NAFTA AND THE U.S. PORK INDUSTRY

AMERICAN PORK: AN EXPORT POWERHOUSE

“The U.S. pork industry is the poster child for expanded trade.”

Nicholas D. Giordano
May 25, 2017

CONTEXT AND COMMENT

Nick Giordano is the Vice President and Counsel for Global Affairs at the National Pork Producers Council. He was the last of nine speakers at the GBD NAFTA event on May 25, NAFTA, From Car to Carrots. As we noted in the TTALK Quote published earlier today, the fear that the United States might withdraw or otherwise scrap NAFTA has lessened in the last couple of months.

That is a welcome development. So too is the clear and steady movement toward an orderly process of renegotiating and upgrading NAFTA. The most recent step in that process was taken earlier today [July 19, 2017] when USTR announced that John Melle, Assistant USTR for the Western Hemisphere, will be America’s Chief Negotiator for the NAFTA negotiations and that the first round of talks will be held in Washington from August 16 to August 20.

As the NAFTA countries prepare for that first round, it is important to keep in mind that, as important as NAFTA is for the United States, it is as or more important for Canada and Mexico. Each of the three NAFTA countries has an enormous stake in NAFTA and in the success of the NAFTA negotiations.

That said, the picture Nick Giordano painted back in May of NAFTA and the U.S. pork industry was an exceptionally useful illustration of that point from the perspective of one segment of the North American economy, American pork producers. After transcribing his remarks, we could not decide what to include and what to cut. So here in its entirety is the speech Mr. Giordano gave at GBD on May 25. (The inserted headlines and added emphases are ours.)

REMARKS OF NICK GIORDANO — MAY 25, 2017

Thank you, Dave.* Thanks to Judge and the Global Business Dialogue* for having the National Pork Producers Council participate in this important event. It’s a great pleasure to be up here with my colleagues from agriculture, who I’ve gotten the opportunity to work with on various issues over the years.

As David knows, I’ve never met a microphone I didn’t like. Don’t worry. I’m going to make your job easy. I’ve written my comments out. So, I can keep us on schedule here. So we can get to questions and Judge can get everybody out in a timely manner.

ON THE COUNCIL
The National Pork Producers Council is a federation of 43 state pork producer organizations, representing the national, global interests of 60,000 U.S. pork producers, who generate $23 billion annually in farmgate sales. The U.S. pork industry supports an estimated 550,000 domestic jobs and generates more than $39 billion a year in economic activity.

U.S. PORK EXPORTS
The U.S. pork industry is the poster child for expanded trade. As recently as 1995, the United States imported more pork than it exported. But, in the past ten years, thanks to new market access through trade deals going back … before NAFTA — the U.S. pork industry, on average, has been, the past ten years, the top pork exporting nation in the word.

In any given year, we ship pork to more than 100 countries. But, because of trade deals, and specifically FTAs, we ship more U.S. pork to the twenty nations with which we have FTAs than to the rest of the world combined. Exports contribute significantly to the bottom line of all U.S. pork producers, adding more than $50 to the value of each hog marketed last year, when about $6 billion worth of U.S. pork was exported.

It’s been noted [that] on May 18th, the Administration notified the Congress of its intention to enter into negotiations with Mexico and Canada to modernize the NAFTA. Today, NPPC [the National Pork Producers Council] released a paper on the NAFTA. The paper is intended to provide background and insights regarding benefits generated by the NAFTA.

In addition, the paper details the costs associated with erecting new import barriers through renegotiation or withdrawal from the NAFTA. The paper is available on our website, nppc.org. The focus of the paper is economy wide, but today I’ll limit my comments, for the most part, to the pork sector. Mexico and Canada represent, in value terms, our second and third largest export markets for pork.

In 2016, we shipped $1.4 billion in pork products to Mexico and $800 million to Canada. Together, these two markets represent 36 percent of our global pork exports and over 15 percent of our total pork production.

THE NAFTA RISKS
According to Iowa State University economist Dermot Hayes, who Judge has had as a panelist in past GBD activities, U.S. pork exports to Mexico have created more than 9,000 U.S. jobs. Dr. Hayes, who, I might add, has forgotten more about the global pork industry than most people will ever know. According to Hayes, if Mexico were to place a 20 percent duty on our pork, and allowed the EU and Canadian pork duty free access, which is likely to happen if there is a termination or duties put on pork, then we would — the United States — would lose all of the Mexican market.

