The Trade and Economic Impact of the USMCA: Making Sense of the Alternative Estimates

With a number of formal quantifications of the multi-named new trade agreement for North America (USCMA in the United States, CUSMA in Canada and T-MEC in Mexico) now in hand, this note compares the estimates and draws conclusions about the sign (positive or negative) and scale (order of magnitude) of the likely impacts. The published estimates feature headline figures that vary from negative impacts to major gains. These apparent inconsistencies reflect differences across the studies in terms of the factors taken into account and how they report their impacts. This note reviews the sources of differences of four studies, including the official studies released by the United States and Canada. It demonstrates that the impact of the new agreement relative to the status quo is negative when evaluated in conventional terms. The long-run impetus prompted by the pandemic to “near-shoring” or “re-shoring” due to concerns about extended supply chains would appear to work in the same direction as the new agreement in terms of creating a more insular North American economy at some expense in efficiency. However, there are many sources of uncertainty that at present do not lend themselves to a robust quantification. The known knowns promise to be negative on balance; as for the known unknowns, time will tell.