When President Trump entered office in 2016, retail supply chain professionals were optimistic about trade policies under the new administration. After two years, however, retailers show growing concerns after Trump imposed a series of aluminum and steel tariffs on China, and more recently, on Canada, Mexico, and the European Union.
While the North American trio of leaders have made progress since talks began in late 2017, it hasn’t come without challenges. Canadian Prime Minister Justin Trudeau told Bloomberg News that he would rather have no Nafta at all than enter a bad agreement; President Trump shared the same sentiment for the U.S., repeatedly stating that if a better deal cannot be crafted, he would pull the U.S. out entirely.
The move would spell bad news for U.S. manufacturing as NAM estimates that two million manufacturing jobs depend on exports to our trading partners to the north and south, and could hit retailers even harder. Exiting NAFTA could cost them $5.3 billion annually or $15.8 billion over the next three years and also trigger the loss of 128,000 retail and retail-supported jobs through 2021. In a recent statement, RILA noted that Nafta’s downfall would incur a massive disruption in agriculture and manufacturing, resulting in higher costs for the U.S. consumer.
While pulling out of Nafta would have negative implications on retailers’ supply chain, the exact impact is still unclear. In 2017 alone, retailers imported a combined $182 billion worth of merchandise from Mexico and Canada. Most of those goods have been tariff-free thanks to NAFTA since its inception in 1994, so a swift exit from the U.S. would create significant costs retailers haven’t seen in decades.
Fortunately, supply chain digitization and modernization have allowed organizations a unique ability to forecast how these changes in trade will affect their operations moving forward – regardless of if a deal gets done. For example, with what-if costing, companies can better predict actual landing costs that can be influenced by tariff variability, transportation, third-party fees, and fluctuating material costs. Retailers that want to mitigate these factors can run multiple simulations to ensure they are better prepared in the event of unanticipated changes in trade agreements, whether by the US or other nations.
North American leaders are hastily working on a Nafta deal that would benefit all countries involved. While renegotiations seem far from a done deal, Canada, the U.S. and Mexico are making progress. Retailers are hoping for the best, but if Nafta fails, they will need to quickly adapt their supply chains to deal with new costs and a what-if costing strategy could be best in line to support that effort.
So, what if the U.S. pulls itself from Nafta? Learn more about Bamboo Rose’s what-if costing solution to mitigate the effects from the deal and other tariffs in your retail supply chain.