Recently we at the Greater Waco Chamber of Commerce had the opportunity, together with the Texas Farm Bureau, the Texas Association of Business and the U.S. Chamber of Commerce, to welcome U.S. Sen. Ted Cruz to Waco for a panel discussion on the USMCA — the United States-Mexico-Canada Agreement. Ratification of this newly renegotiated trade deal is critical to our economy in Waco, in Texas and across the United States.
As an organization committed to supporting the business community, our standard is what’s good for our area and what fosters sustainable economic growth. Free and fair trade that grows exports and expands access to foreign markets for locally made goods and services; spurs innovation; and boosts creation of good jobs meets that criteria. As Tom Kelly, director of the Baylor Center for Business and Economic Research, noted in the 2018 Economic Outlook for the Waco Metropolitan Statistical Area, while nearly every sector of our local economy exhibited positive output growth the year prior, according to the U.S. Bureau of Economic Analysis, trade accounted for 0.4% of the 3.9% growth in Waco’s real GDP (so about 10 percent) — this at a time when the national GDP rate of growth was just 1.7%.
While it’s sometimes difficult to get localized data, data aplenty at state and federal levels make a vibrant case for the importance of international trade to our state economy. Waco has several key industry sectors, so let’s take a moment to look at the agreement and some of its key provisions; then trade’s impact broadly; and then specifically what it means for a few of those target industry sectors.
25 years of NAFTA
It’s important to begin any conversation on the USMCA (colloquially dubbed NAFTA 2.0 for a while) by noting that this trilateral agreement was first adopted some 25 years ago. It’s not been updated since. Think back 25 years and how different our world was then. The Internet was in its nascent stages, email was not commonly employed, Facebook was eight years from being launched and if you wanted to record a song from the radio, you had to wait to catch it being played and record it onto your cassette, well into the late 1990s. In so many ways, the ’90s marked the fastest rate of technological innovation and development we had ever experienced. This is important because when NAFTA was signed, its protections and provisions didn’t deal with what those technologies would allow in regard to digital trade, intellectual property protections and beyond. The USMCA outlines new standards for the 21st century digital economy in which we now live and work.
In short, it was high time for renegotiation and the USMCA offers important key provisions. It contains a modernized look at both intellectual property rights and digital trade. As the Border Trade Alliance notes, these are critical to driving innovation, creating economic growth and supporting American jobs.
The USMCA also has many improvements for expanded market access for America’s farmers. Agriculture is obviously a key factor in our state economy with 86% of the land in Texas in some form of agricultural production. According to the Texas Department of Agriculture, the economic impact of agriculture is about $100 billion annually. This is no great surprise as Texas is both a top producer as well as one of the leading exporters of agricultural commodities, from cattle to cotton to hay and beyond. This level of production requires and creates jobs for Texans; indeed, one in seven working Texans is employed in agriculture.
More than 70% of our chamber members are small businesses, so we were delighted to see negotiations lead to a new chapter specifically on small and medium-sized exporters. This is vitally important because a whopping 98% of American companies that export are small and medium-sized businesses. As the U.S. Chamber of Commerce outlines, the USMCA cuts red tape so smaller businesses can more easily participate in cross-border trade; requires fair and transparent regulatory procedures; boosts potential of e-commerce so smaller companies can access new customers through online portals; promotes paperless trading by allowing electronic authentication and signatures; and makes it easier for small businesses to search, register and protect intellectual property. Canada and Mexico are the top two destinations for small businesses that do export; making transactions even easier could encourage more Texas businesses to seek out such opportunities. Indirect impacts on small-business engagement in trade are many, but as an example, every 22 packages that cross a border in the United Parcel Service network supports a job at UPS.
There are several key provisions in a new currency chapter, such as countries refraining from competitive devaluation of their currencies; enforceable labor standards to help level the playing field for American workers and improve wage and labor conditions in all three countries; and, importantly, a sunset clause which requires the three countries to review the agreement every six years.
Texas is the 10th largest economy in the world (ahead even of Canada in GDP). In 2017, it grossed more than $260 billion in exports — more than California and New York combined. In fact, we have led the nation as the largest exporter for 17 consecutive years. This is understandable considering the strength of various sectors of our economy. We are the top oil producer, producing more than 40% of the nation’s oil; we are a key player in exporting liquefied natural gas; we are the largest producer of wind power in the nation; we are now the fifth-largest wine-producing state in the nation; we account for 10% of all manufacturing production; and on and on. Our economy is strong and diverse. Having greater access to markets to export our products will support and enhance these trends.
For these reasons, leaders from so many of Waco’s key industry sectors urge ratification of the USMCA. Canada and Mexico purchase half of Texas’ global manufacturing exports and more U.S.-made goods than our next 10 trading partners combined, as noted by the National Association of Manufacturers. These support our logistics sector. Since 1995, the value of goods traveling via truck to Canada and Mexico has grown 191% and totaled more than $772 billion in 2018, the American Trucking Association reports.
Trade, not tariffs, is the way to continue to foster innovation and economic growth. In his recent report on the economic impact of tariffs on goods from Mexico, famed economist Ray Perryman wrote that even a 5% tariff would cause losses of $11.9 billion in GDP, more than $7 billion in income and more than 117,000 jobs.
As Dallas Federal Reserve Bank President Robert Kaplan recently observed in an interview with the Houston Chronicle, the center of economic policy right now is not monetary policy but trade policy. He also cites smart immigration policy and workforce growth as essential to sustaining this economic growth.
These are just some of the reasons the Greater Waco Chamber Board of Directors adopted state and federal policy priorities focused on free and fair trade to spur innovation, expansion and job creation in all industry sectors, across all skill levels. Ratification of the USMCA fits neatly into that strategy.
With the three partner countries having done the work of much-needed reforms and updates to our trade agreement, all that’s left is for each legislative body to ratify it. As our lawmakers return to work after the long August recess, it’s our hope they can put party politics aside and focus on passing good policy — and ratification of the USMCA is good policy — that supports economic growth and prosperity for so many of us. We’re heartened the president only Friday signaled flexibility in working with Democrats in further tweaking the agreement to everyone’s satisfaction.