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How new North American trade deal could affect NJ

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The dust is still settling following the eleventh-hour settlement of a trilateral trade agreement between the U.S., Canada and Mexico that would replace the 24-year-old North American Free Trade Agreement.

And in the days since, policymakers, business advocates, executives and academics have been sifting through the agreement’s thousands of pages trying to make sense of how they would, or would not, be impacted by the new deal.

The United States-Mexico-Canada Agreement will cover the trade of roughly $1.2 trillion of goods between the three countries. Many provisions of NAFTA will be kept in place under the measure, with some exceptions.

First, at least 75 percent of auto parts will have to be constructed in the U.S., Canada or Mexico to qualify for duty-free status.

A majority of the parts will have to be made by workers earning at least $16 an hour, a development proponents say will shift labor away from much lower-wage factories in Mexico and instead to those in the U.S. and Canada.

USMCA also gives U.S. dairy farmers greater access to the Canadian market, enabling them to export a greater quantity of their products.

“For U.S. business, the impact will definitely be positive,” said Thomas Prusa, a professor of economics at Rutgers University. “But that’s relative to the current state, which is freaking chaotic.”

New Jersey will likely fare the same, Prusa suggested.

“This does not resolve all the tariff challenges for New Jersey businesses and consumers,” Prusa said. “We still have hundreds of billions of dollars imposed on China [and] tens of billions of dollars imposed on the European Union.”

There are two New Jersey industries Prusa said he believed would be impacted the most by the tariffs and trade deals: agriculture and pharmaceuticals.

For example, the 10 percent tariff on aluminum and 25 percent tariff on steel, which will remain in place under USMCA, would ultimately be passed down to consumers because of the newer pill containers that use aluminum in their packaging.

“We have a bunch of New Jersey firms that do not produce steel in New Jersey,” Prusa said. “We consume steel in the sense that we have firms that are steel processors. All of these firms have experienced 25 [percent] to 40 percent price increases this year.”

The agreement would strengthen intellectual property protections for pharmaceutical companies, a major win for the industry, according to the trade group Pharmaceutical Research and Manufacturers of America.

“The United States-Mexico-Canada Agreement marks a historic point for U.S. trade policy, cementing critical intellectual property protections and other standards that will pave the way for the next generation of treatments and cures,” PhRMA President and CEO Stephen J. Ubl said in a prepared  statement.

Intellectual property broadly describes intangible “creations of the mind” such as art, designs, symbols and inventions. IP is generally protected by laws such as patents, copyrights and trademarks, and proponents argue such laws are vital to protect the rights of innovators and creators.

In the case of the pharmaceutical industry, IP law applies to developments for medications and treatments for diseases ranging from cancer to Alzheimer’s and diabetes. Ubl called IP the “lifeblood of the innovative biopharmaceutical industry.”

“Biopharmaceutical science has advanced radically in the 24 years since NAFTA entered into force, making this an important time to modernize the pact,” he added.

New Brunswick-based pharmaceutical giant Johnson & Johnson agreed with that sentiment.

“The improved intellectual property provisions, particularly the commitment to provide at least 10 years of data protection for biologics, is a very important step,” a J&J spokesperson said.

“One must keep in mind that the original NAFTA was implemented in 1994, and with the advancement of technologies changes needed to be applied,” said John Kennedy, CEO of the New Jersey Manufacturing Extension Program.

But many of those in the trade industry, Kennedy said, are still in the weeds trying to determine whether things will be better under the USMCA.

Kennedy said he was intrigued by the “zero tariffs” provision, which requires that a truck going from one country to another has to be carrying at least 75 percent of its manufactured product from the country of origin. That rule, which goes into effect in 2020, is up from the current 62.5 percent, he said.

A 2017 PhRMA report, which examined 2015 data, noted the state’s biopharmacy industry generated $104.7 billion of economic output, or the total value of goods and services supported by the industry.

The industry generated $7.7 billion in federal and state taxes that year and employed nearly 66,000 people, the report added.

Michael Wallace, vice president of government affairs at the New Jersey Business & Industry Association, said in 2017, Canada and Mexico imported a combined $9.5 billion worth of goods and services from New Jersey.

“Our three economies are linked, and we are all better off when our relationship is one of economic cooperation,” Wallace said. “A protracted trade war with either one of our two border nations would have brought a lot of economic pain to New Jersey companies and consumers alike.”

One of the state’s biggest assets is its agricultural production, according to Anthony Russo, president of the Commerce & Industry Association of New Jersey.

“A lot of farmers are in our membership, especially in South Jersey,” Russo said. “Whether it’s blueberries or Jersey tomatoes, getting their products out would be good.”

For that reason, Russo is supportive of USMCA, given its potential to allow local farmers to export their goods globally with as few tariffs and restrictions as possible.

“When you think about it thematically, in the big picture, anything that eases the restrictions or makes free flow of trade easier is always going to be a positive,” Russo said.

But Ed Wengryn, a research associate at the nonprofit New Jersey Farm Bureau, said that while the new deal would be good for the state’s farmers, they continue to be hurt by the trade disputes.

“Any time we have open trade between Canada and New Jersey is a good thing,” Wengryn said. “They are some of our largest consumers of blueberries and cranberries and some of the fruits and vegetables we grow.”

As for the USMCA’s provisions on the dairy industry, New Jersey would not likely see any impact given its limited footprint in the market.

“Our guys probably wouldn’t be competing with Canadian dairy as much as New York and Pennsylvania and Vermont and those states closer to Canada — the Michigans and Wisconsins,” Wengryn said. “But then again, our milk stays here.”

Because of New Jersey’s diverse agricultural industry, Wengryn added, the state’s economy is able to weather any hits the tariffs bring.

“Where there could be a loser on one side, there could be a winner on another or people who fare better,” Wengryn said.

Congress still has to ratify the deal, as does Canada and Mexico. Prusa said that is not likely until 2019, meaning any impact would take months at the very least to begin being felt.

And if Democrats take control of the House and/or Senate, that could affect whether the deal is approved.

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Daniel J. Munoz

Daniel J. Munoz

Daniel Munoz covers politics and state government for NJBIZ. You can contact him at dmunoz@njbiz.com.

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