The Impact of the US-Mexico-Canada Agreement (USMCA) On Mexico's Economy

The United States-Mexico-Canada Agreement (USMCA) replaced the North American Free Trade Agreement (NAFTA) in 2020, and its impact on Mexico's economy has been a topic of discussion. The USMCA aims to promote trade and investment between the three countries, with a focus on modernizing and strengthening the agreement.

NAFTA boosted Mexican farm exports to the United States, which have tripled since the pact's implementation. However— Mexican exports to the United States fell 17 percent after NAFTA's implementation, and its economy contracted by over 6 percent, returning to growth in 2010. The USMCA is expected to have a positive impact on Mexican exports, particularly in the automotive sector, which is a key industry in Mexico

The USMCA is expected to change trade within the North American region, affecting output and weakening North American products. Costs - especially in the key automotive sector - will rise and tend to make North American products more expensive. However— Mexico stands to gain, albeit in the short term, from trade tensions between the U.S. and China and the imposition of retaliatory tariffs that began in 2018. Mexico has been a beneficiary of trade diversion, with companies shifting production to Mexico to avoid tariffs.

Mexico's priorities for USMCA in 2022 include- deepening its productive integration in North America, promoting economic growth, job creation, and above all, enhancing cooperation to face current and future challenges. Mexico will continue to work with its North American partners to build a strong, resilient, and competitive region. The USMCA is expected to increase the stability of the Mexico-US trade relationship, but sunset provisions threaten to generate trade regulation uncertainty every six years.

The USMCA is expected to have a mixed impact on Mexico's economy, with benefits and costs associated with the agreement. The USMCA is expected to increase stability in the Mexico-US trade relationship, promote trade and investment, and enhance cooperation between the three countries. However—the agreement's impact on Mexican exports and the automotive sector's costs are expected to be significant. Mexico's priorities for USMCA in 2022 include deepening its productive integration in North America, promoting economic growth, and enhancing cooperation to face current and future challenges.