Supply Chain Matters is in the process of revisiting and self-scoring our 2017 predictions made at the beginning of this year, prior to publishing our 2018 predictions in the month of December. In our latest Part Two posting of this revisit series, we had a look back at the prediction for added product sourcing challenges for industry supply chains due to increased geopolitical trade actions. In turned out that our prediction may have been premature, but the threat remains.

This week, United States Secretary of Commerce Wilbur Ross spoke to attendees of The Wall Street Journal’s CEO Council indicating that the Trump Administration’s ongoing hardball strategy regarding ongoing North America Free Trade Agreement (NAFTA) talks comes from perceived leverage over Canada and Mexico. In essence, the Secretary indicated that the latter countries have more to lose if the trade pact collapses. Mr. Ross further indicated that the likely result was that Canada and Mexico will “come to their senses and make a sensible deal

The third round of the NAFTA talks concluded in late September amid what North America business media characterized as growing pessimism about the ability of representatives of Canada, Mexico, and the United States to be able to reach consensus on the most contentious tenets of a revised trade agreement by the end of this year. That milestone is especially important from a political dimension since in 2018, Mexico has a presidential election and the United States has its mid-term Congressional elections on the calendar, making a high-level agreement on NAFTA principles more critical to be resolved by the end of this year. The political and business stakes of NAFTA are thus “huge.” NAFTA Countries

In the third round the United States delegation had introduced new objectives regarding revised U.S. sourcing content for automobile manufacturing, an alternative means for arbitration of trade disputes other than the existing Chapter 19 process, tenets restricting Canada, and Mexico’s ability to bid on U.S. infrastructure and defense procurement needs along with the introduction of a clause that would force a five-year rolling sunset for the ongoing NAFTA trade pact, unless all three countries agree to renew.

As noted in another prior Supply Chain Matters commentary, the above statements from Secretary Ross seem very contradictory to several industry groups, particularly the U.S. automotive industry, that have now been actively lobbying against certain of the Trump Administration’s stances on negotiating principles. According to the WSJ’s latest report of its conference, (Paid subscription required) Secretary Ross expressed frustration with the push back exhibited from U.S. businesses and lawmakers regarding the Administration’s tougher NAFTA trade stance.

The WSJ opined in early October that where America’s business groups and the Mexican and Canadian governments largely want to strengthen and modernize NAFTA, it was becoming more apparent that the Trump Administration’s goal is to undo some of the trade pact’s core concepts, particularly the notions of three countries operating in a cohesive supply chain framework, rather than three separate networks. Business and industry have further taken notice that both Canada, and especially Mexico, have begun seeking new bilateral trade agreements with other countries to offset any failed NAFTA agreements.

Supply Chain Matters continues to call industry supply chain team attention to these developments because, increasingly, it appears NAFTA trade talks are turning to be far more political in stance and that will likely result in further delays regarding any mutual agreements among the three stakeholder countries. The Trump Administration’s current hard stance of win-lose negotiations presents a degree of brinkmanship in the negotiations and in the likelihood of reaching a trade deal altogether.  With a 2018 election cycle looming in Mexico and the United States, trade negotiators will be more concerned with the political optics. Meanwhile, there are increasing signs from Canada for pushing back on recent U.S. trade rulings regarding lumber, agriculture and the latest Boeing dumping assertion regarding Bombardier’s C-Series aircraft.

Industry supply chain and line-of-business product management teams need to continue to constantly monitor these ongoing NAFTA developments and assess the potential impacts. NAFTA’s role as a cohesive North America supply chain ecosystem of multi-industry trade flows is subject to a lot of uncertainty in the coming months as the country stakeholders call each other’s bluffs.

Teams can hope for the best outcome but at the same time, should be prepared to respond for various other outcomes in the coming months of 2018.

Bob Ferrari

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