Renegotiating NAFTA is a key part of President Trump’s agenda. As negotiations continue, manufacturing companies are still waiting to see how potential changes, like changes to the “rules of origin”, could impact their supply chains. Here’s a quick primer on what companies need to know.
Where do we currently stand?
The United States, Canada, and Mexico have now undergone seven rounds of negotiations concerning the North American Free Trade Agreement (NAFTA). As the countries work to agree on changes, the upcoming Mexican election cycle could complicate the situation even further. Mexican citizens will elect a new president and more than 3,000 officials on July 1. A new government, which would take over in September, could undo any progress made so far during NAFTA discussions. By then, the US will be in its own election cycle, which may further complicate negotiations.
What’s Getting Changed?
One proposed NAFTA change regards the “rules of origin,” particularly around automobile manufacture and assembly. For cars sold in the US, President Trump would like to require that up to 85 percent of each vehicle be manufactured within the country. The current pact requires 62.5 percent stateside production of each automobile. Canada and Mexico believe that’s too high a percentage, notably as global supply chains have increased over the past few decades. The proposed change would likely affect where automotive companies get their parts to assemble vehicles.
Another topic of discussion is NAFTA’s long-term future. The proposed “sunset provision” would require the agreement to be renegotiated every five years. This could cause a major headache for long-term supply chain planning since many products can take more than five years just to create, design and roll out. Other issues, such as digital trade, telecommunications and dispute resolution will all play a role in how supply chain functions operate.
3 Steps Companies Can Take to Address NAFTA Supply Chain Challenges
Even if these changes don’t take effect for months or years – or never occur – organizations can still take steps today to shore up risk against NAFTA uncertainty.
- Develop strategic relationships. Decades ago, most companies treated supplier/vendor relationships as strictly transactional. As deals like NAFTA continue to evolve, however, companies must take a strategic look at their suppliers. This includes asking about processes so you can determine what makes sense and put the pieces together. Getting to know your suppliers can provide benefits you may never have experienced otherwise.
- Create metrics that align with business goals. Depending on your industry, a business will likely have different goals and metrics of success. That same mindset should apply to supply chain roles. Quality, timeliness and other factors must be looked at thoroughly. If the proposed NAFTA changes significantly affect these business goals, then it may be time to look for a new supplier.
- Seek talent that thinks outside the box. Anyone can come into a job interview and say all the right things: they’ll save the company money, they’ll work hard, and so on. The strongest potential hires won’t just give you these types of answers. Instead, they’ll demonstrate unique ways of solving problems and showcase actionable results. The ability to adapt is a valuable asset.
For more information on how NAFTA changes may impact the supply chain and what this means for hiring talent, leave us a note and we will have a recruiter reach out to you.