A change in government always brings a change in which a nation conducts business. This may come in the form of bills, policy and of course trade. In the last year, trade has suffered the most back in forth and push and pull. Right at the center of this has been NAFTA. President Trump has called the North American Trade Agreement (NAFTA), “the worst trade deal” the U.S had ever signed. The reason behind that proclamation is due to a massive trade deficit that the United States runs with countries like China, Germany, and Mexico.
D is for Deficit, or Duty-Free
To some, it is believed that the dishonest trade practices of the nations involved is what caused the deficit. As a result, Trump turned to the idea of tearing down NAFTA and introducing heavy import tariffs against Mexico and China to help bring back jobs to the U.S. As is the case with every government policy, there will be winners and unfortunately losers too. In fact, protectionist trade policies will have different implications for different industries. According to Sourcing Journal Online, The United States has proposed the removal of the agreement’s tariff preference levels, which offer “duty-free access for certain raw materials that Canada or Mexico source outside of the NAFTA nations for apparel their apparel exports.”
Although Canada and Mexico reported that, “Progress has been made” in the negotiations department, they met the aforementioned removal with stern resistance. If they lose their duty-free access to raw materials, they fear they will reduce their ability to compete favorably in the global market. In fact, if the clause passes, Canada and Mexico may not be the only ones who would bear the brunt. If successful, U.S consumers would see the effects at the cash register in the form of sticker shock. Incidentally, higher prices for raw materials translates into higher prices of goods.
Levi Strauss & Co.
The deal will also have severe implications for U.S manufacturing companies who have been using NAFTA for a while now. The denim-maker Levi’s, is an example. The company centered their sourcing model to “capitalize on what NAFTA has to offer,” said Anna Walker who is in charge of global policy and advocacy at Levi Straus & Co. Walker also gave a hint to Sourcing Journal about how the restructuring could influence the company’s next move. She stated, “should the president follow through on some of his threats, we’ll continue to make those products, we just won’t do it using U.S imports. Those products will move to countries that have their own supply chain.”
The end of NAFTA could potentially bring jobs back to the U.S. But, it would lead to a sharp decrease in annual US textile exports to Mexico and Canada, according to an analysis from Just-Style. In addition, it is reported that if NAFTA folds, there will be a loss of $682 million worth of apparel imports from Canada and $3.13 billion from Mexico according to SJ Online. It seems that for every potential positive that is being attributed to the dissolution of NAFTA, there is a potential negative with devastating number. For the apparel industry, many wait in the wings to see what fate lies ahead for their companies and others like it.