NAFTA – “the Worst Trade Deal in History”

US and Mexico Trade

A statement President-elect Trump made on many occasions during his election campaign for the White House. As president he said he would negotiate for better terms with Mexico and Canada, and if they don’t agree, he would pull out altogether.

That’s a position every one of us in the logistics industry should be very concerned about. Our business is moving goods from point A to point B and the less trade we have internationally, the less goods we get to move from A to B.

What is NAFTA?

NAFTA is a trade agreement between Canada, Mexico and United States and was signed into law under President Bill Clinton in 1994. It eliminates almost all tariffs among the three member countries, allowing for the seamless flow of goods and supplies across borders. Approximately $1.4 billion of goods flow across the US – Mexico border every day and according to the US Chamber of Commerce 6 million US jobs rely on NAFTA.

What Does NAFTA Mean for the Logistics Industry?

A Logistics Management article reports US trade with NAFTA partners Canada and Mexico was up 0.7% annually in August at $93.1 billion, according to the Department of Transportation’s Bureau of Transportation Statistics (BTS).

The following modes of transport accounted for the US – NAFTA freight movement:

  • Trucks – 65.3% ($60.8 billion)
  • Rail – 15.3% ($14.24 billion)
  • Vessel – 5.8% ($5.4 billion)
  • Pipeline – 5.1% ($4.75 billion)
  • Air – 3.7% ($3.44 billion)

That’s a lot of business to lose if Donald Trump decides to slap our partners with excessive trade tariffs or rescind NAFTA altogether.

Is Trump Modifying His Position?

However, as we are all discovering, Trump’s campaign positions can at times be very different from his final positions. According to a Wall Street Journal article rather than kill NAFTA he and his inner circle are now looking to push for substantial changes. Some of those changes could be:

  • Introducing a special tariff to reduce the $60.7 billion trade deficit with Mexico. This has risen by 9.5% in 2015 whereas our trade deficit with Canada fell by 57% to $15.5 billion. Normalization of trade deficits within trade treaties have been known to happen, particularly when they are extreme and outside the intent of the original agreement.
  • Introducing special taxes to dis-incentivize US companies to relocate their production to Mexico.
  • They may also seek to remove a NAFTA provision that allows Mexican and Canadian companies to challenge US regulations outside the court system.

This is a much more nuanced approach to fixing Donald Trump’s perception of inherent unfairness in the NAFTA treaty. It’s also interesting to note that in a recent YouTube video in which he laid out what he would do in his first 100 days in office, he never mentioned NAFTA once. TPP was mentioned but not NAFTA. Maybe it’s slowly slipping down his “to – do” list?

What the Rail Industry Thinks

The RailTrends conference, hosted by Progressive Railroading magazine and independent railroad analyst Tony Hatch, was held in New York last week.

Logistics Management magazine reported Kansas City Southern president Pat Ottensmeyer as saying:

“We believe that NAFTA is good for the U.S. economy, it is certainly too big to be taken lightly. There were a lot of horrible things said about NAFTA, with some people calling it devastating or a big mistake.”

Ottensmeyer went on to say:

“There is just too much at stake when you look at the trade numbers for the U.S. with Canada and Mexico,” he said. “When you opt out of NAFTA, you opt out of everything. You just cannot opt out of Mexico, so…it would be very harmful to the North American economy and potentially have social consequences as well depending on how far it went.”

Ed Hamberger, Association of American Railroads President and CEO concurred:

“I am confident that the President-elect recognizes the importance of trade to the world economy, and he certainly has invested around the world and understands the need to have trade and will be working with the National Association of Manufacturers, the U.S. Chamber of Commerce and others. We want fair trade and need to make sure the lanes of trade remain open.”

According to the article:

Ottensmeyer said he is hopeful and confident that individually and through different organizations the freight railroad sector will have a voice at the table with policy makers to make sure there is a reasonable outcome for NAFTA, as there is too much at stake.

A measure of Ottensmeyer’s confidence is the Kansas City Southern announcement at the same conference of a new joint intermodal service with BNSF Railway Co. The new service will offer customers moving consumer goods a secure and direct connection to some of the most important consumer and manufacturing regions in Mexico.

The Trump team rhetoric seems to have been dialed back a bit on this issue and it’s apparently slipped further down their priority list as well. That will provide some breathing space, as Ottensmeyer suggests, for key stakeholders in the logistics industry to sit at the table with policy makers. Let’s hope that’s the case. In any event it’s at times like these it’s critical we all maintain our vigilance.

If you’re interested in learning how shipping by rail might better meet your freight transportation needs, or need warehousing to bring your goods closer to your customers, call New Mexico Transloading at 505 – 908 – 1911. We’d be delighted to have a conversation with you.

Important note: This is a logistics industry blog, not a political blog. NMT is not commenting on any party’s views on the issues nor is NMT publicly supporting any party.

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1 Comment

  • MAX NIELSEN

    Agreed that the transportation service would be hurt if Nafta was revoked. However, what Trump was referring to, I believe, is the inequity of duty, tax and service rates once it crossed the border. As you are surely aware, each Mexican border state has it’s own taxing and administrative authority above that of the federal Mexican government. This hinders the real meaning of Nafta. Our products manufactured wholly in the U.S. don not make it to the Mexican market without payment of outrageous cost in Mexico to get a shipment thru Customs. This is not true of products moving to the U.S. If you want an example, we had a 23 lb piece from Houston, Tx to Hidalgo, Mexico. We contacted a company that has offices on the U.S. border and in Mexico. We received a door to door quote of $352.00. Value was approximately $50.00. The shipment was samples. By the time the shipment was finally delivered, the price had increased to a little over $1600.00. This is what the shipping public is faced with.

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