As to the first challenge, the long-run competitiveness of U.S. manufacturing, along with the higher-wage employment that it has traditionally offered, is at risk. Productivity growth, which depends in significant measure on technical innovation, is the basis for long-run competitive success. Greater output per unit of input means longer-term success in the marketplace. Unfortunately, however, in most U.S. manufacturing sectors, productivity growth is substantially below the best-in-class standard set by Germany. In addition, many U.S. SMEs are not productive enough to compete with the cost advantages of Chinese and other low-wage competitors.

These failures present a puzzle. The United States is the world leader in scientific research, and scientific discovery is the basis of manufacturing innovation. So why has competition from firms in countries such as Germany and China, with scientific establishments inferior to those of the United States, not caused U.S. manufacturers to translate an absolute advantage in basic science into a similar advantage in manufacturing innovation and productivity growth? Why has this country been less successful than Germany at diffusing technology across the U.S. manufacturing sector, especially to SMEs? Why can’t U.S. small firms overcome low-wage competition through innovation that delivers higher quality and greater efficiency, as do many German firms.

The source of these failures lies in public good and collective action problems that have not been addressed. Individual profit-maximizing firms underinvest in applied proof-of-concept research, measurement technology and standards, and workforce development, because they cannot capture all the benefits of those investments. This slows productivity growth, since these kinds of investments are needed to translate basic scientific discoveries into manufacturing processes and allow workers to adapt to continual technical change. These problems can be solved, but policy intervention is required to overcome the market failures that produce them.

This report recommends policy measures, analogous to those successfully adopted by Germany, that can address these problems.

To read the full report from the Center for American Progress, please click here.

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Many stakeholders have credited NAFTA with facilitating agricultural trade in North America by reducing tariffs and other market access barriers and by providing a stable and improved trading environment in the region. Studies conducted to estimate the incremental effect of USMCA indicate modest increases to regional trade in North America. For example, a study commissioned by the Farm Foundation estimated that USMCA would generate a net increase in annual U.S. agricultural exports to Canada of $450 million—about 1% of U.S. agricultural exports under NAFTA in 2017. Similarly, the U.S. International Trade Commission (USITC) assessed that U.S. agricultural exports would likely increase 1.1% in year six of USMCA implementation compared to its 2017 baseline export levels. Another study, conducted by the International Monetary Fund, estimated small gains in regional trade from USMCA compared with NAFTA; with respect to agriculture, it found modest gains to the region, primarily benefiting Canada. 

A study by economists at the University of Georgia says that USMCA may lead to losses for Georgia’s small fruit and vegetable producers because of subsidized imports from Mexico. The study was limited in scope and did not examine the broader impact of USMCA on other agricultural and nonagricultural sectors, other states, or the effects at the national level for the three USMCA signatories.

Issues for Congress

Congress has an interest in the implementation of USMCA because of its constitutional authority over foreign commerce and its long-standing involvement in U.S. farm policy.

Regarding market access, Congress may monitor Canada’s implementation of its commitments regarding U.S. dairy products, poultry products, and eggs. Some Members of Congress have raised concerns that Canada’s dairy TRQ allocation may not be consistent with its commitments under USMCA.

Congress may also monitor the implementation of the various nontariff provisions that the three countries agreed to under USMCA, such as assurances by Canada and Mexico that they will provide the same treatment to U.S. proprietary food formula and alcoholic beverages as they provide to their domestic products. Some Members of Congress have raised concerns that Mexico has not taken actions to fulfill its commitments regarding improving access for U.S. cheeses and agricultural biotechnology products46 and that Canada is making insufficient progress toward a protocol to allow the registration of U.S. wheat varieties in Canada.

Efforts by the USMCA signatories to establish a coordinated approach for greater harmonization of SPS rules, rules governing trade in products created with agricultural biotechnology, and rules pertaining to geographical indications may also be of interest for congressional oversight. This subject has drawn the attention of some Members of Congress, who have suggested that USTR and USDA use the GI provisions in USMCA as a model for other trade agreements. 

USMCA has also expanded access for Canadian peanut butter, dairy, sugar, and sugar-containing products to the United States. Congress may monitor how this improved access to the U.S. market affects U.S. producers in these sectors and the U.S. rural economy more broadly.

Congress may also use its oversight and legislative authority to address the effects of COVID-19 pandemic on greater integration of the North American market. The COVID-19 pandemic has placed unexpected stresses on food supply chains, with bottlenecks in farm labor, processing, transport, and logistics, particularly in developing countries such as Mexico. According to a report by a market intelligence company, Mexico has faced logistics and transportation difficulties including shortages of shipping containers, which could affect Mexico’s ability to trade perishable and packaged food products with the United States.

To download the full report, please click here.

Anita Regmi is a Specialist in Agricultural Policy for the Congressional Research Service.

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NAFTA has had a positive impact on the Canadian economy and has supported a stable, integrated and competitive North American market. The entry into force of NAFTA in 1994 created the largest free trade region in the world. By strengthening the rules and procedures governing trade and investment in North America, the agreement has proved to be a solid foundation for building Canada’s prosperity and has set a valuable example of the benefits of trade liberalization for the rest of the world. Since 1994, NAFTA has helped generate economic growth and raise the standard of living for the people of all three member countries. In particular, NAFTA has supported the development of an integrated and competitive North American market by providing manufacturers, producers, investors and consumers with a predictable and secure commercial environment.

From a trilateral perspective, NAFTA has contributed to an unprecedented increase in trade flows across North America since its implementation in 1994. Between 1993 and 2018, total merchandise trade between Canada and the United States tripled and total merchandise trade between Canada and Mexico grew almost 10-fold. Overall, total trilateral merchandise trade (the total of each country’s imports from one another) had risen to reach nearly US$1.2 trillion in 2018.

To read the original report, click here.

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