In his assessment, Professor Hayes also looked at the possibility of U.S. pork finding alternative markets and concluded that the U.S. pork industry would be left with a net loss of about 600,000 tons or 5 percent of our production. This would cause a 10 percent reduction in live hog prices. At today’s hog prices, that’s about $14 per animal. Now, with 118.3 million hogs harvested in the United States last year, that means the loss of the Mexican market would translate to an aggregate industry loss of about $1.7 billion annually.

A loss in exports to Mexico of that magnitude would be cataclysmic for the U.S. pork industry. Now, make no mistake, pork producers do and will support updating and improving the NAFTA but if, and only if, duties on U.S. pork remain at zero and pork exports are not disrupted. The prospects of going back to pre-NAFTA tariffs are daunting, not just for pork producers but for the entire U.S. economy. And we have history as our guide.

LESSON FROM HISTORY
After the stock market crash in October 1929, when unemployment began to rise, Congress decided it would be a good idea to impose additional tariffs on imports “to save jobs.” Despite the pleas of over 1,000 mainstream economists for President Hoover to veto the bill, the so-called Smoot-Hawley tariffs were introduced in 1930. Jobs were immediately lost in trade related fields and beyond, including dock workers, transportation, distribution etc. And within three months, unemployment nearly doubled to 14 percent. Over the next two years, unemployment soared to 27 percent, as jobs were lost to other factors, including higher inflation, reduced disposable income, and, of course, foreign retaliation against our exports. The Great Depression was then in full force, and became global. The rest, as they say, is history.

COSTS OF FAILURE
Now, I’m not suggesting that a NAFTA renegotiation gone awry would result in another great depression, but it could result in unintended consequences. Mexico will elect a new president in July 2018. The NAFTA renegotiation could have a significant impact on both the presidential election in Mexico and the long term relationship between our two nations. The NAFTA has created jobs to the benefit of both the United States and Mexico. In 1994 our trade with Mexico was roughly in balance at about $50 billion each way. By 2016, our exports to Mexico had nearly quintupled to $231 billion, and these now support some 6 million jobs.

And while imports to the United States from Mexico were $294 billion, those too supported millions of U.S. jobs, and nearly 40 percent of Mexican imports include U.S. content. In short, NAFTA created jobs in both the United States and Mexico. Now, I won’t deny that jobs did go to Mexico as the result of plant closings, but it’s misleading to say that trade under NAFTA resulted in a net loss of jobs in the United States.

We should also keep in mind that as a result of NAFTA, Mexico made substantially deeper cuts in tariffs on U.S. goods than did the U.S. on Mexican goods. If NAFTA were to be terminated, Mexico would have the right to reimpose those much higher tariffs on our goods, thus making the trade deficit bigger.

Mexico has free-trade agreements with many other countries and is pursuing even more. Without NAFTA, those countries would immediately secure huge competitive advantages over potentially thousands of U.S. products, including pork of course, in the Mexican market.

NAFTA is an old trade agreement–23 years. But it has accomplished a great deal. And, it certainly can be modernized. But, if I’m making one point [and] you’ve been listening, there are enormous risks associated with the notion that withdrawal from NAFTA could be an attractive alternative if efforts to negotiate a more modern agreement fail. Thank you.

NOTES, SOURCES AND LINKS

*On Referenced Personalities. Dave Salmonsen of the American Farm Bureau Federation served as moderator for the panel discussion on agriculture. Judge Morris is the president of the Global Business Dialogue, which hosted the event.

The Carrots Part takes you to the YouTube video of the full agriculture panel at GBD’s May 25 event on NAFTA. This was the source of today’s featured quote and the above transcript.

First Round Announced is a link to today’s USTR press release, which included both the dates for the first round of negotiations and the name of the U.S. Chief Negotiator for the NAFTA talks, namely, John Melle.

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Originally published on July 19, 2017, as TTALK Quote No. 44 of 2017.

BREXIT – BEFORE THE NEGOTIATIONS

ON THE BREXIT OPTIONS

A sovereign decision has been taken to leave by the British people…..But from the perspective of EU member states, as long as the decision on the organization of the exit is not finalized, there is always the possibility of reopening the door.”

