Expanding USMCA is key to respond to competition from rising economies, make supply chains resilient, and combat climate change

A little over one year into USMCA, we must look beyond the day-to-day market access issues and identify ways in which the agreement can become a framework for building a more competitive, sustainable, and inclusive North American economy. A successful agreement would maintain bipartisan political support and effectively respond to competition from China and other rising economies. There are five primary areas governments and relevant stakeholders must focus on to help achieve these objectives: 1) Expand trade and investment to create a more competitive North American economy: USMCA includes a range of commitments that can strengthen North American competitiveness by increasing within-bloc trade and investment that contributes to the overall competitiveness of the region, including in infrastructure and supply chains. 2) Increase resilience and strength of North American supply chains: COVID-19 underscored the importance of resiliency and proximity to consumers. Going forward, North America needs supply chains that are more resilient to short-term shocks, which in turn have the potential to make North America a competitive alternative to supply chains in China. USMCA can also support policies to increase human mobility in the region as well as investment in worker trainings, which will be crucial as complex supply chains become more knowledge intensive. 3) Develop a digital North America: USMCA includes a comprehensive digital trade chapter that can serve as the foundation for expanding digital trade opportunities across North America. Success here will also strengthen supply chains, create new opportunities for digital technologies such as artificial intelligence (AI), and make North America more inclusive by expanding access for small and medium enterprises (SMEs) to digital trade. 4) Strengthen outcomes for labor: It will be important to show that the USMCA labor chapter commitments are demonstrably effective. This will have two elements: First, proof of compliance by all governments—in particular by the Mexican government where the labor market contains many distortions —with agreements on labor commitments and second, successful use of the rapid response mechanism to address facility-level violations. Overall, USMCA should be successful where NAFTA was not: improvement in wage conditions and rates over time, though this must be paired with other non-trade related reforms to address low productivity growth in Mexico. 5) Support ambitious climate change action: Climate change will increasingly be the challenge through which all other economic policy tools are assessed. With the USMCA environment chapter and other commitments in the agreement, there is scope for North America to position itself as a leader in clean energy technology, discipline government action inconsistent with ambitious greenhouse gas reduction targets, and develop a coordinated approach to carbon border adjustment mechanisms.