March 21, 2018
NEW YORK, TORONTO and MEXICO CITY—Despite uncertainty around protectionist trade policies, business leaders in the US, Canada and Mexico maintain a positive outlook for the North American Free Trade Agreement (NAFTA) and its impact on their firms, according to a new report from HSBC, Navigator: Now, next and how for business.
More than 60 percent of business leaders surveyed across North America believe governments are increasingly taking a protectionist stance of raising trade barriers to defend domestic businesses.
But even amid ongoing renegotiations of NAFTA, half of firms surveyed (U.S. 49 percent; Canada 52 percent, Mexico 53 percent) expect the impact of the trade agreement to be positive over the next two years.
The HSBC survey of 6,000 international firms around the world found that more than three in four (77 percent) businesses are optimistic about their international prospects, notwithstanding the worldwide concern among almost two-thirds of global businesses (61 percent) that governments are becoming protective of their domestic economies.
According to the survey, less than one in ten (9 percent) U.S. businesses expect NAFTA to inhibit growth—a smaller share of firms with negative views of NAFTA than in Mexico (16 percent) and Canada (13 percent).
In fact, the survey found that North American firms were more positive about NAFTA than agreements with trading partners farther from home. For example, a smaller share of Mexican firms (43 percent) expected a positive impact from the Pacific Alliance—a trade block comprising Mexico, Peru, Colombia and Chile—than from NAFTA (53 percent). Similarly, Canadian firms saw less growth opportunity from CETA (43 percent) and CPTPP (39 percent) than from NAFTA (52 percent).
Firms in all three countries remain upbeat about doing more business abroad, with Mexico leading the way with 87 percent of firms surveyed expecting increased trade volume over the next 12 months, compared to 77 percent of U.S. firms and 70 percent of Canadian firms.
In all three North American countries, surveyed businesses rank NAFTA partners as their top two most important target markets for expansion.
- U.S. firms identify Canada (20 percent), Mexico (19 percent) and Japan (11 percent) as their primary markets for expansion;
- Mexican firms are focused on expansion in the United States (39 percent), Canada (27 percent) and Argentina (10 percent);
- Canadian firms see opportunity in the United States (36 percent), Mexico (18 percent) and China (14 percent)
Other key survey findings include:
- To support their expected growth, over half (54 percent) of the Canadian businesses surveyed project an increased need for trade finance and the same proportion (53 percent) expect their access to trade finance to increase.
- More than half (57 percent) of Canadian businesses expect to increase their volume of trade in services in the next 12 months.
- Business-to-business (B2B) services as a share of total service exports are expected to account for just over 50 percent of total services export by 2030, up from 42 percent currently.
- Almost two-thirds of Canadian businesses agree that data regulation (62 percent) and big data (55 percent) may create barriers to open competition and cross border service delivery.
- More than two-thirds of the businesses in Mexico surveyed expect to need more trade financing in 2018 than last year, and a full 70 percent expect access to trade finance to get easier.
- For nearly half (48 percent) of service businesses, entering new markets is the key approach to growth during the next 12 months, supported by increasing use of e-commerce (24 percent). Better use of data (23 percent) and upscaling the technology skills of employees (22 percent) are also considered among the top three strategies by nearly a quarter of services businesses;
- Services exports, primarily driven by tourism as well as financial services, will become an increasingly important part of Mexico’s overall trade mix in the coming decade;
- Reforms to make Pemex more agile and competitive should help boost crude oil output in the years ahead, as well as the production of downstream products such as fuels and chemicals.
- In light of the upbeat trade outlook, just over half (52 percent) of the U.S. businesses surveyed expect to need more trade finance over the next 12 months. A similar proportion (49 percent) think their access to trade finance will improve.
- As the world’s leader in service exports, the U.S. accounts for an estimated fifteen percent (15 percent) of total international services trade, with business-to-business services dominating the sector.
- Over a third (35 percent) of respondents think technology use stimulates growth in services trade. After entering new markets—the number one strategy for increasing service trade, cited by a third of respondents—e-commerce is the second most popular approach.
- More than three-quarters (77 percent) of U.S. firms say easier access to data creates a more level playing field in international business, while about two-thirds (68 percent) believe data regulation would impede cross-border service delivery.