The new trade deal won’t go into effect for another year or so, but when it does, it could bolster demand for commercial real estate. Although there are plenty of critics, a few big names in U.S. real estate are giving it a “thumbs up.”
So, where’s the good and the bad in this new trade deal?
CBRE Shows Support for USMCA
Commercial real estate firm CBRE responded with enthusiasm to the preliminary approval of the revised NAFTA deal. It’s officially called the United States-Mexico-Canada Agreement or USMCA. The acronym doesn’t roll off the tongue like NAFTA, although it does rhyme with YMCA.
The agreement provides a structure for $1.2 trillion worth of trade between the three nations, once all three nations finalize the deal. CBRE says that it’s generally believed that the USMCA will take effect in 2020, but the exact timing depends on that ratification process.
Here are the key benefits, according to CBRE:
- New trade deal removes uncertainty and should support market demand.
- Key provisions will likely benefit industrial & logistics real estate the most.
- Auto, pharmaceutical, retail and agricultural industries are key beneficiaries of the new agreement.
- Agreement includes enhanced intellectual property protection.
And the drawback for the construction industry : Continuation of steel and aluminum tariffs on Canada and Mexico.
CBRE says the USMCA could fire up demand for real estate that supports distributors, automotive suppliers, and retailers. It says that NAFTA has helped generate “significant capital investment” in U.S. industrial real estate, and that complex across-the-border supply chains, developed under NAFTA, will be preserved. (1)
Other Trade Deal Changes
The protection of intellectual property is expected to benefit pharmaceutical companies that sell their products in Mexico and Canada. The new agreement also makes it easier for workers in Mexico to unionize. CBRE says that could facilitate a faster transition to manufacturing automation, or possibly higher wagers for Mexican workers which would translate into higher prices for those U.S. imports. Digital products that cross our borders will remain duty-free. The deal is also expected to provide better support for cross-the-border services.
The issue concerning tariffs on steel and aluminum imports has not yet been resolved. The Washington Post says it is being dealt with separately. As it stands now, those tariffs will continue to increase construction costs and the price of auto manufacturing. CBRE feels that the new rules will be good for commercial real estate overall, though, because they remove uncertainty which the business world doesn’t like.
The New NAFTA Good for Real Estate
CEO of The Parking REIT, Michael Shustek, says of the deal, “For our country, the USMCA deal should provide increased production, better employee wages and combined with real estate activities, consumers win big.” He says as wages go up, we’ll see more people buying homes or making upgrades, and more small business owners renewing their leases. He says, “Overall, this is great for consumers and anyone investing in real estate.” (2)
He also believes that this deal sends a positive message to other countries, and that it could be a template for similar deals with China, which is our top trading partner. The value of imports and exports between the U.S. and China in 2017 was $635 billion. Canada was second with $581 billion in trade deals. Mexico was third with slightly less than that.
What’s so Unique about USMCA
Critics don’t believe the new deal is all that new. A Washington Post headline reads: “Trump’s ‘Historic’ Trade Deal Doesn’t Look so Historic After All.” It says that despite Trump’s proclamation that it’s a whole new deal, it’s basically the same as NAFTA with a few tweaks. (3)
Among them are new protectionist measures for automakers, which the Post says could “backfire” on the U.S., and sunset provisions that require periodic reaffirmations to maintain them. The jury may be out on whether they are improvements.
Of course, the Washington Post is often critical of Trump administration activities, but it might have gotten one thing right. It said that NAFTA was not only renegotiated but also “rebranded” with a name that is not that easy to pronounce, as I previously mentioned. But, the trade deal also refers to the name as NAFTA 2018. Maybe that’s an easier way to differentiate it from its predecessor.
(1) CBRE Article