Insight. Innovation. Industry.
Business / Economics /  •

Higher mortgage rates predicted due to trade agreement

After 14 months of intense negotiations, Canada, Mexico and the United States inked a new trade deal this past September just hours before deadline.

The United States-Mexico-Canada Agreement (USMCA), which replaces the North American Free Trade Agreement (NAFTA), embraces many signicant changes in several key areas.

In banking, USMCA allows US financial service companies to better access Canadian and Mexican markets. And, now that the trade agreement is in place, the Bank of Canada is likely to initiate rate increases this year as well as several in 2019, James Laird, co-founder of mortgage comparison site, told the Huffington Post. With rate increases come higher variable-rate mortgages, meaning that homeowners need to prepare for high payments in the near future, Laird predicted.

USMCA also makes it easier for Mexican workers to join labour unions and will allow American pharmaceutical companies selling prescription drugs in Canada to extend intellectual property protections.

The USMCA Chapter 19 provision retains a tribunal for resolving trade disputes, such as tariff disagreements, that Canada fought hard for against American efforts to eliminate it. Canada agreed, however, to eliminate another form of enforcement between it and the US that allowed lawsuits for relief from foreign countries’ actions.

Canada’s dairy market, which operates under a supply management system based on planned domestic production, administered pricing and dairy product import controls — giving Canadian products an advantage in international markets — faces uncertainties. Trade talks forced Canada to give up 3.6 percent of the domestic dairy market, which will allow the US to sell many hundreds of millions of dollars’ worth of duty free milk, cheese and other products north of the 49th parallel.

Environmental groups have criticized the agreement, claiming that USMCA has handed corporate giveaways to fossil fuel giants, while excluding binding agreements on lead pollution. They also condemn the absence of “climate” and “warming” in the agreement’s 31-page environment chapter.

New USMCA rules for automobile production are intended to incentivize the production of cars and trucks in countries that pay higher wages. Under NAFTA, automakers that produced 62.5 percent of a vehicle’s content in North America qualified for zero tariffs. USMCA raises that to 75 percent over time, forcing automakers to source fewer vehicle parts from Germany, Japan, South Korea or China. The agreement states that car factories must pay a minimum of $16 an hour in average salaries for production workers — about triple the current average wage in Mexican factories. This may force automakers to shift suppliers from Mexico to Canada or the United States. ◊

Sources: Huffington Post, The New York Times, The Washington Post and the Canadian Dairy Information Centre.