Emmanuel Macron
June 13, 2017

CONTEXT

French President Emmanuel Macron, who won a stunning victory in the French runoff election on May 7, welcomed UK Prime Minister Theresa May to Paris five days after her electoral setback in the UK’s snap election on June 8.  After their private meetings and before watching a football (soccer) match between the teams of France and England, the two leaders held a joint press conference.

Brexit was not their top priority then. Expressions of solidarity were the theme of the day, with Prime Minister May noting that “Both our countries have sadly experienced the horrors of terrorism all too recently.”

But Brexit did come up. How could it not? The serious work of the Brexit negotiations is set to begin on Monday, June 19, with a Frenchman, Michel Barnier, as chief negotiator for the EU, facing David Davis, the UK’s Secretary of State for Exiting the EU.

Mrs. May addressed the Brexit issue at the close of her statement. “On Brexit,” she said, “we have been very clear that we want to maintain a close relationship and a close partnership with the EU and individual member states into the future.”

Today’s featured quote is something President Macron said in response to a question. Here is a bit more of his answer to that Brexit question:

(As translated from the French)
“Evidently, the door remains open until negotiations come to an end. That said, a sovereign decision has been taken to leave by the British people, and I respect the sovereignty of all people, be it the French or the British when they make a decision for themselves. It is not for me to say whether or not this decision should be called into question. But from the perspective of EU member states, as long as the decision on the organization of the exit is not finalized, there is always the possibility of reopening the door. But we must be clear and, once underway, we need to all be aware that it is difficult to reverse.”

COMMENT

Well, actually, just a bit more background.

The Article 50 Trigger. On May 29, Prime Minister May formally invoked the provisions of Article 50 of the Treaty on European Union in a letter hand- delivered that day to Donald Tusk, the President of the European Council.

So the clock is ticking. The situation is succinctly described in a short article on the website of the European Union. The article poses the question, what happens next? Part of the answer is in these starkly clear sentences:

“During negotiations under Article 50, European Union Treaties and law continue to apply to the UK. If no agreement is reached within 2 years of the UK activating Article 50, the UK would leave the EU without any new agreement being in place.”

The British Election. When Prime Minister May called a snap election on April 18, her Conservative party had a majority of 12 in the 650-member House of Commons. Her goal was to increase that majority and thus give herself a stronger hand in the coming negotiations with the EU. Well, that didn’t work out. Though still the largest faction in the Commons, the Conservatives didn’t just lose seats, they lost their majority, and Mrs. May’s leadership now depends upon the alliance she has formed with the Democratic Unionist Party of Northern Ireland.

What does that mean for the Brexit talks? We don’t know and we doubt that anyone does. The June 8 election was not a do-over referendum on the UK’s membership in the EU. It was an election in which Brexit, though referenced, was largely taken off the table, with the parties jockeying for position on other issues. Arguably the Conservatives didn’t handle those other issues well, but it is hard to know what the results will mean for Brexit.

There are few if any parts of the globe that are totally unaffected by the UK-EU negotiations set to begin on Monday, and the problem is that the uncertainties they are meant to address will almost certainly become more acute over the next few months. Indeed the world may have to get awfully close to the March 2019 deadline for the negotiations before anyone has a sense of just how this will play out. That is because the nature of the beast is such that the party most willing to walk away is the party with the strongest hand. And that being the case, it is hard to imagine many early concessions from either Mr. Barnier or Mr. Davis.

RELATED EVENT

Endless Outreach: The EU’s Trade with the World and with North America. This event will lead off with a keynote address from Ambassador David O’Sullivan of the European Union and will include panel discussions from the diplomatic and business communities. While only a part of the story of the EU’s trading relationship, it is nevertheless an issue that is likely to come up. The event will be held at the St. Regis Hotel in Washington, and the title link will take you to the announcement for this program, including registration options.

SOURCES AND LINKS

The Press Conference is a link to a transcript of the May-Macron press conference on June 13 available on the U.K. government’s website.

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Originally published on June 16, 2017, as TTALK Quote No. 39 of 20717.   © 2017 the Global Business Dialogue, Inc.

 

NAFTA AND AMERICAN AGRICULTURE, PART II

DAIRY AND THE NEXT NAFTA

“Our NAFTA modernization goal, when it comes to dairy, would be Maintain Mexico and crack Canada.”

