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Stability returns to the North American cross-border business environment | Analyst Picks| RiskMap 2021

USMCA

Stability returns to the North American cross-border business environment

Ines Echeagaray | Jonathan Wood

North American regional relations are likely to improve in 2021. The incoming administration of US president Joe Biden will both prioritise stronger ties and alleviate key irritants in bilateral relations with Canada and Mexico. Some differences over trade, immigration, labour, and environmental issues will persist, but companies can broadly expect a more predictable and stable cross-border business environment shaped by implementation of the regional US-Mexico-Canada Agreement (USMCA). 

Mexico will necessarily adapt to the change in government in the US, which accounts for around 80% of its trade. Immigration will become a less contentious issue and cross-border security cooperation will remain strong. However, it is almost certain that the US will put more pressure on Mexican President Andrés Manuel López Obrador (AMLO) over energy and the labour market.

Wages and labour standards were among the most contentious parts of protracted USMCA negotiations – as well as pillars of Biden’s presidential campaign and outreach to US trade unions. In 2021, both the US and Canada will pressure Mexico to fulfil its labour commitments and focus on implementing the controversial monitoring provisions of USMCA. In Mexico, this will impact the maquila (cross-border manufacturing), automotive, auto part, electronics, mining, and aluminium sectors most. 

Energy, in addition, will be a potential area of tension in regional relations. US policy will reverse to strongly support international climate change initiatives, syncing with Canada and putting pressure on Mexico to strengthen and meet its Paris Agreement commitments. (Biden’s policy will also threaten Canada’s cross-border oil pipelines.) Both the US and Canada also promote “green recoveries” from the COVID-19 recession, built around the transition from fossil fuels to renewable energy. Mexico – despite its fast-growing renewables sector – is doubling down on oil and gas, a mainstay of the federal budget. Finally, the US and Canada are keen to enforce provisions of USMCA that seek to prevent the Mexican government from limiting private participation in its power and energy sectors. 

Canada, for its part, will welcome a friendlier US administration more committed to multilateral cooperation and international institutions. The threat of capricious tariffs hanging over Canada’s economy will diminish. However, Prime Minister Justin Trudeau will lose a political foil in the outgoing Trump administration, and potentially its outsize role in regional responses to climate change, World Trade Organization (WTO) reform, and the political and economic crisis in Venezuela.  

 

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