SINCE THE DAYS OF FDR, IT HAS BEEN CUSTOMARY TO
grade new presidents on their first 100 days in office. April 29 was
Day 100 for Donald Trump, and by most accounts, he turned in a
less-than-exemplary performance. Among other failures, his immigration orders met with considerable judicial resistance, his attempt
to squeeze a tax reform bill into the first 100 days was a minor
disaster, and he brought the federal government perilously close to
shutdown.
Whether fair or not, I suppose what President Trump’s first 100
days will be most remembered for are his broken promises and frequent changes in position. For example, it now appears the Chinese
are not currency manipulators, and NATO is no
longer obsolete.
But turning to the supply chain, one promise
is better off broken. Throughout the campaign,
Trump promised to withdraw from the North
American Free Trade Agreement (NAFTA), which
he once called “the worst deal ever.” As recently as
Day 99, he was prepared to terminate U.S. participation. What apparently stopped him were two
telephone calls—one from President Peña Nieto
of Mexico and the other from Canadian Prime
Minister Justin Trudeau. Both asked him to reconsider and renegotiate, rather than withdraw. He
agreed to do so, and hopefully, the “renegotiation”
will not be too heavy-handed on our part. Mexican officials have
already said they would not negotiate with a gun to their head, and
for the U.S., this could very well be one of those “be careful what you
wish for” moments.
Is Trump right in his negative assessment of NAFTA? It’s true that
some U.S. businesses have moved manufacturing to Mexico. Take
the automakers, for instance. Once the deal took effect in 1994, the
automobile manufacturers wasted no time opening operations south
of the border, where they could take advantage of cheap Mexican
labor. Mexico now accounts for about 20 percent of North America’s
auto production, up from 3 percent in the 1980s, and its share is
expected to reach 25 percent by 2020. Honda, Nissan, Audi, Ford,
General Motors, and Chrysler all manufacture in Mexico. (And all of
these companies would take a hit if a 35-percent tariff were slapped
on each auto they sent to the U.S., as Trump has threatened to do.)
But did NAFTA cost us jobs? Yes and no. According to the
Economic Policy Institute, about 800,000 jobs were lost to Mexico
between 1997 and 2013, but it’s not as simple as that. NAFTA
BY CLIFFORD F. LYNCH fastlane
A promise best broken
also created jobs—jobs that far outnumber the 800,000 that were lost. The U.S.
Chamber of Commerce estimates that about
6 million jobs depend on trade with Mexico,
and there have been studies that show that
we’ve lost more jobs to automation than to
Mexico. That’s led some to conclude that
President Trump has his eye on the wrong
ball. In fact, according to a recent report
from PricewaterhouseCoopers, 38 percent of
U.S. jobs are at high risk of being replaced by
automation over the next
15 years, which is far more
concerning than competition from Mexico.
Most informed experts
believe that terminating
NAFTA would be disastrous. In a recent presentation to a Canadian
business audience, Tom
Donohue, president and
CEO of the U.S. Chamber
of Commerce, said, “
Withdrawing from NAFTA
would be devastating for the workers, businesses, and economies of our countries.”
Killing NAFTA would cost us millions of
jobs that depend on trade with Mexico. And
it would in no way guarantee that manufacturers would bring jobs back to the U.S.
If costs in Mexico were to rise, companies
would likely move their operations to the
next low-cost country. Somehow, antagonizing our next-door neighbors doesn’t
seem like real good politics to me, especially
when they bring so much to the table.
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider of logistics management advisory services, and author
of Logistics Outsourcing – A Management Guide and co-author
of The Role of Transportation in the Supply Chain. He can be
reached at cliff@cflynch.com.