Shawna Morris
May 25, 2017

Shawna Morris is Vice President for Trade Policy at the U.S. Dairy Export Council and holds the same position with the National Milk Producers Federation. Speaking at GBD’s May NAFTA event, Ms. Morris painted two dramatically different pictures of NAFTA as seen through the eyes of America’s dairy farmers and processors. We shall share some of what Ms. Morris had to say about both of America’s continental trading partners, but the first point to note is what she had to say about NAFTA itself.

Ms. Morris described the dairy sector as one of NAFTA’s biggest supporters, adding that her members “have absolutely no interest in doing away with this agreement.”

She went further in the Q and A session. “Even with our appetite to see significant improvements in this agreement,” she said, “we very much agree that withdrawal from it is not an option and would be absolutely catastrophic.

U.S. Dairy and Mexico. The Mexican component is critical, but we’ll let Shawna Morris tell the story.

MS. MORRIS:
Twenty years ago, we had a visionary dairy farmer chairman of the U.S. Dairy Export Council and the National Milk Producers Federation. He made the decision that our industry had to look outward, not inward, and offered the necessary leadership to be able to move the industry in that direction. [The Industry leader she was talking about was Tom Camerlo of Pueblo, Colorado.]

So now it has been almost two decades that we have been focused primarily on the benefits that trade can offer, and so looking forward, not backward, when it comes to that. The U.S.-Mexico agreement, together with the Uruguay Round, is really what offered the opportunity to be able to shift our vision toward the export market. After riding out some hiccups earlier on in the tariff elimination years, Mexico … has become a strong and dependable trading partner. It’s frankly where … a lot of the U.S. companies that are now exporting all around the world first got their feet wet, [where] they came to realize that trade can offer opportunities and, from the dairy side, not only concerns.

Today, Mexico accounts for roughly a quarter of U.S. dairy exports around the world, and those sales total roughly $1 billion dollars a year. In turn, they support tens of thousands of jobs all across this country that are involved in the production and processing of the product that goes to Mexico.

When it comes to Mexico, our primary focus is ensuring that the integration and partnership that’s been built up over the years doesn’t take any steps backwards. That’s critical in the broader NAFTA discussions, which is why we believe those talks need to be focused on moving forward from the existing foundation of trade openness that has already been put in place. … [That is] extremely important as Mexico negotiates with other countries.

Homework with Canada. At one point in her June 23 remarks, Ms. Morris referred to “unfinished homework with Canada.” The key to the Canada portion of her comments was this simple statement about the NAFTA negotiations generally. “In terms of market access,” she said, NAFTA was “a series of bilaterals between the countries involved. So, in the negotiations between United States and Mexico, dairy was part of the deal and trade between the two countries is essentially duty-free.

In the U.S.-Canada negotiations, however, dairy was not included, and there are dairy tariffs on both sides. “Tariffs of 200 to 300 percent still hold back ¬¬¬¬U.S. dairy exports to Canada,” Ms. Morris said. “If that’s not the best opportunity for modernizing this agreement, well, it’s hard to think what would be a good candidate.”
The heart of the U.S. dairy dispute with Canada is Canada’s supply management system. The system applies to milk, cheese, eggs, chicken and turkey, but it is the dairy sector – milk, cheese, and other milk products – where the clash with U.S. interests is most acute.

“Even more grating than being one of the only sectors that still faces exorbitant tariffs has been Canada’s repeated use of policy tools to try to thwart dairy trade, Ms. Morris said. “Canada seems to have its cake and eat it too, by shutting down import avenues and dumping extra product on global markets.”

We took Ms. Morris’s comments to be a reference, at least in part, to the tortured story of ultrafiltered milk. This relatively new product did not have the protection of super high tariffs in Canada, and so, for a while, U.S. ultrafiltered milk was doing well in Canada. Then a regulatory change effectively undercut that market.

COMMENT

We are rather cynical when it comes to phrases like “I make a difference” or politicians selling “change” without any real discussion of what that change might be. But there are people who make a difference, a very positive difference. Some of them do it by spotting opportunities and then encouraging others to make the changes necessary to turn those opportunities into real benefits. From what we have been able to learn about him over the last few days, James P. “Tom” Camerlo was such a person. He was the Colorado dairy farmer and former head of the U.S. Dairy Export Council who saw clearly the untapped potential of export markets – including Mexico – for U.S. dairy. He died in December 2009, and part of his legacy is the big difference he made in the way American dairy farmers see themselves and their industry.

