NAFTA Continues to Cause Controversyby Jake Tully - Published: 3/03/2017
It comes as no surprise that a great deal of pertinent trucking news has revolved around politics since the recent presidential election and it is certainly expected to continue as Trump and Secretary of the Department of Transportation Elaine Chao solidify their plans per the industry and truck driving jobs. One aspect which will definitely receive attention is that of NAFTA and how it will impact the industry.
While the North American Federal Trade Association has been controversial since it was formerly adopted in January 1994 as an agreement between the United States, Canada, and Mexico. This trade agreement took the place of the Canada-United States Free Trade Agreement which was enacted in 1988.
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Many of the same purposes were served through each agreement, but also included updated procedures and the inclusion of Mexico. One of the biggest differences being that since it has been enacted for much longer than the previous agreement, a more in-depth economic analysis is available with NAFTA having the most economic impact within Mexico, while it has been discovered to have a much, much smaller impact for the United States, and an essentially insignificant net positive for Canada.
Origins of NAFTA
In short, the agreement was created in order to take away any sort of trade barriers and investment blockades that kept the United States, Mexico, and Canada from trading with each other. While most trade between the U.S. And Canada did not have any sort of imposed tariffs, within the first ten years that NAFTA existed, there would be no more tariffs within trade between the U.S. And Mexico, with the exception of a handful of agricultural goods traveling from the U.S. To Mexico.
By 2008, only 14 years after the implementation of NAFTA, trade between the three countries had tripled reaching an astounding amount of $946.1 billion. Some of the ideas NAFTA hoped to offer to the United States, Canada, and Mexico were to show how free trade is healthy for competitiveness between companies, increases overall wealth for those involved, and would be beneficial to every single aspect of the market from families and consumers to drivers and farmers.
Some other aspects of NAFTA that should be known to understand how Trump's overall disdain for the program will directly impact the trucking industry are numerous. First, the high amount of trade the United States receives from Canada and Mexico amounts to about a quarter of the imports the U.S. Receives. This is especially true for goods crude oil, produce, and gold. On the other end of that spectrum, about 1/3 of the goods the U.S. exports go to Canada and Mexico. Some of those goods with high export rates are vehicle parts, machinery, and plastics. One source also contributes NAFTA as a hefty reason behind increased competitiveness that has allowed further access to more and better crude materials, technologies, talent, and investment capital.
NAFTA and Trucking
Much of this information seems to have little or nothing to do with the industry, but it is important to understand what NAFTA does in order to know why Trump feels so strongly against it and if it is a policy that should be kept running in our country. Early in Trump's candidacy, he not explained that he thought NAFTA was very much part of the reason many manufacturing jobs had been lost within the United States borders, but also deemed it the “worst trade deal in history.” In fact, since 1994, the amount of manufacturing workers went from 17 million in 1994, the same year NAFTA was signed into effect, to a low 12.2 million workers currently. Also, last July, in the same speech, he expressed his desire to communicate with Mexico and Canada to come up with
more agreeable terms for the three countries and said if that would not be possible, he would pull out the the Trade Agreement altogether.
As it involves all three countries and not just the United States, it cause many to question if that was actually within the president's power, but it was proven to be with a small clause included in the agreement that says any party has the ability to terminate their cooperation with the agreement as long as they provide written notice at least six months in advance.
More recently, and more directly impactful to truckers, is the fact that NAFTA accounted for $89 billion in revenue for the trucking industry last year. Much of trade within these three countries is only possible with the dedicated drivers who make those long haul trips to cross borders and bring those goods into each country. While ending NAFTA could cause turmoil for trucking as it is so integrated, tax reformations and increased deregulation has been cited as possibly beneficial for the industry. One of the largest explored impacts noted that would be caused with the loss of NAFTA is the fact that there is no doubt that trucking would no doubt suffer from a smaller demand within the United States as 60 percent of NAFTA trade comes from trucking. This is also true for both Canada and Mexico, as their trade would also become limited and much more difficult considering the borders of the U.S. Separate the two countries.
One leading economist believes that any sort of deal struck between the three countries that would lead to an increase in the cost of trade will be detrimental to trucking. Stating that all exporters are also importers and it is a close network with many companies exclusively working together. A lot of the goods transported across the borders by trucks are also goods that only serve as a part of the whole, meaning they are used to build other goods after they are delivered to the consumer. While one part of a machine may be built in Mexico, another needed part of that machine could be built in Canada and without trucks being able to take those parts to the U.S. Or either of the other countries, the prices of those goods will increase massively.
On February 16, Representative Peter DeFazio introduced a resolution to renegotiate or remove the United States from NAFTA. More importantly the resolution introduced a powerful possible provision to trucking jobs. DeFazio said, “[NAFTA] should not require access to United States roads for commercial vehicles domiciled in other countries and should require all foreign service providers' vehicles and drivers entering the United States to meet all United States highway safety and environmental standards before being granted access to and use of United States distribution and transportation systems...”
One way this has been shown to be problematic to the trucking industry is considering it is contradictory in the sense that while the resolution states the United States should not have to provide access for foreign trucks to deal with trade, it also states that any truck that does gain access must follow the environmental standards of the U.S., meaning their trucks would have to comply with U.S. Emission standards. While it is noble to reduce the emissions of other countries, barring entrance also bars goods from reaching the U.S. And reduces the possibility of further domestic truck transportation.
This proposed bill has been as directly targeting the fact that Mexico has the capability to transport goods all across America, but many experts have weighed in on the fact that much of the time, these long-haul drivers would rather just continue to exchange goods at the border instead of having to sit through the long, congested lines of the border then, due to the monetary difference of the peso and dollar, spend much more for goods and services than they would if they stayed in Mexico.
Future of the Agreement
DeFazio will no doubt face challenges as he tries to get Trump to pass his bill by June 1, but he has gained a lot of support from several organizations including the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), United Steelworkers (USW), Communications Workers of America (CWA), Citizens Trade Campaign, and Teamsters – just to name a few. With the support of these large unions and trades, it is more likely that the proposed legislation will gain more momentum.
There is no doubt that NAFTA has been and continues to be a controversial agreement for Canada and Mexico, but even more so for the United States. It is becoming increasingly obvious that many legislators feel the need for some sort of at least reform to NAFTA, but it is also important to see how making drastic changes will affect trucking for each of the three countries.
Whether an individual driver or an entire fleet sees NAFTA as a good or a bad thing, there is no doubt that it does impact those with trucker jobs, especially after it being proven that 60 percent of NAFTA trade is transported through trucking alone. It is important for presidents and legislators to look at policies nearing 25 years of implementation, but NAFTA effects so many aspects of trade, and as proven above, transport, it is important to take a closer look as to just how industries and trade will be affected.