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New USMCA trade deal prevents Canada and Mexico from making free trade deals with China

The ship Hammersmith Bridge, which has just arrived from Shanghai in China, unloads Chinese shipping containers at the Port of Long Beach, on Saturday in Los Angeles County. The new USMCA trade deal between the U.S., Canada, and Mexico prevents any of these nations from establishing a free trade pact with China. (Mark Ralston/AFP/Getty Images)

The new trade deal that the United States, Canada, and Mexico have agreed to prevents Canada and Mexico from creating a free trade agreement with China without U.S. approval, Reuters reported.

What are the details?

After threats from President Donald Trump that he could leave the Canadians out of a trade deal altogether, the U.S., Canada, and Mexico agreed to a trilateral trade named simply the United States-Mexico-Canada Agreement.

The USMCA deal has a lot in common with its predecessor, NAFTA, but includes a few key changes. Among these are the promise of improved labor laws for Mexican workers, more access to Canadian markets for American farmers, and a clause that limits future free trade agreements with nations like China.

The clause stipulates that the other two nations in the pact have the option of pulling out of the deal if any one of them signs a free trade deal with a "non-market" country.

Article 32.10 of the agreement states, in part, "Entry by any Party into a free trade agreement with a non-market country, shall allow the other Parties to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement)."

This article of the agreement also defines a "non-market" country as "a country that on the date of signature of this agreement at least one Party has determined to be a non-market economy for purposes of its trade remedy laws and is a country with which no Party has a free trade agreement."

In 2017, the Department of Commerce published a report that concluded that China was a non-market economy.

What's the point of this rule?

This clause could be used to prevent China from trying to circumvent the steep tariffs that the U.S. has slapped on Chinese imports by funneling its merchandise through either Canada or Mexico.

The U.S. currently has tariffs on $250 billion worth of Chinese goods, and Trump has threatened to slap tariffs on another $267 billion worth of Chinese imports. In 2017, China shipped $505.6 billion worth of products to the United States.

One last thing…
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