Home Commentary and Analysis NAFTA Controversy Affects a Complex International Supply Chain
NAFTA Controversy Affects a Complex International Supply Chain

NAFTA Controversy Affects a Complex International Supply Chain

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Note: The opinions and comments stated in the following article, and views expressed by any contributor to In Homeland Security, do not represent the views of American Military University, American Public University System, its management or employees.

By Dr. William Oliver Hedgepeth
Faculty Member, Transportation and Logistics Management, at American Military University 

This is the first of two articles on NAFTA and its impact on supply chain activities.

The North American Free Trade Agreement (NAFTA) is both a virtual and a real supply chain that links Canada, the United States and Mexico. NAFTA was designed to facilitate trade and the movement of goods through various manufacturing, industrial and agricultural supply chains. Under NAFTA, there are either no tariffs and fees or a scheduled reduction of such fees over time.

Since NAFTA was created in 1994, it has become a political football among business leaders and government decision makers. Debate rages in Congress and in the White House over whether canceling NAFTA or surgically modifying this trade pact would benefit American businesses more than Mexican businesses. Financial publications discuss what effects, if any, would modifications or cancellation of NAFTA have on U.S. companies.

Cancelling NAFTA Would Increase Cost of Importing Electric Vehicles from Mexico

Electric vehicles are a new wave moving through the road transportation industry, just as drones are paving the way for autonomous air delivery of cargo.

In 2020, Ford plans to open a factory in Cuautitlén, Mexico, to manufacture electric vehicles (EVs). Ford will invest $11 billion to bring about 40 electric vehicles to market by 2022.

At the same time, Ford is cancelling plans to build an all-electric SUV at its Flat Rock, Michigan, assembly plant so it can concentrate on self-driving cars at Flat Rock and build the electrics in Mexico, The Detroit News reported.

“The change will allow the Dearborn-based automaker to manufacture greater numbers of its upcoming autonomous [driverless] vehicles and will lead to more jobs at the Michigan plant,” a Ford spokesman told the newspaper.

The move is designed to save money because Mexican workers are paid less than workers in the U.S. Evidently, moving across the Mexican-U.S. border is financially attractive to Ford.

Expansion of these three facilities will spur job growth for both Mexican and American workers.

If the Trump administration were to cancel NAFTA, the cost of importing and purchasing electric vehicles from Mexico no doubt would increase.

The administration’s proposed NAFTA negotiations could become a clash of titans. Ford is just one company that plans to expand its business in Mexico, just as other companies are planning to expand manufacturing plants in the U.S.

The Six Laws of Innovation

Melvin Kranzberg, the late professor of the history of technology at the Georgia Institute of Technology, wrote the six laws of innovation:

  1. Technology is neither good nor bad; nor is it neutral.
  2. Invention is the mother of necessity.
  3. Technology comes in packages, big and small.
  4. Although technology might be a prime element in many public issues, non-technical factors take precedence in technology policy decisions.
  5. All history is relevant, but the history of technology is the most relevant.
  6. Technology is a very human activity.
How Kranzberg’s Laws of Innovation Apply to NAFTA

NAFTA is more than just a trade policy among three nations. It has given rise to hidden innovative momentum, as well as a Luddite counter reaction from workers and politicians.

Kranzberg’s first law means examining the NAFTA problem through the lens of innovation. Powerful companies like Ford must try to anticipate the potential impact of anything they manufacture.

Ford’s decision to become a leader in electric car and truck production and push the use of driverless vehicles indicates that further discussions might be needed by many different segments of the supply chain, transportation and logistics business ventures. Each decision by Ford affects all the supply chains that deliver food, clothing and leisure products to us.

Kranzberg’s second law means that every technical innovation requires additional technical advances to make the innovation fully effective. If Ford is looking to make electric vehicles with high-end batteries, for example, there must be other business arrangements with the energy manufacturing sector and the energy supply systems.

Whether these vehicles will require solar power could again become an issue with NAFTA tariffs of a different kind. Most recently, President Trump placed a tariff on solar panels coming from China. The tariff will affect Mexico and the U.S. by increasing the price of solar power by as much as 30 percent.

The third law relates to the loss of jobs that comes with technology innovations. This phenomenon has been evident since the advent of computer technology in the workplace.

Manufacturing internal combustion cars and trucks is different from building engines for use with electric motors. Manufacturing electric vehicles may require a different labor pool, different worker training, new educational requirements and even a different number of workers per vehicle.

Then there are the assembly lines that use robots for various manufacturing needs. The third law will also have an impact on unions and their members as robots replace the human labor force.

The fourth law means any discussion swirling around NAFTA in radio, television, print media and social media takes precedence over technology. Political power comes into play when companies introduce new technology that eliminates jobs and creates new ones.

The fifth law – all history is relevant, but the history of technology is the most relevant – relates to how events such as wars give rise to technological innovations as a matter of expediency or survival. That includes innovations such as nuclear weapons, the Internet or even the creation of the drink mix Tang, an orange juice powder created for NASA’s space program.

Most of these innovations have morphed into common, safe and practical usefulness for everyone. The interstate highway system and the modernization of rail, truck, sea and air transport, along with the increasing improvement of computer technology, all fuel the NAFTA engines.

The sixth law presents the issues surrounding NAFTA in a nice human activity lens. Kranzberg declared that we determine how we use technology. The business decisions regarding tariffs, fees and fines on the transportation of goods across the borders is part of the decision-making process between industry and the governments of all three NAFTA countries.

For the automotive and transportation industries, NAFTA appears to be a complex web of not just manufacturing, but also of labor force initiatives. NAFTA is both a political element for success as well as a restraint on implementing new technology – a Luddite moment in history. This mix of interests is an element of the strategic alliance between cultures within the U.S., not just among the U.S., Mexico and Canada.

About the Author

Dr. Oliver Hedgepeth is a full-time professor at American Public University. He is the former program director of three academic programs: Reverse Logistics Management, Transportation and Logistics Management, and Government Contracting. Dr. Hedgepeth was a tenured associate professor of Logistics and chair of the Logistics Department at the University of Alaska Anchorage. He has published two books, RFID Metrics and How Grandma Braided the Rain.

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