6 things every retailer should know about NAFTA

More on global trade

Get a deeper look at the trade issues affecting the industry.

NAFTA — the North American Free Trade Agreement — has been in the news a lot lately.

President Trump campaigned on a promise to “rip up” NAFTA, and since taking office has set negotiations on “modernization” of the agreement into motion. Five official negotiating sessions have been held since August, rotating between the United States, Canada and Mexico, and two more rounds are expected in 2018. During the talks, Trump has repeatedly threatened to unilaterally pull out of NAFTA.

NRF agrees that NAFTA could be updated to reflect changes that have taken place since it took effect in 1994, particularly in digital trade. But we — and most of the business community — sharply disagree with Trump’s claim that NAFTA has been a bad deal for the United States. Instead, it has greatly benefited the U.S. economy, U.S. workers and U.S. consumers. We have called on the White House and Congress to ensure that the priority in the negotiations should be to “do no harm” to the existing agreement.

NAFTA is extremely important to the retail industry, but some retailers might not know why. Here are a few of the most important things retailers should know about NAFTA:

What is NAFTA?
NAFTA is a free trade agreement between the United States, Canada and Mexico that took effect in 1994. It has reduced tariffs and other trade barriers between the three countries, allowing raw materials, parts and finished goods to flow freely. Doing so has increased export markets for U.S. manufacturers while lowering prices for U.S. consumers. An estimated 14 million U.S. jobs depend on the $3.5 trillion in annual trade between the three countries.

Retail supports about 42 million U.S. jobs; some 7 million of those jobs are related to trade.

How does NAFTA affect retailers?
Many companies, both large and small and including retailers, rely on the trade that takes place under NAFTA. Products from NAFTA countries include everything from apparel to consumer electronics and fresh fruit and vegetables to auto parts. Many U.S. manufacturers use parts from Canada or Mexico to make “Made in the USA” products that are sold in both countries. Similarly, many products that say “Made in Mexico” or “Made in Canada” include U.S. parts or services. Some larger U.S. retailers have stores in Mexico and Canada they stock with goods exported from the United States, and NAFTA makes it easier for U.S. retailers to make online sales to customers across the borders. In addition to direct benefits to retailers, NAFTA increases the global competitiveness of a wide range of U.S. businesses in different sectors of the economy — helping create jobs that put spending money into the pockets of retailers’ customers.

What are some misconceptions about NAFTA?
There are always winners and losers in global trade, but claims that NAFTA is entirely to blame for overwhelming job losses or an increase in the U.S. trade deficit are misconceptions. When it comes to jobs, there are clearly more workers who benefit from free trade agreements than those who lose. And the primary reason for the loss of manufacturing jobs is technology, not trade. As technology improves, businesses become more efficient and productive, requiring fewer employees to perform the same amount of work. Meanwhile, the new jobs that are created are higher-skilled and higher-paying than those that are lost. And keep in mind that U.S. unemployment is lower than it has been in years, with manufacturers have trouble finding workers.

What happens next?
The next round of negotiations will take place in late January in Canada. There has been good progress on issues such as small and medium enterprises, competition policy, digital trade and customs facilitation. But there is concern about proposals U.S. negotiators have put forth that U.S. businesses and Canadian and Mexican negotiators consider poison pills, including a five-year sunset of the agreement, stricter rules of origin, controversial new trade remedies and the elimination of investor protections. Mexico and Canada are highly unlikely to agree to those proposals, but Trump has threatened to pull out of the agreement if they do not.

What if NAFTA goes away?
Retailers and other industries have built very complex North American supply chains to take advantage of the benefits of NAFTA for both workers and consumers. And many products made in all three countries are the result of equally complex value chains that support millions of U.S. jobs. A recent report from the Business Roundtable says U.S. exports could face more than $15 billion in new tariffs — making those industries less competitive and potentially costing their workers’ jobs — while the American Action Forum says consumers could see $7 billion in higher prices. The bigger challenge is that the United States would be left behind as a leader on trade policy at a time when the rest of the world is conducting free trade agreement negotiations to open up new markets while the administration tries to close ours.

What can retailers do?
Retailers need to tell their stories about the importance of NAFTA for their businesses to elected officials, especially members of Congress and the administration. Retailers should also be explaining the benefits of NAFTA — and trade in general — to their employees and customers. Retail supports about 42 million U.S. jobs; some 7 million of those jobs are related to trade in positions including research, design, compliance, sourcing, logistics, warehousing and many others.