Talking about the dairy industry today, Shawna Morris said, “My members’ view is that trade done right can be a tremendously positive thing, both for farmers and for processors.”
For us, the most important fact about NAFTA is that it was one thing as a proposal in 1993. It is a very different thing as a functioning reality in 2017. The top line of this chart from the U .S. Dairy Export Council is one illustration of the current reality.

We’ll conclude with another platitude, verity – call it what you will: Nothing is static. Even if there were no NAFTA renegotiation in the offing, the nature of NAFTA is bound to change, if not from within then from forces outside of NAFTA. Among those outside forces are the agreements that Canada and Mexico are forging with other trading partners, most notably the European Union.

Those agreements have two obvious effects. One is that, to the extent that America’s trading partners grant preferences to others, the value of the preferences they extend to U.S. producers is diminished. It’s called “preference erosion,” and there is really nothing you can do about – especially if you believe in free trade.

The introduction of new restrictions vis-à-vis specific products is another possible result from the EU’s recently concluded deal with Canada and their recently launched negotiations with Mexico. That is the issue of geographical indications, which Ms. Morris mentioned in her comments in May. It is bound to come up again at the GBD event on June 23.

RELATED EVENT – FRIDAY, JUNE 23

Endless Outreach: The EU’s Trade with the World and with North America. This event will lead off with a keynote address from Ambassador David O’Sullivan of the European Union and will include panel discussions from the diplomatic and business communities. This event will run from 9:00 a.m. to 12 noon on Friday, June 23. The title link will take you to the notice for this session, including registration options.

SOURCES & LINKS

The above video link takes you to the discussion of NAFTA and U.S.  Agriculture at the GBD event on May 25, 2017.

Contentious Milk takes you to the TTALK Quote for April 27, which discusses Canada’s treatment of “ultrafiltered milk,” a product that U.S. producers were able to sell in Canada, only to see that market evaporate as the consequence of new regulations.

Top Markets is a link to a list of America’s top export markets for dairy, prepared by the U.S. Dairy Export Council.

 

MATHEMATICS – SCHOOL AND LIFE

THE LEARNING CONNECTION

“You can understand out the wazoo, but it’ll just disappear if you’re not practicing with it.”

Barbara Oakley
May 12, 2017 (publication date)

CONTEXT

Dr. Barbara Oakley is a member of the Engineering Faculty at Oakland University outside Detroit. She was not a child prodigy, at least not where the so-called STEM subjects are concerned. As she told James Taranto of The Wall Street Journal, “I flunked my way through elementary, middle and high school math and science.” To say the least, she is more comfortable with those subjects now, and her journey is a fascinating one.

We first learned of it from Mr. Taranto’s wonderful article on Barbara Oakley in the May 12 edition of the Journal. You will want to read the whole thing. The only parts we are going to steal from it are some of the things she said about the teaching of mathematics. For example:

“Because math is so sequential, if you fall off anywhere along the way, it’s hard to get back on.”

Today’s featured quote was taken from this passage:

In learning math and science through K-12, it’s long been held that practice and repetition will kill your creativity. … One mistake we make in the school system is we emphasize understanding. But if you don’t build those neural circuits with practice, it’ll all slip away. You can understand out the wazoo, but it’ll just disappear if you’re not practicing it.

We’ll finish with this paragraph from Mr. Taranto’s article:

Ms. Oakley notes that “many if not most” of her colleagues “are from countries that have educational systems completely antithetical to the education system in the United States.” In places like China and India, “practice and repetition and rote memorization are really important parts of education. She sees value in both methods: “There are real benefits for Western approaches—that it really does help with creativity. And there are also real benefits to Asian approaches—that it builds a solid foundation in the most difficult disciplines, math and science. The best education would actually be a combination of both approaches.”

COMMENT

We plead guilty. We advertised this TTALK entry as one that would deal with something other than trade policy. In a superficial sense, we were clearly telling the truth. In a more fundamental one, we lied. Education and learning have everything to do with trade.

Both Ann Wilson of the Motor and Equipment Manufacturers Association and Yuri Unno of Toyota brought up the issue in the question-and-answer session that concluded last month’s GBD panel on NAFTA and auto production.

From Ann Wilson of MEMA we heard:

The other thing we need to talk about is actually what the workforce is in this country. If you talk to our members, there’s a real serious concern about having the ability to have a trained workforce to be able to take up these jobs.

