Though there had been hope that the term “uncertainty” would retire with 2017, it’s still front and center today — especially where trade is concerned.
And if that’s the perspective, as Josh Teitelbaum, counsel for international law firm Akin Gump Strauss Hauer & Feld, explained during a panel at Sourcing at Magic Monday, then the key indicator for what’s working or not in a deal is the trade deficit. In this case, the losers are those on the negative end of a trade deficit, and the winners are those reaping the benefits. That has been precisely what Trump has sounded off on the most when it comes to his reasoning for reworking a trade deal, as he’s been very clear that the U.S. won’t be on the losing end of anything.
Since taking office, Trump has pulled the plug on the Trans-Pacific Partnership, alluded to rejoining it, threatened to pull out of NAFTA, for which talks are ongoing without substantial headway, and frozen talks on the Transatlantic Trade and Investment Partnership the U.S. had been negotiating with the European Union, among other things.
“It’s been one hell of a year in trade policy,” Teitelbaum said.
The sixth and latest round of NAFTA talks wrapped at the end of January with the U.S., Mexico and Canada agreeing that “some” progress was made, while also agreeing there’s still a long way to go and things they can’t reach common ground on, such as rules of origin.
The U.S. has proposed increased American inputs on things like autos, and Canada and Mexico aren’t on board. In statements following the latest talks, U.S. Trade Representative Robert Lighthizer said there’s yet to be any compromise. The U.S. has also proposed eliminating the agreement’s tariff preference levels, which provide duty-free access for certain raw materials that Canada or Mexico source outside of the NAFTA nations for their apparel exports.
“The initial U.S. proposal was for the U.S. to eliminate all 24 tariff preference levels,” Teitelbaum said. The move wasn’t met well in the talks, as it would hurt both Mexico’s and Canada’s competitiveness and likely see U.S. consumers spending more for goods with higher-priced inputs. “As these negotiations have progressed,” Teitelbaum added, “the U.S., as I understand, has signaled that there’s some flexibility in this area.”
What’s at stake if NAFTA goes belly up is $682 million worth of apparel imports from Canada and $3.13 billion from Mexico, according to Teitelbaum.
Manufacturing for U.S. brands like Levi’s is also at stake.
“We’ve been using NAFTA since Day One, and we designed our sourcing model to capitalize on what NAFTA has to offer,” Anna Walker, who does global policy and advocacy at Levi Strauss & Co., said during a separate panel on trade. “We know that with NAFTA — that 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. inputs. Those products will move to countries that have their own supply chains.”
Using Mexico as a supplier hasn’t been just about manufacturing for Levi’s, either — it’s also been about the country’s ideal proximity to the U.S. and suppliers that have grown to become what Walker called “innovation partners,” as they’ve worked to deliver on new, smarter, more efficient ways for Levi’s to develop denim.
“To lose that would be really unfortunate,” Walker said.
Two more rounds of NAFTA are expected before April, as all parties have said they want to settle on a deal sooner than not, but those two rounds may not bring the clarity needed to remove the black cloud that’s been hanging over NAFTA since Trump said — and continues to say — that he’d be willing to scrap the deal if he couldn’t settle on terms that would serve the U.S.
“My forecast, unfortunately, is more uncertainty and volatility in U.S. trade policy,” Teitelbaum said.
Editor’s Note: This story was reported by FN’s sister magazine, Sourcing Journal. For more, visit sourcingjournal.com.