The United States’ decision to renegotiate or even exit the North American Free Trade Agreement (NAFTA) will have a big impact on the trucking industry, which moves most of the country’s cross-border freight.
NAFTA was signed in 1994 as a free trade agreement among the U.S., Mexico and Canada. The agreement reduced or eliminated tariffs and other restrictions on trade among the three partner countries.
Now, NAFTA may be in trouble. President Donald Trump has pledged to rework and possibly pull out of trade agreements that put the U.S. at a competitive disadvantage. Representatives for the U.S., Canada and Mexico have negotiated changes to the 24-year-old agreement for several months, with new meetings scheduled for Feb. 26 in Mexico City.
Free Trade and Trucks
While some criticize NAFTA as causing the outsourcing of American jobs, the trade agreement has been a success for many U.S. corporations and industry groups. Trucking has benefited greatly from the free movement of goods among the three partner countries. More than $525 billion in goods travel between the U.S. and Mexico in a year. Most of those goods are moved on trucks.
“The vast majority of products that go over the southern border and the northern border involve trucks,” Bob Costello, chief economist for the American Trucking Associations, recently told Transport Topics. “That’s generating $6.5 billion in revenue annually for our industry, and that means we’re employing over 46,000 people whose jobs sorely depend on NAFTA.”
About 31,000 of those jobs, Costello added, are truck drivers.
The End for NAFTA?
Trump’s election has fueled speculation that the U.S. may soon pull out of NAFTA. However, trade representatives for all three countries are working to hammer out a revised agreement. In the latest round of talks, the trade partners were at odds on three demands proposed by the U.S. Two additional issues also loom large in the talks:
A Sunset Clause – The U.S. wants a clause that would force the renegotiation of NAFTA every five years, an idea Mexico and Canada have resisted.
Automotive Manufacturing – The Trump Administration wants changes to NAFTA that would pressure automakers to shift more production from Mexico and Canada to the United States. So far, neither Mexico or Canada is willing to accept that proposal.
Resolving Trade Disputes – The U.S. wants to cut the authority of arbitration dispute panels in settling trade disagreements, which is another sticking point with the two other trade partners.
The Border Wall – Though not a part of the talks, Trump’s proposed wall along all or most of the U.S.-Mexico border has added tension to negotiations with Mexican leaders.
Elections – There is some urgency to the NAFTA talks because Mexico will elect a new president on July 1. The U.S. midterm elections in November could also influence negotiations if a revised trade pact is not agreed upon by then.
What Does This Mean for Trucking?
If a new NAFTA agreement is drafted and approved by the partner countries. It could provide more clarity for how trucking companies can operate under the trade pact. In 2015, the Obama Administration began allowing Mexican drivers to seek permission to drive beyond commercial zones along the U.S.-Mexico border. Few Mexican carriers have participated in this program and the Trump Administration is pushing to reduce or eliminate it. Mexico has proposed creating a committee that would ensure all modes of transportation crossing the border are compliant with safety standards under NAFTA.
American Trucking Associations Chief Economist Bob Costello has said the most recent NAFTA negotiations in Montreal were constructive, but progress has been slow. In a Feb. 1 letter to ATA members, he expressed doubt that an end-of-March deadline would be met for a new NAFTA agreement. If a new agreement is reached, it will have to be approved by Congress.
The U.S. or another country backing out of NAFTA remains possible. Trump continues to promise “a better deal” for the United States. Canadian Prime Minister Justin Trudeau has warned that his country “won’t be pushed around” and could walk away from NAFTA.
Economists predict such a move would have a huge impact on the U.S. economy, particularly the automotive industry. Oxford Economics recently concluded that ending NAFTA would have a limited effect on the U.S. trade deficit, but that it would reduce growth in all three countries. The Business Roundtable has estimated that walking away from NAFTA would cost the U.S. 1.8 million jobs.
There is still hope that a new deal will be reached. A recent poll by Reuters showed most economists expect NAFTA to undergo only minor changes, despite political threats to end the treaty.
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Sources: Transport Topics, New York Times, TheStreet.com, Forbes, MarketWatch.com