North America supply chain networks have been granted one huge sign of relief in the announcement of a last-minute trilateral trade deal involving Canada, the United States and Mexico. Attention is now turned to determining the implications and needed changes.
The biggest news on the global trade front is the last-minute announcement that Canada has agreed to join the former NAFTA trade agreement. The new trade agreement is reportedly to be named the United States-Mexico-Canada Agreement or USMCA and is being billed as a “modernized trade agreement for the 21st Century.”
The now tri-lateral trade deal diminishes the threats of the Trump Administration to either kill the former NAFTA or attempt to gain U.S. Congressional approval for a bi-lateral trade deal involving just Mexico.
The deal announcement was surprising in that little news was forthcoming prior to the declared end of September deadline to reach a tri-lateral deal. The U.S Trade Representative had indicated just four days earlier that the gaps between the U.S. and Canada appeared too great to meet the September milestone.
Business media reports indicate that a last-ditch effort among Mexico’s and Canada’s trade negotiators and White House advisor Jared Kushner led to the announcement to the tri-lateral agreement.
The implications for industry supply chains remain with the details of the final agreement.
While all of the parties can now traverse through individual legislative approval processes accompanied by added specifics of the trade deal’s impacts on industries and products, supply chain teams must now move to the next analysis stages of assessing actual impacts related to costs and transportation movements. In some cases, difficult product decisions will need to be made and senior management will need to have relevant and contextual information relative to supply network and product value-chain flows.
Ratification of USCMA is expected to occur in the first quarter of 2019.
What is clear at this point are implications for the region’s automotive supply networks which manage a reported $178 billion in auto parts, components and completed vehicles from Canada and Mexico. With the imposition of increased North America production content, supply network flows for some products will be impacted. Reports indicate that Mexico and Canada secured side agreements that would exempt from U.S. auto tariffs should they take effect from other countries which should serve as buffering another rather significant unknown related to current and future product strategy.
To add more emphasis to the implications was this week’s disclosure from Daimler’s CEO indicating that he would not rule out expansion of the Mercedes-Benz engine plant in Tuscaloosa Alabama to meet domestic content requirements following the new tri-lateral trade agreement. We suspect other of such announcement from foreign and domestic auto producers will follow.
Another important area is access to new agricultural related markets among all three nations, intellectual property protections and the contentious dispute resolution process.
With this week’s huge sign of relief from many dimensions, trade and tariff policy attentions now turn towards China, the Eurozone and Brexit.
Regarding the latter, with six months remaining until the planned March 2019 exit of the United Kingdom from the EU trading region, a reported deep divide is evident among the U.K. Conservative government over Brexit planning leaving Prime Minister Theresa May in a precarious position of having to secure a detailed agreement with little time for planning for the implications. It would seem that a hard Brexit is looming without a last-minute rationalization, with a lot of implications for EU based supply networks that need to initiate planning now.
China shows little signs of political wavering over the back and forth imposition of tariffs, and these new rounds of back and forth tariffs will have meaningful impacts for multiple industries and their respective supply networks, including the high tech, telecommunications, and consumer electronics sectors.
Thus, industry supply chains have one huge trade and tariff policy uncertainty about to be resolved with others continue to be percolating.
Supply Chain Matters will continue to feature added perspectives in the coming weeks as developments continue to unfold.
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