We’re not talking about necessarily even engineers and things like that, but we’re talking about people who are welders and some of the trained skilled workers that we need to have for manufacturing. So there are some very systemic issues that need to be addressed by this country before we can automatically say that it [the manufacturing that has left] can be reshored, [brought back].

From Yuri Unno of Toyota we heard:

I just want to add, [at Toyota] we’re always hiring. We can’t fill all the position because of the skill gap. And we have partnerships at the local community colleges at every single plant we have in the U.S. to continue to educate and help the community colleges tailor the programs so they educate and train the students in a way we could use right away when they graduate.

Also … we’re not decreasing our investment in the U.S. because of NAFTA; we’re actually increasing [it]. We just announced an additional $10 billion in investment over 5 years in the United States. And a big part of that is because NAFTA is helping us, [allowing] us to stay competitive for the world market.

Filling the Skills Gap.  And then of course there is the issue of U.S. companies feeling the need to rely on foreign talent, whether through H1 B visas or by doing more technical work abroad. Those are complex issues, but there does seem to be some irony in U.S. employers relying so heavily on those taught by methods the U.S. has largely rejected.

On the Front Line.  Like trade, education is an issue that is as emotionally charged as it can be complicated. We recently had a note from a woman who had read and liked Mr. Taranto’s article on Barbara Oakley. A fine mathematician in her own right, our correspondent has two young sons in public school and thinks a lot about the teaching of mathematics and how the kids respond. We’ll call her boys Doug and Tom.

The Mathematical Mother wrote:

I do think a problem with recent curriculum changes is that our schools are shifting even farther away from practice in math and towards a purely conceptual focus. It works pretty well for someone like Doug, who not only understands the concepts but then also enjoys playing with them in his mind and exploring how numbers work.

For Tom, though, it’s been a disaster. … [A high school teacher I know] said he’d discovered as a teacher that math is really the study of patterns. What I’ve realized through watching Tom struggle is that by focusing so much on concepts and … word problems, he misses the chance to discover the more basic patterns and really understand them.

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We are not discouraged by any of the above. Every quote deals with people working through problems. And that is life at its best. Still, for a change the pace a and to show that we are not without sympathy for the non-mathematical, we’ll leave you with this …

Rhyme Composed in a Math Class

And I will fill my attics
With teachers of mathematics,
Adding six, and two, and four
And rapping regularly at the door.

They will learn the why of pi
And give dimension to the sky.

But if perchance they to learn to shout
And scream with senseless fright.
Well, then perhaps I’ll let them out.
Then perhaps, I might.

RKM 1961

SOURCES & LINKS

How a Polymath Mastered Math takes you to The Wall Street Journal article on Barbara Oakley that was the source for today’s featured quote.

From the Auto Panel takes you to the discussion of NAFTA and U.S. Automobile Production, organized by GBD and held at the National Press Club on May 25. The quotes from Ms. Wilson and Ms. Unno were both from the concluding portion of that event.

Barbara Oakley is a link to Dr. Oakley’s website.

The quotes from the Mathematical Mother are from unpublished, private correspondence.

Originally published as TTALK Quote No. 37 of 2017 on June 7, 2017.  © 2017 the Global Business Dialogue, Inc.

NAFTA – THE AUTOMOTIVE FACTOR, PART II

U.S. JOBS AND NAFTA – THE AUTO PARTS COMPONENT

“Motor vehicle suppliers are the largest employer of manufacturing jobs in the United States.”
Ann Wilson
May 25, 2017

CONTEXT

Ann Wilson is the Senior Vice President for Government Affairs at the Motor and Equipment Manufacturers Association, MEMA, and she was one of the four speakers on the auto panel at the May 25 GBD event NAFTA, From Cars to Carrots. The premise of her remarks was that, yes, NAFTA does need an upgrade, but that needs to be done with care because a lot of U.S. jobs – especially jobs among U.S. makers of auto parts – depend on NAFTA continuing largely as it is and has been for many years.

Citing a recent study, Ms. Wilson put the current number of jobs in the U.S. auto parts industry at 871,000. “That,” she said, “is a 19 percent increase over the last four years.” And, she said:

“NAFTA is part of the reason why U.S. employment in the supplier industry is so strong.”

