Growing optimism that Democrats have come “within range” of a deal on passing a new North American free trade agreement could be good news for South Carolina.
Approval of the U.S.-Mexico-Canada Agreement, negotiated by the Trump administration to replace the North American Free Trade Agreement, is still not assured. The AFL-CIO remains opposed because of what it considers inadequate Mexican enforcement of labor laws. Mexico is eager to see it take effect and has been trying to satisfy American unions.
But House Speaker Nancy Pelosi’s optimistic statement last week is the most positive Democratic Party comment yet on the trade agreement and should raise hopes that its prospects are good for enactment.
The passage of USMCA also would be a psychologically important step given the uncertainty about a trade deal with China and new trade frictions with Europe. President Trump on Monday said he thought a deal with China might not come until after the 2020 election. And he raised the prospect of punitive tariffs on French luxury goods, including Champagne, as a possible punishment for an illegal French tariff on U.S. digital sales. France promised to retaliate if Trump acted.
Two aspects of the new agreement could have a positive impact in South Carolina. First, the pact substantially increases the percentage of a vehicle and its parts that must be manufactured in the United States to escape the U.S. tariff on imported vehicles of 2.5 percent. That has caused BMW and Volvo to consider building plants in South Carolina to manufacture the engines and propulsion batteries used by the vehicles they produce in the state.
Internal combustion engines for the BMW and Volvo models produced in South Carolina are imported from Germany and Sweden.
But there is no question that battery-propelled vehicles will soon take a larger share of the market. Batteries are heavy, meaning it is advantageous for car companies to locate their production and assembly of batteries near their vehicle assembly plants, an economic fact that becomes more
significant with the new local content rules for automobiles and light trucks in USMCA.
BMW has began assembling propulsion batteries for its hybrid models in its Spartanburg plant and plans to increase its production of hybrid and all electric vehicles. Volvo has made a similar commitment to electric vehicles. Mercedes-Benz, which produces the Sprinter van in North Charleston, is introducing an electric version in Germany.
To round out the quartet of automotive assembly plants in South Carolina, there is Proterra, a rapidly growing electric bus manufacturer in Greenville.
So a market exists for automotive propulsion batteries in South Carolina. Clemson University and associated research organizations in the Upstate have been working on battery propulsion technology for at least a decade, creating an intellectual base for the industry.
Whether an automotive battery industry develops here will depend on other factors besides USMCA, but the trade agreement creates favorable ground for it.
In a similar fashion, the trade agreement could have a positive impact on South Carolina’s remaining textile producers. The National Council of Textile Organizations, a trade lobby, held a meeting last summer at the Spartanburg headquarters of Milliken & Co. to stress the importance of USMCA to the industry and South Carolina. NCTO President Kim Glas said, “U.S. textile exports to Mexico and Canada totaled $12 billion last year, underscoring the importance of our Western Hemisphere supply chain. This key supply chain has helped drive the $20 billion in investment by the industry over the past decade and has also helped support investment and nearly 25,000 direct textile jobs in South Carolina alone.” That figure does not include cotton producers and their supply chain.
USMCA has stronger rules of origin for textiles and and promotes stronger customs enforcement in textile trade.
Congress should move quickly to ratify the trade agreement.