Even since NAFTA and now USMCA, Mexico and Canada are not trading much with each other, so there is still space for a deeper integration. 

The duties of the U.S. on Mexican and Canadian imports of steel and aluminum executed from Donald Trump were economically harmful to Canada.

Mexico trades a lot of medical stuff to the U.S., but to strengthen the health sector of North America it needs a deeper integration for which the USMCA can be used as a framework.

Some facts about the USMCA:

Labor protections are an important part of the USMCA.

The “USMCA provides the necessary framework to mutually recognize professional degrees and issue temporary entry visas for cross-border service provision.” This is a big improvement, because workforce can now be shared more easily among the North American countries. 

The agreement has a higher bargaining power than NAFTA, because there are “new mechanisms to exercise the rights of salaried workers and enhancing the credibility of sanctions in cases of non-compliance”.

The USMCA is the most advanced among existing free trade agreements in terms of liberalizing digital trade. 

Although the USMCA does not deal with the climate change directly, it could diminish some of the impacts of climate change on the environment because of some articles for a greater protection of nature.

The three countries are currently developing policies that clearly undermine the objectives of the agreement.

To strengthen the competitiveness of North America with regard to China, the three states should integrate much more deeply. 

Leon Neuwirth

Mexico needs to work against the loss of economic growth by 

- prevent isolation from trade blocks

- prevent loss of direct investment

- importance of foreign direct investment (FDI)

Attempts to compare prices as a way to measure integration would have to take into account the macroeconomic imbalance implied by the difference in inflation rates and the adjustment in the different currencies. In the United States-Canadian case, this does not seem to be a very serious problem because the exchange rate tends to effectively offset differences in inflation rates. In the Mexican case, however, the exchange rate is not as effective and therefore makes price comparisons more difficult.

When trying to measure the integration via factor markets the rise in assembly plants in northern Mexico and Central America and employment potentially represents direct integration of the U.S. and Mexican economies because it represents a fragmentation of the production process. Also, the results from the paper show that U.S. and Mexican labor markets are closely linked. Mexican wages respond to wage shocks from the United States and return to the equilibrium differential relatively quickly. In addition, the paper shows that border regions are more integrated with the U.S. than inland regions.

Analyzing the level of integration with the trade volumes, the Numbers show a high integration especially after NAFTA when Mexico's share of total U.S. imports rises by nearly 50%, Mexico's share of U.S. exports rises by approximately 100%, and Canada being the largest trading partner of the US. 

In terms of product availability product markets might be integrated if prices equalize, as discussed earlier, but empirically one can only compare the prices of goods that are actually present in the market. Increasing the range of goods that are traded, and therefore increasing the choices of products available to producers, is one of the most significant gains from trade liberalization. Measure, therefore, ranges from zero to one as market thickness increases. 

Supplying varieties to the United States, Canada moved from fourth to first and Mexico moved from thirteenth to eighth. 

However, as the paper also showed, it is not easy to measure regional integration. In particular, it is not measurable by a single measure, but many different measures and environmental conditions have to be taken into account.

For product-level prices, one must account for differences due to exchange rates and inflation rates. There are no major differences between the U.S. and Canada, and the exchange rate can be considered to be working well. In terms of the USA and Mexico, there is a huge difference. The exchange rate of Mexico is relatively inflexible which has also an impact on the trade balance.

As for factor markets, NAFTA was originally intended to allow easier capital flows and liberalize capital markets. This was successful since a rise in capital flows can be observed after NAFTA. With a focus on the factor of labor, it can be said that Mexican labor markets especially close to the border are affected by wage shocks in the USA. 

In addition, the volume of trade is also an indicator that can be observed. In this regard, Canada is the largest trading partner of the USA and Mexico can report a doubling of its trade volume with the USA.

Besides that, the product availability in terms of variety has increased. In 2001, the USA imported three times more variety than in 1972. When it comes to supplying variety to the USA, Canada and Mexico are ranked on first and eighth rank and have hereby improved their rankings. 

- Lisa Marie Panzer

1.       Price Convergence:

Measuring economic integration through price convergence between Canada and the US is easier than between Mexico and the US.  The Canadian dollar is relatively flexible and moves with inflation to offset the price differences. That’s why Canada and the US have relatively similar inflation rates. The Mexican peso, on the other hand, is relatively inflexible, which affects the trade balance between Mexico and the US. 

2.       Factor Markets (Capital and Labor): 

Product market integration can be analyzed by focusing on factor markets such as the volume flows of capital or labor. Capital flows have been a force integrating North America as the US manufacturing output and Mexican maquiladora output are very close related. However, since labor flows were specifically excluded from the main NAFTA agreement, alternative metrics for labor market integration are real domestic purchasing power or absolute wage convergence. US and Mexican wages follow a similar pattern although Mexican wages are much more volatile than US wages. 

3.       Trade Volumes:

Canada is the largest US trading partner. However, Canada’s share of total US trade has been falling since 1999. On the other hand, trade between Mexico and US has been increasing. Mexico’s share of US imports and exports more than doubled over the last 20 years. This shows that trade volumes suggest an increasing depth of product-market integration. 

4.       Product availability: 

Lastly, another measure of economic integration involves looking at the range of products traded or the market “thickness”.  Bu unfortunately, it isn’t clear whether falling trade barriers increase the range of goods traded or not.  

·       When trading the countries must agree on a price, price equalization. We use the Purchasing Power Parity (PPP) to compare prices in different currencies.

·       Product market integration can be analyzed with factor markets, capital and labor.

·       Trade volumes, the most common measure of economic integration.

·       Look at the range of products traded, increasing the range of goods that are traded increase the choices of products available to producers.

Article 4: USMCA modernized the NAFTA by incorporating areas such as digital trade, state-owned enterprises, labor, environment, small and medium-sized firms, competitiveness, anticorruption, good regulatory practices, and a functioning dispute resolution system. 
North America can be more competitive by improving conditions for innovation that happen in a decentralized fashion. The USMCA enable member countries to achieve a deeper integration and improving competitiveness in many economic sectors. 
One quarter of total digitally ordered goods and services in North America would be traded between Canada, Mexico and the US. 
How can digital trade flourish in North America, they need to cooperate in developing and integrating their digital market by following the chapter 19 of the USMCA: 

·       prohibition of the imposition of customs duties on digital transactions, 

·       prohibition of restrictions of cross-borders data transfers, 

·       prohibition to locate computing facilities in a member state as a condition of doing business, 

·       prohibition to require the transfer or access to the source code of software as a condition to selling or using that software in a member state’s territory. 

THE USMCA also requires that member states have legislations and regulations to protect consumers in digital trade transactions, with measures to limit unsolicited electronic commercial communication and legislations to protect individuals right to privacy with respect to their personal data. 
The opportunity provided by the USMCA can be used to improve the competitiveness of each of the three countries and of the entire north American region while also furthering climate change mitigation and adaptation. 

The environmental chapter 24 of the USMCA includes requirements for maintaining the effective enforcement of environmental laws, provisions aimed at protecting biodiversity, and some more regulations but is not not very sufficient to really fight against climate change. 
Maelle BINET