Impacts of U.S., Mexican, and Canadian Trade Agreement on Commodity and Labor Markets

Abstract

The North American Free Trade Agreement (NAFTA) renegotiation has resulted in an updated agreement known as the United States-Mexico-Canada Agreement (USMCA). Given the contentious nature of the renegotiation process, we analyze the impacts of the USMCA relative to a what if scenario of failed NAFTA renegotiation to examine the economy-wide impacts of USMCA on bilateral trade, production, consumption, prices, and domestic and cross-border labor markets. Our results show that, had NAFTA renegotiation failed, the ensuing economic conditions would have created incentive for more, not fewer, migrant workers to enter the United States. USMCA benefits Mexican and Canadian consumers marginally but harms U.S. consumers slightly.