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Avoiding tariff chaos

The new USMCA arrangement is poised to replace the 1994 NAFTA deal


November 6, 2018
Michael Power

From the October 2018 print edition

Michael Power is editor of PurchasingB2B.

For all the acerbity surrounding the now-concluded NAFTA negotiations—especially between Prime Minister Justin Trudeau and US President Donald Trump—the continent has emerged with an updated version of the deal. The new arrangement, which has dubbed the US Mexico Canada Agreement (USMCA), came into being on September 30. And despite that acrimony involved in its birth, the preamble to the new agreement is quite cheery.

The arrangement, it says, is poised to replace the original 1994 agreement with a “21st Century, high standard new agreement to support mutually beneficial trade leading to freer, fairer markets, and to robust economic growth in the region.”

The preamble goes on to discuss how the deal will expand regional trade and production, promote small- to medium-sized businesses and pave the way to a “clear and transparent legal and commercial framework for business planning.”

Who can argue with that? Especially since, for a while, the outcome looked as though it could have been worse. No trade deal at all and a 25-per cent automotive tariff, for example, could have led to more dire outcomes for Canada than what’s now in place. Some have described the USMCA as a “tweaked NAFTA.”

Yet there are some significant changes within the new deal. For example, the access that the US dairy industry has gained to Canada, now up to 3.6 per cent of the Canadian market, will change the supply chain in that field.

There’s also an increase to 75 per cent—up from 62.5 per cent under NAFTA—for regional content on vehicle parts. But that’s certainly better than the 25 per cent tariff President Donald Trump threatened on any vehicle or auto part entering the US. That, some say, will raise the price of vehicles.

The new deal may also lead to unexpected opportunities for some. Tim Moore of Tim Moore & Associates points out in this issue (see page 13) that some companies are looking to hire supply chain people knowledgeable of geo-political issues. That, at least in part, is driven by the uncertainty that surrounded the NAFTA negotiations.

This affords opportunity to supply chain professionals knowledgeable of world affairs and able to advice on them. It also shows the importance of supply chain to today’s businesses and the strategic position it’s taken in many organizations. Competent supply chain professionals may be comforted to know that organizations are seeking their expertise to help navigate international instability.

But perhaps the biggest win surrounding USMCA is that life for supply chain and procurement professionals, as well as much of the business world, can now continue without the threat of looming tariff chaos. That is definitely something to be grateful for.