TITLE:
Shapley Value and USMCA
AUTHORS:
Robert A. Agnew
KEYWORDS:
International Trade, Cooperative Game Theory, Shapley Value, USMCA
JOURNAL NAME:
Theoretical Economics Letters,
Vol.15 No.2,
April
21,
2025
ABSTRACT: We model the United States-Mexico-Canada Agreement (USMCA) as a cooperative trade game with three national players where Shapley value leads to fair distribution of total trade gains. Based on 2023 figures from International Trade Centre and World Bank, this fair-trade distribution entails annual side payments among the three trading nations, with a total of $118.6 billion accruing to the US based on its large domestic market and greater negotiating power, while retaining the transactional benefits of free trade, unlike actual tariffs. These side payments can be viewed as a form of international Trade Adjustment Assistance (TAA) to disadvantaged US citizens and firms via their government. We model USMCA as both a trilateral game and as three separate bilateral games. In terms of total side payments, the results are the same. We conclude that Shapley fair-trade calculations should be an integral part of the upcoming USMCA renewal negotiations.