President Donald Trump’s backup plan if Congress fails to pass the USMCA is to make good on his threat to withdraw from NAFTA — a threat he revived on Friday. | Win McNamee/Getty Images Trade Crucial analysis of new NAFTA won’t help Trump sell the deal

President Donald Trump brags that his new NAFTA deal is the most important trade agreement in U.S. history, but a congressionally mandated analysis due out next month is expected to show that it will provide only a slight boost to economic growth — or even a small negative impact.

Laura Baughman, president of Trade Partnership Worldwide, a Washington-based analytical firm with more than 25 years of experience in crunching data to forecast the effects of trade agreements and other policy actions, predicted the deal will improve the U.S. gross domestic product by about 0.1 percent.


“That’s not to say it’s not really big for some sectors that use it a lot," Baughman told POLITICO. "But overall, from the GDP side of things, it should be tiny.”

Two other trade experts who have been examining the deal also said the U.S. International Trade Commission report is likely to show an extremely slight gain in the GDP, and both said a negative impact was possible.

That could be a problem for Trump.

Release of the ITC report — expected around April 19 — has been seen as a crucial moment in the Trump administration's efforts to win congressional approval of the U.S.-Mexico-Canada Agreement. A forecast of a minimal increase in the GDP, especially in the manufacturing sector, could make it hard for Trump to sell the agreement to Democrats and labor groups, who have been pressing for changes to be made through further negotiation.

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Trump will huddle at the White House on Tuesday to discuss strategy with Republicans who are whipping support for the USMCA on Capitol Hill. The meeting marks an increase in the president's direct involvement in the coming ratification battle — and an acknowledgment that the administration has a real fight on its hands.

Trump must make believers out of numerous Democrats, who have criticized NAFTA for the last 25 years, that its replacement would be a significant improvement over the status quo. Failure to get Congress to approve the deal, Trump's chief trade negotiator has warned, would undermine the administration’s entire trade agenda.

“There is no trade program in the United States if we don’t pass USMCA. There just isn’t one,” U.S. Trade Representative Robert Lighthizer said at a House Ways and Means Committee hearing last month. “It just has to pass. If it doesn’t, you have no credibility at all with China, and you will have no credibility on any deals with your other trading partners.”

But labor groups are complaining the USMCA is not tough enough when it comes to ensuring Mexico will improve protections for workers' rights. And just last week, instead of reaching out to unions to build support, Trump insulted their leaders, calling them “not honest people.”

Part of the challenge Trump faces in trying to convince lawmakers and industry groups that the USMCA will yield big economic gains is the massive U.S. economy, which clocked in at $20.5 trillion in 2018. That makes it hard for any trade agreement to have a significant impact on overall economic growth and employment.

When the ITC studied the expected impact of the Trans-Pacific Partnership, which the Obama administration finished negotiating in 2015, it forecast that the 12-nation agreement would only boost U.S. GDP by 0.15 percent over 15 years. It also predicted the agreement would produce just 128,000 new jobs over the same period, a mere 0.07 percent increase over expected employment levels for 2017.

The ITC's assessment of the TPP was unimpressive in the eyes of many lawmakers at the time. It was one reason former President Barack Obama was never able to overcome intense political opposition to the agreement. Trump withdrew the U.S. from the deal on his third day in office.

Trump’s backup plan if Congress fails to pass the USMCA is to make good on his threat to withdraw from NAFTA — a threat he revived on Friday. But withdrawal would carry serious risk for Trump, as it could inflict more pain on farmers — who generally support the USMCA — and the business community heading into the thick of the 2020 campaign.

In January of last year, Trade Partnership Worldwide forecast that terminating NAFTA could cost as many as 1.8 million to 3.6 million jobs, “with two-thirds of those jobs held by workers in production and lower skilled occupations.”

The U.S. labor market has tightened significantly over the past year, so job losses from a NAFTA withdrawal probably would not be as high as forecast in January 2018, Baughman acknowledged. But it still would be negative for the U.S. economy, she said.

There are several reasons the USMCA is unlikely to provide much of a boost to economic growth, especially compared with the TPP deal that Trump rejected.

