North American competitiveness: A team effort

As businesses and policymakers grappled with disruptions from the COVID-19 pandemic, Russia’s invasion of Ukraine, and rising geopolitical tensions, the importance of strengthening and diversifying North American supply chains cannot be overstated. President Biden initiated a comprehensive review of critical supply chains early in his administration to assess capabilities, vulnerabilities, and resilience. The review’s findings highlighted the importance of working with North American trading partners to support trilateral cross-border supply chains in critical sectors.

Decades of economic integration through the North American Free Trade Agreement (NAFTA) and now the United States-Mexico-Canada Agreement (USMCA) have created a foundation for a deeply integrated North American manufacturing and supply chain ecosystem. A competitive North American economy can draw investment and diversify supply chains, particularly for advanced technologies such as semiconductors and the inputs needed to sustain and develop critical sectors. To achieve our common supply chain goals, however, requires a trilateral North American approach.

USMCA sets the foundation for resilient supply chains

Since entering into force, USMCA has proven critical to anchoring the economic competitiveness and resilience of the North American region. It includes state-of-the-art rules of origin, trade facilitation, intellectual property, and regulatory practice provisions, while preserving the market access commitments that facilitated the level of integration achieved under NAFTA.

Although issues have arisen with aspects of the agreement’s implementation, its improved consultation and dispute settlement procedures have enabled the parties to address issues as they occur. Full implementation of USMCA will provide businesses the certainty and stability needed to invest in sustainable and innovative supply chains across the region that can better respond to future economic disruptions.

Beyond USMCA

USMCA’s consultative mechanisms also provide the parties with avenues to move beyond the agreement’s commitments to improve supply chain competitiveness and resilience. For example, at the USMCA Free Trade Commission on July 8, 2022, the United States Trade Representative, the Mexican Secretary of Economy, and the Canadian Minister of International Trade agreed that integrated supply chains provide a competitive advantage for North America and help all three economies better navigate economic disruptions, such as from the COVID-19 pandemic. Accordingly, these officials directed the USMCA Competitiveness Committee to design a mechanism and process to ensure that North American trade flows continue during future public emergencies. This new USMCA tool, strongly supported by the Business Roundtable and its Canadian and Mexican counterparts, will also strengthen public-private partnership to mitigate supply chain shocks across North America during future crises.

Full implementation of USMCA will provide businesses the certainty and stability needed to invest in sustainable and innovative supply chains across the region that can better respond to future economic disruptions.

Better integration of efforts on semiconductors and other critical sectors

In the United States, there is growing bipartisan support for measures that secure increased access to critical materials and products. The U.S. Congress recently passed the CHIPS and Science Act, which appropriated $52 billion to incentivize the expansion of semiconductor manufacturing and supply chains in the United States. The Infrastructure Investment and Jobs Act and the Inflation Reduction Act both also included a wide range of provisions aimed at strengthening and diversifying critical supply chains. Certain provisions in these bills could incentivize North American supply chain integration and resilience through increased investments and procurement under USMCA and the WTO Government Procurement Agreement and by prioritizing North American content. Other restrictions and content requirements, however, could complicate and even undermine efforts to integrate North American semiconductor and critical supply chains due to rigid requirements beyond the scope of agreements with Mexico and Canada.

Critical mineral production and processing increasingly have been concentrated in China and outside North America. The United States, Canada, and Mexico should work together to ensure the region develops its considerable deposits of critical and rare earth minerals. Several of these resources are important components of batteries and other technological parts that will power the green transition. In addition, critical minerals are essential components of our industrial and defense systems.

A dependable supply of these minerals requires increased investment to expand sustainable mining and processing, as well as enhanced trade facilitation measures to ensure that these materials can be freely traded throughout North America. As the U.S. government implements these new laws, it should work closely with industry partners and the Canadian and Mexican governments to create that dependable critical mineral supply chain.

Commitment to North American supply chain

Fully implementing USMCA will help facilitate the development of North American semiconductor, critical materials, and critical-sector supply chains by enhancing economic integration, making regulatory standards more uniform, and facilitating cross-border trade. But all three governments—United States, Mexico, and Canada—must go beyond USMCA and commit at the highest levels to a trilateral supply chain approach that leverages the comparative advantages and combined capabilities of all three countries. The U.S., Canadian, and Mexican private sectors should identify opportunities for enhanced supply chain integration and partner with governments to achieve a more competitive and resilient North American economy. If governments instead go it alone, fail to abide by USMCA commitments, and choose not to cooperate, then none of the three countries will fully realize their shared supply chain goals.