NAFTA Repeal Will Have Major Effects on Farmers, Auto Manufacturers and Consumer Prices
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 second of two articles on NAFTA and its impact on supply chain activities. Read the first article here.
NAFTA and American farmers have a solid business arrangement. American farmers export to other countries too, but NAFTA accounts for 30 percent of all U.S. exports.
Prior to the adoption of NAFTA in 1994, American farmers exported $8.9 billion in meat and grain to Mexico and Canada. That export amount is now $39 billion.
U.S. exports to its continental trade partners include wheat, corn, soybeans, beef, pork, chicken and turkey. The farm states that mainly produce those exports are North Dakota, Missouri, Indiana, Kansas and Iowa.
NAFTA is not part of any innovation in technology. Farming relationships within the NAFTA framework are just basic business.
However, this simple business model within the NAFTA framework has a built-in penalty that could ruin some farmers if President Trump kills NAFTA, as he has threatened to do.
Currently, North Dakota exports 84 percent of its crops worth $3.5 billion to Mexico and Canada.If the NAFTA agreement were to end, North Dakota and its farmers would suffer a financial loss that would ripple down to small towns and government-sponsored services. That ripple would affect public services such as schools, health and emergency services, and small businesses that depend on farmers’ success.
NAFTA Repeal Would Result in Price Hikes for Groceries
If the U.S. pulled out of NAFTA, consumers would see increases in the price of certain products. Import duties would rise to 75 percent on American chicken and high-fructose corn syrup; 45 percent on turkey, potatoes and various dairy products; and 15 percent on wheat, Farm Policy News reported.
Using prices from the Kroger grocery chain, a one-pound bag of potatoes would increase from $2.99 to $5.23. A T-bone steak would increase from $5.99 to $10.48 a pound. A wide variety of processed meats and grain products would also experience price hikes.
NAFTA represents a complex network of supply chains involving metal, glass, steel, plastics, rubber, electronics, computers, and food products. A typical supply chain can have a hundred steps or stops, everything from harvested raw materials or produced from a mine, forest or factory. These items wind their way by truck, train, rail, air and pipeline to warehouses, refrigeration and storage containers, and to workers in processing plants or stocking shelves in retail outlets.
These supply chain networks are the result of each U.S. industry creating a strategic alliance with its business partners in Mexico and Canada. These legally binding alliances take years to develop. Banks and lending institutions are involved in the transfer of monies along the financial supply chain network.
Information and data form a third supply chain. This network tracks and updates data on crops, beef and poultry for price variations and health and safety concerns. There are stock market implications as well, as buyers and sellers of these various raw materials and final products affect the economy of all three countries.
The insurance industry also must have an understanding of the flow of goods and money along the various supply chains.
Cancelling NAFTA Would Impact the Entire Food Industry Supply Chain
Cancelling NAFTA would negatively affect the entire food industry. It would cause food shortages, smaller portion packaging and higher consumer prices.
As the Dean of the Tuck School of Business at Dartmouth College remarked, U.S. withdrawal from NAFTA would limit our access to foreign markets, dull innovation and investment, and weaken the supply networks.
The most recent round of talks on the future of NAFTA concluded in Montreal on January 23.
According to The New York Times reporter Ana Swanson, “Discussions to revamp the North American Free Trade Agreement moved from stalemate to actual negotiation during the sixth round of talks that concluded Monday, but a deal was still far from guaranteed as Mexico, Canada and the United States continue to squabble over how to reshape the 24-year-old pact.”
Swanson added that “Government officials and trade analysts described the mood around the talks as ‘cautiously optimistic’ as Canada, in particular, joined Mexico in offering counter-proposals to America’s requests for drastic changes, an outcome that seemed likely to dissuade the United States from imminent withdrawal.”
The Taxing of NAFTA Companies
The politics of NAFTA is not part of this story. But there is an additional industry that needs to be mentioned.
Ford, GM, BMW, Volkswagen, Volvo, Tesla, and other companies investing in electric vehicles (EV) receive some financial backing from the U.S. government. Ordinary consumers also get an incentive or tax break to purchase electric vehicles.
Currently, customers can receive a $7,500 electric vehicle tax credit. The U.S. Department of Energy’s fuel economy website lists the tax credits by vehicle. They range from $7,500 for a BMW sedan to a low of $2,500 for a Toyota Prius. Most of the tax breaks are in the $5,000 to $7,000 range.
You also may have noticed the installation of free electric charging positions at interstate rest stops, shopping malls and some gas station chains. The manufacturing companies also receive a U.S. government incentive in the form of electric vehicle credits based on the number of cars each company sells. But there are limits. For example, Tesla and GM have a tax credit limit of 200,000 EV cars. Above that number, the tax credit no longer applies.
Not everyone in government sees advantages in promoting EV cars. House Speaker Paul D. Ryan (R-WI) called electric vehicle tax credits money wasted on losers. Scott Pruitt, Administrator of the Environmental Protection Agency, says he would do away with renewable energy subsidies.
Any failed NATFA agreement would have major negative effects on U.S. automotive manufacturing and farm belt production. The end of NAFTA is not a reality yet.
What is next? This story is far from over.
About the Author
Dr. Oliver Hedgepeth is a full-time professor at American Military University (AMU). 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.