The new agreement between Canada, Mexico and the United States is smaller than the TPP, which included all three North American countries, plus Japan — the world’s third largest economy — and Vietnam, one of the fastest growing nations in Southeast Asia.

In addition, nearly all tariffs between the United States, Canada and Mexico were eliminated under NAFTA, which took effect in 1994. As a result, little new growth will come from increased trade in manufactured and agricultural goods.

New market openings in Canada and Mexico for U.S. services exports could provide a bit of a boost. But the overall increase in services output still could be in the range of the 0.1 percent bump the ITC forecast for the TPP.

In one possible sign the Trump administration has low expectations for the agreement, the most recent Economic Report of the President did not specifically mention the USMCA in the list of factors the White House expects will drive economic growth over the next several years.

The report, prepared by the White House Council of Economic Advisers, forecast economic growth of 3 percent or better through 2023 and said the projection assumes “full implementation of the economic agenda” detailed in the study. In a separate section on trade, the report said Americans should expect “substantial,” long-term gains from the negotiation of the USMCA and other trade deals, but it did not provide specific estimates of economic growth linked to the new deal with Mexico and Canada.

“If you tasked me with trying to show this would be a significant boost to growth, it would be really hard to do,” said Phil Levy, a senior fellow at the Chicago Council on Global Affairs, who served on the White House Council of Economic Advisers from 2003 to 2006.

One big reason for that is the tougher “rules of origin” for automobiles that Lighthizer insisted on including in the pact. The rules establish the amount of component parts that must be made in the North American region in order for a finished auto to qualify for duty reductions under the pact.

If the cost of complying with the rules is too high, car companies importing vehicles produced in Canada and Mexico could simply decide to pay the 2.5 percent tariff on passenger cars instead. Either way, the cost of producing a car in the region is expected to rise under the agreement, potentially meaning higher prices for consumers and reduced growth in the auto industry.

“My suspicion, not having carefully worked it out, is that you probably get negative effects from the auto industry changes,” Levy said. “If nothing else, it’s a bit of a clue that the auto industry didn’t want it. That’s usually a tip off. They tend to know their industry better than most.”

The American Automotive Policy Council, which represents both Ford and GM, has endorsed the USMCA and promised to push for its approval. However, the United Automobile Workers union continues to withhold its support because of concern over labor provisions. The Association of Global Automakers, which represents many foreign-brand car manufacturers, said in November it still has questions about additional costs associated with the new automotive rules.

The Center for Automotive Research, an industry-funded think tank based in Ann Arbor, Mich., estimated last year that the changes to NAFTA’s auto rules would prompt manufacturers to pay the 2.5 percent tariff on anywhere between 46 and 125 different vehicle models.

“The tariffs would add between $470 and $2,200 to the cost of these particular vehicles,” the think tank said. “If the manufacturers pass through the entire cost of the tariff to consumers, the result would be an estimated loss of 60,000 to 150,000 annual U.S. light vehicle sales.”

A more recent report, from the Peterson Institute for International Economics, also concluded the new rules of origin would likely raise auto production costs in North America, and have the perverse effect of making cars produced in Asia and Europe more attractive to American consumers.

“My first reaction when I heard about the agreement, read the basics, was: ‘Oh gosh, poor ITC,'" said Dan Pearson, who served on the commission from 2003 to 2013. He predicted the ITC analysis"is likely to show a negative number" in terms of the deal's impact on growth.

It’s possible that gains on the services side could even out the USMCA's impact, but the effects of services market openings are much harder to forecast than tariff cuts, Pearson said.

Levy argued that it's a far safer strategy for unions to criticize the new deal for falling short of expectations for replacing NAFTA, rather than supporting it, Levy argued. “That is a political winner for them in every direction, whereas simply backing the administration on USMCA is a loser in every direction,” he said.

If the AFL-CIO were to endorse the pact, Levy said, it would be very hard for them to criticize the agreement in a few years “when nothing very much” has changed. “What do you then say?" he added. "What’s your rallying cry?”