With the incoming of each new presidential administration, changes are implemented within the first months that impact the country and its citizens for years to come. Due to the United States’ influence on international politics and the global economy, these changes extend outward to the rest of the world as well, particularly to trade partners of the United States. The Trump administration is an anomaly when compared to administrations of the past due to its polarizing leader, focus on fast-moving policy implementation, and hard-lined stances on immigration, trade, and the American workforce.
Many cross-border supply chains have found themselves caught in the crosshairs in the ongoing political debate about the merits of cross-border trade and manufacturing and the way forward in the future. When analyzing how the Trump administration has impacted cross-border supply chains, it is vital to look back at the events that have transpired during the first half of 2017 to forecast future actions and their potential impact on cross-border trade and manufacturing operations.
The North American Free Trade Agreement (NAFTA) is a trade agreement between the United States, Mexico, and Canada that went into effect in 1995 under the tenure of President Bill Clinton. NAFTA facilitates the movement of supplies and goods across borders by significantly reducing tariffs between the United States, Canada, and Mexico. In addition to this change to trade, the agreement makes it easier for U.S.-based companies to offshore their operations in Mexico. During his campaign, President Trump described the North American Free Trade Agreement as the “worst trade deal in history,” which alarmed United States-based companies that rely on their manufacturing operations in Mexico. The potential elimination of NAFTA was a critical concern of many cross-border supply chains as the Trump Administration took office.
Despite the claims made during the presidential campaign, the North American Free Trade Agreement is still in place, but this does not mean its position is secure. Upon fielding calls with Prime Minister Justin Trudeau of Canada and President Enrique Peña Nieto of Mexico, President Trump announced that rather than eliminate the North American Free Trade Agreement, he would begin the process of renegotiating the agreement. The prospect of a renegotiation carries with it the potential to significantly impact cross-border supply chains as many industries, chief among them the automobile, textile, agricultural, and medical device industries, rely heavily on the agreement. However, this impact could be as beneficial as it could detrimental. Many global supply chains welcome the opportunity to revisit NAFTA modernize and update the treaty to reflect current supply chains and burgeoning sectors of business.
The pace of manufacturing movement to Mexico
One of the starkest impacts following the beginning of the Trump administration was the rapid slowdown of companies offshoring manufacturing operations to Mexico. A global microscope was placed on companies looking to move manufacturing operations south of the border as President Trump’s campaign platform to bring American jobs back to the United States resounded in the weeks leading up to and following the beginning of his presidency.
Two of the most pronounced examples of the slowdown in manufacturing movement to Mexico came in Ford Motor Co. and Carrier Corp.’s decision to keep their manufacturing in the United States for the time being. However, as President Trump’s term has continued and focus has been placed elsewhere, the pace of manufacturing movement to Mexico has begun to speed up again. Among the companies shifting their manufacturing operations to Mexico are Illinois Tool Works and Triumph Group. This represents a shift towards companies continuing to utilize the myriad benefits the North American Free Trade Agreement imparts.
Potential Economic Impacts
A concern during the beginning of the Trump administration was the potential economic impacts of renegotiating trade conditions and agreements with Mexico. For cross-border supply chains, the potential impact of changes to the North American Free Trade Agreement made Mexico and the United States’ economic futures uncertain as they are profoundly linked in their current state. In the last five years, production and exports from Mexico have significantly increased and this was anticipated to continue.
However, the uncertain political climate and scale-back from manufacturers posed a serious concern. North American Production Sharing works with companies to secure offshore assembly plants in compliance with foreign labor laws and regulations, which is all made possible by the IMMEX program and NAFTA. Ultimately, NAPS has first-hand seen the positive economic impact of near-shoring to Mexico. Many analysts believe that the rise of production and exports will continue to steadily increase despite the uncertain political climate, but only time will tell the true impact these changes will have on the economy of the United States, and as a byproduct, the global economy.