The US-Mexico Trade Agreement: How Your Small Business is Affected
On Monday afternoon, President Donald Trump announced that his administration had struck a deal with current President of Mexico, Peña Nieto, and President-Elect Andrés Manuel López Obrador. President Trump considers this a major win, and said so during a press conference on the day of the agreement’s signing.
“If you remember at the beginning, many people thought that this was something that just couldn’t happen because of all of the different factions, all of the different sides, and the complexity. We’ve made it much simpler, much better, much better for both countries.” (Courtesy of CNN).
The deal is reportedly centered around automotive parts manufacturing. According to Vox, “the new agreement makes it so most parts of an automobile traded without tariffs…must be made in factories that pay their workers higher wages.”
The US Trade Representative’s Office has also stated that the agreement “would require that 75% of auto parts be made in the United States and Mexico” if the vehicle is sold within the regions.
But, now that a deal is finally done, what are the potential effects for small businesses, and what can we expect going forward?
Tariffs?
Unfortunately for many, the nearly zero-tariff trade policy of NAFTA will be largely abolished. Aside from the auto parts mentioned above, tariffs will be imposed on products shipped between the US and Mexico.
The good news is that the heightened price of goods as a result of extensive trade negotiations may finally come down. As many of these were imposed as trade tactics and retaliatory measures, it’s likely that striking a deal will cause the tariffs to be lowered.
For small businesses not in the auto-industry, losing NAFTA probably means the loss of cost-savings by dealing with Canadian and Mexican suppliers, vendors, and partners. But, as we’ve mentioned, it’s likely that we’ll see a reduction of the high tariffs currently imposed by Mexico.
Canada, however, is a different story.
Great News for Auto, Connected Industries
Of course, the bulk of this deal focused on automotive parts. With an increase in the amount of auto parts required to exempt vehicles from import taxes and tariffs, the deal could potentially increase the amount of jobs in the automotive industries of both countries.
As well, the deal will determine how much steel and aluminum must come from North America as part of the agreement, not just whether or not the parts are produced here. This is an important connection to both industries within the US. If it becomes a requirement that automotive parts use more North American steel and aluminum, the agreement may have even farther reaching effects than originally thought.
This part of the deal hasn’t quite been determined, however, and will have to be approved by Congress.
On top of that, the deal also outlines that “40 to 45 percent of the auto content must be made by workers earning at least $16 an hour.”
This is exciting not only for US auto-workers, but Mexican employees as well, who have been reported to make $2 an hour.
Canada?
Though hinted at by both President Trump and President Peña Nieto, who was on the phone during the press conference Monday afternoon, there is no news regarding a trade deal with Canada.
The President did mention a possible route for creating a fast and easy trade agreement, and that he would be meeting with Prime Minister Justin Trudeau in the coming weeks. As of now, however, tariffs imposed by both countries remain in tact.
This is still a strain on the wallets and bottom-lines of small businesses in both countries. However, President Trump did note the possibility for involving Canada in the new US-Mexico agreement, as well as the potential for a bilateral trade agreement with Canada specifically.
It’s a good sign for both countries, and their small businesses. Goods exports from the US to Canada still numbered $282.3 billion, and imports at a whopping $299.3 billion. Both countries have major incentives to get something done. Today just wasn’t the day.
No, the deal isn’t finished, and no, it isn’t perfect. However, it is a step in the right direction. Especially for small businesses who have rode the waves of tariffs these past few months, the fact that things are moving should be a sign of relief.
Now, we wait for the next stage, and hope for our long-awaited resolution.
