The seventh round of North American Free Trade Agreement talks is underway in Mexico City and the world is still bracing for an upset.
President Trump still wants his wall along the U.S. southern border with Mexico — and he still wants Mexico to pay for it — and still, Mexico contends that it will never pay for the wall. Beyond the wall, the U.S. still has demands on the table, like changes to rules of origin that would call for more American inputs in autos and a clause that would see NAFTA self-terminate after five years.
Needless to say, the U.S. demands have largely been to blame for stalling major progress and stirring tensions among the three nations. Experts aren’t expecting much that’s groundbreaking to come from the current round of talks, and the likelihood that any of these sizable sticking points will be resolved is slim.
A recent spot on Bloomberg TV suggested some American CEOs aren’t entirely intimated by NAFTA’s potential collapse, with some even noting they’d be prepared to bring business back stateside if need be.
“Fiat Chrysler is already making plans to move some production to Michigan. And other companies such as Lear Corp. and Polaris Industries have suggested they could follow suit. Lear’s chief executive said the company has a ‘footprint in the U.S. that could absorb business back if it made sense,’” according to Bloomberg. “The CFO of Cooper Tire echoed similar sentiments during an earnings call, saying it would be well positioned with its three U.S. plants if the trade framework were to collapse.”
Back on the apparel and footwear side of manufacturing, however, sentiments don’t seem as positive.
At FN Platform earlier this month, footwear makers indicated they’re not making plans to ramp up U.S. manufacturing — or in some cases even continue sourcing from any of the NAFTA nations — without the agreement.
Jim Barnier, owner of the artisan footwear brand of the same name, which makes all of its shoes in Los Angeles, said ceasing the NAFTA trade deal will cause “huge” problems.
“His problem is he didn’t read what the actual agreement is and he ignores all the positive things it’s done,” Barnier said referring to President Trump. “If [Trump] wants to add duty to Mexican product, where are people going to make product? There’s no shoe manufacturing in the United States.”
Barnier currently sources duty free raw materials from Mexico, paying half the cost he’d pay for sourcing the same things domestically.
A NAFTA-less trade world “will increase retail,” Barnier said, adding that what it won’t do is increase U.S. jobs, as Trump has expressed hope that it will. But the end of the agreement wouldn’t mean an end to sourcing in Mexico for Barnier.
“I would still have to consider making boots in Mexico because I’m not going to give up my Los Angeles manufacturing, but I can supplement product from Mexico and average out my bottom line, average out my margins,” he said.
For Baske California, however, no NAFTA might mean an end to sourcing from this region altogether.
The small California-based brand built on a return to craftsmanship manufactures its footwear in Mexico and has no plans to come to the U.S. if the Trump Administration wipes NAFTA out. The brand began as U.S.-made, but the costs weren’t sustainable.
“We can’t make our shoes in the U.S. because we couldn’t afford them,” co-founder and designer Dave Sumares said. “But we use rawhide laces from Auburn [Alabama] and rawhides from the U.S.”
Though it seems the biggest rule of origin issues are surrounding the auto industry, manufactures across sectors are feeling pressure, and the overall uncertainty surrounding the agreement has begun to have adverse effects.
“On the Mexico side, it’s already affecting us because manufacturers in Mexico are trying to shift their business because they’re afraid it’s going to happen,” Sumares said. “Frye pulled out of the factory [in Mexico] to move to China, so now my factory doesn’t have enough operation. So then they’re killed and that factory gives up.”
In preparation for whatever may be to come of NAFTA, Sumares said Baske has diversified its sourcing, expanding into Spain and Brazil—both known for higher quality than Mexico has been known for — and paying the higher prices for product.
“If Mexico costs get too high, then it may not even be viable anymore as a source,” Sumares said.
Adding to that, Baske’s other co-founder and the wife in the husband-wife duo behind the brand, Nana Baek said, “Even if you try to produce in Los Angeles, the workers there are all Mexican immigrants, and as soon as you start working there, they could be kicked out.”
More than just that, the supply chain simply isn’t here for robust domestic footwear manufacturing.
“You can’t get enough components here. Whereas, if you’re in Leon [in Guanajuato, Mexico], all of the component makers are there. Otherwise you’d have to import all of those things and you can’t price it out. It’s impossible,” Sumares said. “I’m shipping Italian leather to Mexico to produce, and if [Trump] rules that out, I would just ship the Italian leather to Spain to make it easier.”
Editor’s Note: This story was reported by FN’s sister magazine, Sourcing Journal. For more, visit sourcingjournal.com.