After announcing that Canada had agreed on an agreement to help Mexico and the United States replace NAFTA, the 1994 trade agreement between the three nations, hated by Donald Trump, the Canadian dollar hit a five-month high against its U.S. counterpart. The Mexican peso is at a seven-week high. Exchange rates themselves are at the heart of the new pact. On April 3, 2020, Canada informed the United States and Mexico that it had completed its national process of ratifying the agreement.  On June 19, 2019, the Mexican Senate ratified the agreement (114 yes, 3 no, 3 abstentions).  Mexico`s ratification process will be completed when the President announces its ratification to the Federal Register. The monetary chapter of the new USMCA agreement consists of three components: a new entrant to the USMCA is the inclusion of Chapter 33, which covers macroeconomic policies and exchange rate issues. This is considered important because it could set a precedent for future trade agreements.  Chapter 33 sets out requirements for currency and macroeconomic transparency that, in the event of a breach, would be grounds for litigation under Chapter 20.
 The United States, Canada and Mexico currently meet all of these transparency requirements in addition to substantive policy requirements that comply with the international Monetary Fund`s articles.  An April 2019 Analysis by the International Trade Commission on the likely effects of the USMCA estimated that if the agreement were fully implemented (six years after ratification), the agreement would increase U.S. real GDP by 0.35 percent and total U.S. employment by 0.12% (176,000 jobs).   The analysis cited by another Congressional Research Service study showed that the agreement would not have a measurable effect on employment, wages or overall economic growth.  In the summer of 2019, Larry Kudlow, Trump`s chief economic adviser (the director of the National Economic Council at Trump White House), made unfounded statements about the likely economic impact of the agreement and overstated forecasts related to jobs and GDP growth.  A1: Chapter 33 of the USMCA, Macroeconomic Policy and Exchange Rate Issues, reaffirms the three countries` commitment to market-determined exchange rates and compliance with International Monetary Fund (IMF) articles to “avoid manipulating exchange rates or the international monetary system to avoid an effective adjustment of the balance of payments or to gain an unfair competitive advantage.” The chapter`s transparency and reporting obligations require the publication of monthly data on international monetary balance sheets and foreign exchange market interventions, quarterly balance-of-payments data – including exports and imports – and other public reports on the IMF. In addition, a macro-economic committee will be set up between the three countries, which will meet at least once a year to oversee implementation.
If one party believes that another party`s policies and measures do not meet political and reporting obligations, it may initiate a bilateral consultation process and the IMF may be invited to engage if the conflicting parties fail to reach an agreement. Finally, the agreement provides that the parties use the USMCA`s dispute resolution mechanism in the event of non-compliance with Chapter 33 transparency and reporting obligations (but not for substantive issues such as market intervention or alleged exchange rate manipulation). These criteria should be included in future U.S. trade agreements as enforceable obligations and not just as conjecture conjecture. The usual instruments for enforcing the free trade agreement could then be used, including the withdrawal of tariff reductions contained in the same agreements, a provision that would allay Congress` concerns about the issue. However, despite the absence of teeth, the monetary chapter of the USMCA now reinforces assumptions about what constitutes correct behaviour in foreign exchange markets and makes it more difficult for participants (or even non-participants) to revive manipulation.