Political maneuvering and warring factions on both sides of the aisle in Washington DC have left manufacturers wondering what might be next when considering the possible impacts on trade policy for the industry. In early Dec. 2018, President Trump further heightened uncertainty around trade policy with an announcement that the U.S. intended to withdraw from the North American Free Trade Agreement (NAFTA).
Trump delivered the announcement to reporters on Air Force One saying he would notify NAFTA partners, Canada and Mexico, of his intention to withdraw in six months, mid-2019, according to an article in Politico. The consideration of such a move is sounding alarm bells and raising questions of constitutional authority, causing many to ask if such a move interferes with Congress’s constitutional authority to set tariffs and “regulate commerce with foreign nations,” according to the Politico report.
The NAFTA announcement makes it anyone’s guess as to what might happen if the U.S. is no longer part of NAFTA. Its dissolution could spell big changes regarding the origination of parts, a potential change from the NAFTA Rules of Origin. In preparation for these changes, PricewaterhouseCoopers (PWC) Global is encouraging manufacturers to take a proactive approach to prepare for the potential changes, including addressing questions of sourcing and disruption to the supply chain. There will also be a potential need to reconfigure current supply chain networks to enable manufacturers to sell nearer to production.
Run the Scenarios
When it comes to anticipating what might come next, PWC suggests manufacturers cover their bases and cast a wide net. This includes running a variety of scenarios to determine the impact of different trade policy outcomes including a revision of NAFTA or new/revised bilateral trade pacts.
- Appoint task forces to build and run scenarios
- Conduct modeling and planning to clarify potential effect of supply chain changes
- Look at existing and possible new U.S. trade agreements
- Test scenarios through modeling and planning
- Explore supply chain sourcing, imports and exports
- Strategize beneficial partnerships
- Prepare for changes affecting cross-border data flows and localization of data
Manufacturers should also be aware of two investigations that could impact trade actions. The first is a Department of Commerce report on trade deficits of 12 nations plus the European Union. The report includes an analysis of potential abuses in U.S. trade agreements, according to PricewaterhouseCoopers Global. Another consideration is an executive order stressing “Buy America, Hire America,” which could lead to the creation of rules in favor of products produced in the United States.
Discerning vulnerabilities related to trade policy changes will certainly not be easy but identifying possible red flags could help manufacturers prioritize and keep things running as close to business as usual as possible. In the meantime, manufacturers will benefit from being proactive and making plans for what may be coming soon.
This article is brought to you by the edge prep experts at Mutschler Edge Tech/MET.