign competition with Mexican drivers. The USMCA specifies that a Mexican carrier cannot haul freight when both the origin point and destination are in the United States. Limiting foreign competition while allowing more agricultural trade into Canada will surely keep the American trucking industry busy. Cross-border truckers will see wait time begin to decrease by allowing more opportunities for trucking companies to gain the necessary authorities for speedier customs.
With increasing steel and aluminum prices in the United States, the future is unclear. Increasing the percentage of a vehicle’s auto parts to 75% can produce more much-needed jobs for Americans. If the 75% percentage is not met, then car manufacturers would have to pay a tariff. Restructuring the supply and logistics chain would take about 5-10 years to meet the 75% requirement and minimize costs. If the restructuring isn’t worth it to the eyes of the manufacturers, they would have to pay more out of pocket through the tariffs and maintain current operations.
USMCA is subject to review by the three countries every six years where they can decide to extend the agreement. It also has a sunset clause where in 16 years, the agreement expires.