The Canada-United States-Mexico Agreement (CUSMA) will help the Trump administration fulfill some of its economic objectives, but stands to shrink GDP and lower economic welfare throughout the North American region, according to a new report from the C.D. Howe Institute.
In “Quantifying CUSMA: The Economic Consequences of the New North American Trade Regime” authors Dan Ciuriak, Ali Dadkhah and Jingling Xiao note key measures of the agreement generate net benefits for the U.S. at Canada’s expense.
These include more stringent rules of origin that must be met for products to qualify for duty-free market access under the CUSMA, increased intellectual property protection, and the introduction of new rules on cross-border data flows and data localization.
By far the most quantitatively significant effects are the more stringent rules of origin. These new rules achieve the immediate objectives of the Trump administration to shift industrial activity – especially in the automotive sector – into the United States, but by increasing trade diversion, they impact negatively on economic welfare and efficiency.
The report concludes the negative elements of CUSMA outweigh the positives and results in lower real GDP and welfare for all three parties, though it leaves all three marginally better off than under a scenario in which NAFTA lapsed. Under CUSMA, Mexico is hardest hit and the United States the least. Canada’s real GDP stands to shrink by -0.4 percent and economic welfare to fall by over US$10 billion.