The new tax bill gives hefty cuts to corporations and the wealthiest Americans, but retailers could end up with less of a boost if the Trump administration ends up pulling the U.S. out of the North American Free Trade Agreement.
Having already taken the U.S. out of the Trans-Pacific Partnership, NAFTA is possibly next on the administration’s chopping block as negotiations are well under way but not making much progress.
Asked to speculate on the likelihood of the U.S. pulling out of NAFTA, as Donald Trump promised on the campaign trail but has since backed away from, Jonathan Gold, National Retail Federation’s vice president of supply chain and customs policy, said, “There’s always that chance.”
“I wish I could say what’s going to happen, but it’s so unclear at this point,” Gold said. “[U.S. Trade Representative Robert] Lighthizer has made it clear that he’s negotiating for an audience of one, the President. But I think you’re starting to see business leaders and elected officials starting to chime in on the negative impact this could have on the economy.”
Gold went on to note that should the U.S. leave NAFTA, which allows for duty-free trade between the U.S., Canada and Mexico, the costs to domestic corporations could cancel out any benefits of the new tax bill, which cut the corporate tax rate to 22 percent from 34 percent.
“If you have all those duties that go back up to pre-NAFTA days, that’s going to have an impact,” he said. “These companies have their supply chain built on how NAFTA works….You can’t just switch it on and off like a light.”
The Retail Industry Leaders Association and the American Apparel & Footwear Association also support the “modernization” of the pact, which was drafted and went into effect in the early Nineties. But they, too, have been firm that the U.S. should stick with the deal and that it should remain trilateral with Mexico and Canada.
Hun Quach, RILA’s vice president of international trade, has called NAFTA “our nation’s most vital free trade agreement.” In a late November letter to the Senate, the AAFA said changing any terms that may impact how companies utilize NAFTA “would be a terrible mistake, causing irreparable harm to our industry and the U.S. economy at large.”
But little has been said by Lighthizer or his office on how the negotiations are coming along. After the fifth round of talks in Mexico between chief trade representatives of the three countries wrapped up at the end of November, Lighthizer’s office simply said, “Chief negotiators reaffirmed their commitment to moving forward in all areas of the negotiations, in order to conclude negotiations as soon as possible.”
A round of “intersessional” meetings also took place in Washington, D.C., before the holidays, but sources said little or no progress was made. When the talks began over the summer, they were expected to conclude with some sort of resolution before year-end.
The next round of negotiations is scheduled to take place in Montreal Jan. 23 to 28, but Mexico and Canada are already looking to other nations, like the European Union and Japan, for new trade partnerships should the talks end without a new deal.
Gold said this is just one element of leaving NAFTA that would “certainly” have a broader impact on America’s place in global trade.
“One of the biggest mistakes [the U.S. has] made to date was withdrawing from the TPP, because now you have other countries looking to do this on their own and we’re stuck not going forward,” Gold said. “And [if we leave NAFTA, too] other countries will look at how we’re treating our trading partners and say, ‘Why would I want to trade with them?’”
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