The new trilateral free-trade deal announced on Sept. 30 is allowing North American trucking operations to breathe easy again.
After months of uncertainty over whether NAFTA would become unraveled and do inestimable harm to the economies of the United States, Canada, and Mexico, there is tangible relief that an agreement has been reached that is satisfactory to all three sides.
What is more good news is that the agreement appears to be a revision, not a rejection of the widely praised treaty that’s been in effect since Jan. 1, 1994. (NAFTA broadened the free-trade agreement the U.S. and Canada had in place since 1989, adding Mexico as a signatory.)
During the 2016 campaign, President Donald Trump promised that if elected, he would renegotiate NAFTA, which he termed "perhaps the worst trade deal ever made," largely because he blamed it for the loss of manufacturing jobs in the Rust Belt states that he needed to win the White House.
While much drama over how to replace NAFTA yet preserve its basic structure made it into the headlines for more than a year, nonpartisan experts have observed that with the original treaty being almost 25 years old, it was certainly due for some tweaking to keep it in tune with changing times.
"This is another victory of common sense over posturing,” remarked Steve Nelson, partner at the international law firm Dorsey & Whitney and a former U.S. State Department lawyer. “As in the case with Mexico, the NAFTA terms with Canada clearly needed rebalancing in light of 25 years of experience. That doesn’t mean the original agreement was a bad deal for the U.S., but reflects the fact that the patterns of trade as they evolved resulted in a need for some changes.”
The trilateral deal is expected to affect auto makers the most-- by requiring a larger portion of vehicles to be made in North America, setting a minimum fixed wage for auto workers, and forcing Canada to effectively cap its automobile exports to the U.S.
The new agreement, which President Trump has dubbed the United States-Mexico-Canada Agreement, at last took form late in the evening of Sept. 30 when Canada agreed to sign onto a trade deal already hammered out between the U.S. and Mexico. There had been a self-imposed Sept. 30 deadline to reach a deal. To go into effect, the treaty must still be ratified by the legislatures of all three countries.
The American Trucking Associations praised the governments of the United States, Canada and Mexico for “coming together on a framework for continued free trade” between the three North American nations. “ATA is pleased that the United States, Canada, and Mexico will continue their nearly 25-year-long tradition of free and open trade among North American neighbors,” said ATA President and CEO Chris Spear. “The wide-ranging pact is a positive step for the nearly 50,000 Americans working in jobs directly connected to cross-border trucking– as well as the more than 7 million Americans working in trucking-related jobs.”
ATA Chief Economist Bob Costello said the new deal will “continue to strengthen our collective economies and improve our relations. Trucks move nearly $385 billion in goods between the U.S. and Mexico, and $336 billion in trade across the Canadian border– continuing to have free trade between our three countries will only help our industry well into the future.”
“In our view, NAFTA was a win-win arrangement, with enormous benefits for both the United States and the other countries,” a spokesperson for Germany’s Daimler AG, parent of Daimler Trucks North America, told HDT. “At the moment, we are reviewing the text for the USMCA agreement. The legislative institutions in the U.S., Mexico, and Canada must still approve the new trilateral trade pact. We continue to monitor the situation closely and are ready to take appropriate measures, which are not intended to be discussed in public due to competitive reasons.”
The Motor and Equipment Manufacturers Association noted in a statement that at nearly 25 years of age, NAFTA was “due for modernization while ensuring the open and free market our members rely upon to remain globally competitive. The potential strength and longevity of this agreement will be in the details.” Therefore, MEMA added, it will be “carefully reviewing the agreement to gauge how its provisions and rules will affect motor vehicle parts manufacturing, the largest sector of manufacturing jobs in the United States.”
Analyst Avery Vise, vice president of Trucking for research firm FTR, told HDT that while the terms of the deal “might create opportunities or challenges for individual carriers, overall the conclusion of any deal is a big plus for trucking as it greatly reduces uncertainty.” He added that FTR's only significant concern about the economy and freight demand in the near term has been trade relations. “The fact that we are seeing deals rather than just political rhetoric is reassuring and provides some hope for resolution of conflict with China."
“Just getting an agreement in place with Canada following an agreement with Mexico keeps trade flowing among the North American economies,” economist Chris Brady, principal of research firm Commercial Motor Vehicle Consulting, told HDT.
“Since the NAFTA agreement was signed in 1994, the North American economies have become integrated,” he continued. “Just look at the heavy-truck manufacturing supply chain. A breakup of NAFTA, by the U.S. putting up barriers, such as tariffs, would have created havoc for the supply chains. Companies cannot quickly adjust supply chains, so it would have resulted in higher prices and probably disruptions in deliveries. The breakup of NAFTA ultimately would have resulted in changes within supply chains. NAFTA trade will not be altered substantially, so trucks will continue to haul freight across the borders.”
Brady added that the new trade agreement “should not have a large effect on truck prices” [as putting up intra-North America tariffs might have]. Noting that “Mexican truckers operating into the internal U.S. [under NAFTA] has not taken off,” he said he expects the “current truck transportation mode of switching freight near the borders between the U.S. and Mexico will remain in place for the foreseeable future.”
Speaking on Oct. 1 in the White House Rose Garden, President Trump, per a report by The Hill, affirmed plans to sign off on the deal by the end of next month. Once that happens, Congress can take it up.
Based on all the procedures that would have to be followed, Congress will not be able to vote on ratifying the new trilateral treaty until sometime next year— months after our midterm elections in November.