President Donald Trump's White House this week released a first glimpse at its plans to "renegotiate" the North American Free Trade Agreement, but it did virtually nothing to assuage stress in the logistics industry that wonders how supply chains will be altered.
Since 1994, when NAFTA took effect, the trade imbalance with Mexico and Canada has reached into the tens of billions of dollars. On the campaign trail, the president cited the issue as a reason to leave NAFTA altogether, calling it "the worst trade deal signed maybe anywhere."
In the White House's policy announcement Monday, the administration signaled a lighter touch to the trade agreement, a relief to investors but not so much for logistics professionals -- many of them have jobs because of free trade across the borders.
The Mexican economy is heavily dependent on exports, and investors indicate that faith is being restored in the Mexican economy after the uncertainty of the November U.S. election. The peso has made a rebound and is at its highest value compared with the U.S. dollar since May 2016, according to the Wall Street Journal Market Data Group.
Shannon Newton, president of the Arkansas Trucking Association, said the organization has no particular stance on NAFTA talks, but she said people throughout the industry are concerned with the Trump administration's businesslike decision-making. She said any swift, executive changes could ripple through supply chains before anybody has time to adapt.
"The industry has anxiety over change, and it's not necessarily that the way we are doing it is the best way," Newton said. "It's that the way freight currently flows is dependent upon the methodologies that are currently in play."
Altering a trade agreement carries the potential of fundamentally uprooting the way shippers operate. And with technological innovation and rapidly moving consumer demands, these renegotiations could have vast implications on shipping.
USA Truck does not want to see NAFTA radically altered so much that Mexico loses its significance in the global and U.S. economy. Jim Craig, the company's chief commercial officer and president of its USA Truck Logistics, said the company is confident that Congress will recognize the importance of the Mexican economy.
"Damaging that relationship would be very harmful to the general economy," he said.
One of the long-held criticisms of the trade deal has been labor and wage discrepancies between the NAFTA countries, particularly in Mexico, where labor is cheaper than in the U.S.
"The solution to that [imbalance] is to see Mexican wages increase over time, and that is a product of a robust economy, strong demand for Mexican products for increased demand for labor, thus creating wage inflation there," Craig said. "While a stronger economy supports better wages and more capacity to buy goods ... eliminating that imbalance entirely is simply not an economic reality in any forward-looking plan."
The NAFTA blueprint calls for an America-first perspective, but it also calls for more automation of export, imports and transit processes. And as Newton points out, even with cross-border shipments, there are American workers who have jobs because of international trade as workers pick up and move freight from the border into the country.
The U.S. has more strict labor policies than its NAFTA neighbors, and the White House calls for increased scrutiny of NAFTA countries' labor policies.
Some in the industry support more regulation, because ideally it would impose onto NAFTA countries -- particularly Mexico -- higher labor standards, making it a more level playing field for U.S. delivery companies.
"They don't pay their people what we pay here," Teamsters representative Stacy Fox of Fort Smith said. "They need to be regulated the same as our drivers."
Fox said Mexican health requirements for companies are too loose and allow more unqualified people to get behind the wheel. The Trump administration seems eager to address this issue as well.
On Page 14 of the outline, the government would "require NAFTA countries to have laws governing acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health." The government has not articulated those requirements.
The Trump administration said Wednesday that official NAFTA discussions will begin Aug. 16 in Washington.
"As an industry," Newton said, "we are going to meet the need, whatever it may be."
Business on 07/20/2017