Two-thirds of the technology in today’s automobiles, Ms. Wilson said, is developed by the U.S. auto parts companies in cooperation with their customers, the major automobile producers. She then turned back to the importance of NAFTA, saying:

Our industry … operates in a global environment. We are very dependent on NAFTA for both our supply base and our customer base and our ultimate customers, which are the purchasers of motor vehicles.

Free and fair trade is imperative for a strong domestic supply base, and it’s imperative for the supplier employment. And we recognize that we are central to the renegotiation and modernization of NAFTA.

… Not only has NAFTA been good for suppliers and our customers, the automobile industry and the trucking industry, but it’s also been good for the workforce we have. [In that context,] we are encouraging the Trump Administration to take a look at NAFTA and [NAFTA] modernization.

Yes, Ann Wilson has her wish-list for things that might be usefully included in an upgraded NAFTA. Like Charles Uthus before her, Ms. Wilson urged the negotiators to include provisions for recognizing U.S. certifications for auto parts, and she called for stronger protections for intellectual property rights. In the larger arena of intellectual property rights, the question of counterfeit goods looms particularly large for the auto parts makers. “Counterfeiting and anti-counterfeiting measures are really important to our members,” Ms. Wilson said.

That said, the issue she returned to most forcefully was the risk of losing the benefits the U.S. currently gets from NAFTA. To cast a cold eye on that issue, one needs to play the “what if” game. What if Mexico’s normal tariffs were re-introduced into U.S.-Mexico trade. The Boston Consulting Group, Ms. Wilson said, made some estimate of what the ensuing costs might be. Their projection: $16 to $27 billion additional costs to automobile producers in the United States. What would that mean to the industry? We’ll conclude with Ms. Wilson’s response to that question:

Those kinds of costs …how would they be absorbed? One of the things we think could happen is what we call the de-contenting of vehicles. – [Taking out some of those things that are not required by the Federal Government, for example.] — That could actually impact 25,000 to 50,000 jobs in the supplier industry.

COMMENT

Just three points.

U.S. Manufacturing Employment. Today’s featured quote is a dramatic one and underscores the importance of the auto parts industry to the U.S. economy. It should not detract from that point at all to note that the universe of American manufacturers is pretty big. Thus even the largest sectoral subset, namely auto parts, would appear to be roughly 7 to 8 percent of total manufacturing employment in the United States.

According to the Bureau of Labor Statistics manufacturing currently accounts for roughly 12,398,000 U.S. jobs.  Here is a short graph of America manufacturing employment, going back to 2007:

U.S. MANUFACTURING EMPLOYMENT, 2007-2017

That was quite a decline between 2007 and 2010, but things have been improving since. The question is, what effect will the NAFTA renegotiation have on the iterations of that graph for January 2018 and January 2019?

Mexico’s Elections. There were some sub-federal elections in Mexico yesterday (June 4), the most significant of which was the gubernatorial race in the State of Mexico, which surrounds Mexico City. Had the opposition candidate – Delfina Gómez Álvarez of the National Regeneration Movement (Morena) – won the day, it would have sent shock waves throughout North America as everyone tried to calculate the consequences of her victory for NAFTA and for the prospect of Morena’s leader Andrés Manuel Lópes Obrador in the general election in July 2018. But the PRI, the party of President Peña Nieto, held on. Their candidate, Alfredo del Mazo Maza, won. So, the reporting is as little more subdued, at least in quantity, but the question remains: how will Mexico’s politics (and Canada’s) feed into the NAFTA renegotiation process.

Another topic. Tomorrow’s TTALK Quote will be on an issue other than NAFTA, but we’ll pick up the NAFTA thread again soon.

SOURCES & LINKS

This is a link to the YouTube video of the May 25  panel discussion on Autos, Auto Parts and NAFTA.   Ms. Wilson’s remarks begin, roughly, at the 13:30 minute mark.

Mexico: The PRI Squeaks By takes you to a Reuters story on yesterday elections in Mexico, most notably the gubernatorial race in the State of Mexico, where the ruling party of President Peña Nieto, the PRI, managed to hold on, albeit by a slim margin.
On U.S. Manufacturing Employment is a link to the page on the website of the Bureau of Labor Statistics with the above graph and related data.

Originally published as TTALK No 36 of 2017.  © 2017 the Global Business Dialogue, Inc.

A Trade Policy Association