News

NAFTA – Its Past and Future Impacts

Just two months into the year, 2017 has brought many controversial topics to center stage. Whether it be Beyonce performing at the Grammy’s while pregnant with twins, California attempting to secede from the United States, or President Donald Trump’s campaign to renegotiate a more equitable trade agreement with Canada and Mexico.

Newly inaugurated President Donald Trump has promised to renegotiate or eliminate NAFTA so that it may more fairly benefit the U.S. economy. The reason for the renegotiation is the belief that American jobs were transplanted to Mexico, and the United States is losing money in this trade deal.

Much discourse rests upon the argument that “between 1994 and 2010, the U.S. trade deficits with Mexico totaled $97.2 billion, displacing 682,900 U.S jobs … Nearly 80% of the losses were in manufacturing. The hardest-hit states were California, New York, Michigan and Texas.” according to Kimberly Amadeo in her article, “6 Problems With NAFTA” for The Balance.

However, many factors influenced job loss during this period: advancements in automation technology, NAFTA, and the recession of 2008. Craig Carrel, President of Team 1 Plastics, said that “going back to the old days with a lot of manufacturing jobs isn’t possible. Certain jobs cannot be automated, so sending these jobs to the country with the lowest labor cost makes sense. Most of the jobs in our industry have been lost from information technology, robots, and automation. In the early 2000s, our company had less sales with two plants and 110 people than today with our one plant with 80 people and notably more sales.”

Don Loepp, editor of Plastics News, believes similarly that job loss from 2000 to 2010 was more influenced by the “impact of automation and changes in manufacturing than the effects of NAFTA.” In the broader scale of the manufacturing and plastics industry as a whole, “if NAFTA didn’t exist, it would have been more of a positive for the industry because there would have been more domestic manufacturing in the United States. But the industry has adapted to it in the end result.  The recession had a larger impact. Right now, the automotive market is good for the companies that survived the recession.”

In the context of Team 1 Plastics, Carrel feels “NAFTA has definitely been an overall positive for Team 1 business. Over the last five years, we have seen a steady increase in our business going to Mexico, at least 25% of our parts go directly. Some stay there, and some come back to the United States.” This is directly related to NAFTA and the ease it gives companies to ship back and forth among Mexico, Canada, and the United States.

With President Trump’s promises to renegotiate or break NAFTA, the important question is: how will it affect the U.S., the manufacturing industries, and Team 1 Plastics?

A renegotiation or elimination of NAFTA could have a combination of predictable and unforeseen impact. For the plastics industry as a whole, Loepp said that, “with Mexico specifically, the plastics industry has a trade surplus in machinery materials and finished products. If there was a slowdown in trade, it would affect these factors, and there would be a negative impact.”

In regards to Team 1 Plastics, Carrel thinks the impact of the changes to NAFTA “will be interesting to see because changes will take time to work its way through the system. Unless something radical is done, it’s going to take time for all parties to adjust, to understand it, and to make changes. At Team 1, we didn’t see the benefits of NAFTA from the beginning; but now, over the last five years, we can see and understand it. Slower moderate changes would make more sense, but we will just have to see where it takes us. 25% (of total number of products shipped) to Mexico is probably not a long-term sales strategy– we’re doing that because their supply base is not mature. Over time, it will mature. We are already seeing that due to the freight issue, it’s going to be more competitive for someone to be down in Mexico or Texas.  Our strategy is to take advantage of it and enjoy it while we can. But, we are not projecting that we are going to continue to send 25% of our parts to Mexico. Long term, we estimate about 10% of our parts staying in Mexico.”

Carrel concluded, “For automotive companies, a North American footprint is always best, having something in the U.S., Mexico, and Canada.”