CSCMP's Supply Chain Quarterly
December 16, 2017
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La la la, I'm not listening ...

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The Trump administration's positions on NAFTA would seriously harm the industries the White House says it is trying to protect. Business groups are trying to get that message through, but it's falling on deaf ears.

As I write this in mid-November, the fifth round in the renegotiation of the North American Free Trade Agreement (NAFTA) is underway in Mexico City. With U.S. negotiators putting demands on the table that neither Canada nor Mexico could accept (such as requiring more U.S.-manufactured content for products to qualify for preferential duty treatment) concern is spreading that the Trump administration's positions are a prelude to a long-threatened U.S. withdrawal from the treaty.

Withdrawal from the treaty would unravel the cross-border supply chains that were developed over the 23 years NAFTA has been in effect, causing severe and likely permanent damage to the retail, automotive, and agriculture industries, among others. The current administration, however, does not seem to fully recognize the potential impact of such a move, and U.S. negotiators appear to be forging ahead without asking businesses whether the concessions they're demanding would actually be beneficial to them.

In fact, industries across a wide spectrum strongly oppose some of U.S. negotiators' demands. In early October, a U.S. Chamber of Commerce executive called some Trump administration proposals "highly dangerous" to the U.S. economy. Later that month, several automotive-industry groups formed the "Driving American Jobs" coalition to fight the White House's stance on renegotiating the treaty, including its demand that cars made in North America contain 85 percent NAFTA-origin content, up from 62.5 percent, with 50 percent of inputs manufactured in the United States, to qualify for duty-free treatment. (Opponents of the proposal have pointed out that the United States does not have the manufacturing capacity to meet that demand, and that U.S. automakers have invested billions of dollars in assembly and manufacturing plants in all three countries.)

It's important to note that agreement has already been reached in a number of areas, and negotiations at some industry-specific "tables" are moving along quickly. But it's disturbing that the administration is taking stances on matters like U.S.-specific content requirements, de minimis thresholds for formal customs entries, and a provision that would require renegotiation of most industry-specific rules every five years, that U.S. business clearly does not support. Last I looked, the purpose of a free trade agreement is to help business and industry, not harm them.

More frightening, perhaps, is that the White House and those who do its bidding apparently have given little or no thought to what would happen to consumers, businesses, and the economy as a whole should the United States pull out of NAFTA. The U.S. chief negotiator, U.S. Trade Representative Robert Lighthizer, admitted as much in October, when he told reporters that "we haven't done any analysis of that at this point."

Not long after the U.S. presidential election, I wrote in a column titled "Time for some scenario planning?" that "the opinions of those newly in power and the policy decisions they inspire have the potential to dramatically change the cost equation for the supply chains of manufacturers, retailers, importers, and exporters." If the executive branch doesn't start listening to what businesses have to say, then we could reach that point sooner than anyone thought.

Toby Gooley is Editor of CSCMP's Supply Chain Quarterly.

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