NAFTA: What's at stake, according to one U.S. company that does business in Mexico

When the North American Free Trade Agreement (NAFTA) went into effect on Jan. 1, 1994, the three countries involved—Canada, the United States and Mexico—probably had little idea of what the net result would be 25 years later. It seemed logical for these three North American countries to enact NAFTA, particularly since they were already trading with each other. Many U.S. companies, particularly in the automotive industry, were manufacturing in Mexico and had been for nearly two decades.

U.S. companies continue see Mexico as a place in which to manufacture because of its large, young and well-educated labor force; low wages; and proximity to the United States. Doing business in Mexico isn’t as difficult as it once was, and that’s thanks to NAFTA.

Dwight Morgan, Vice President of Corporate Development for M. Holland Co., a family-owned North American resin distributor headquartered in Northbrook, IL, told PlasticsToday that NAFTA has been a positive for North America. Just returning from Mexico, Morgan said, “My view is that it’s in everyone’s interest to successfully renegotiate NAFTA. It won’t be fatal if it’s not renegotiated, but it certainly could have a negative impact such as slow GDP growth for the next few years. It would be most destructive to the United States, and the plastics industry, in particular, but failure to renegotiate NAFTA could be very disruptive for all three countries.”

In July 2015, M. Holland announced completion of the formation of its new affiliate in Mexico, now called M. Holland Latinoamerica, D. de R.I. de C.V. The partnership between M. Holland and leading plastics and chemicals distributor Grupo Solquim of Mexico City gave M. Holland a platform for its “aggressive” growth plans in Mexico and Latin America. “This expansion is in strategic alignment with the needs of our suppliers and gives us more solutions to bring to existing and new customers,” commented CEO Ed Holland at the time of the announcement.

The plastics industry is a key component of trade with Mexico, which is why it’s important that NAFTA be renegotiated correctly. “When you look at the U.S. plastics industry, you’ll see that we export far more resins than we import,” said Morgan. “When you look at the overall trade deficit with Mexico—$18 billion a year—if you put tariffs on resins, in particular, and finished goods, it will probably raise prices for U.S. consumers.”

Morgan believes that would be a negative for the plastics industry. “Besides reducing plastics trade, we’d see disruption in some supply chains, particularly automotive, which is the most integrated between the three countries,” said Morgan. “The result would be higher prices of vehicles, because these companies over the last 25 years have invested in building an efficient supply chain.”

Morgan pointed out that there are a significant number of jobs in the area of trade, as well. China is Canada’s number one trade partner, and Mexico is number two. Mexico is the third largest trading partner for the United States. “Anything that disrupts trade between the three countries is a negative,” he added.

Trade isn’t important just from a national perspective. Morgan noted that when you take trade to the next level, 32 states count Canada as their largest trading partner. Another six states count Mexico as their largest trading partner. “The impact of any disruption would be pretty huge for those states,” said Morgan, citing figures from the International Trade Administration and U.S. Census Bureau:

While most experts feel it wouldn’t be fatal if NAFTA blew up, which Morgan agrees with, it would impact Mexico’s GDP dramatically. “The United States would experience about a 2% negative GDP; Canada, likewise,” he said. “Most resilient would be Mexico, as it has more than 40 trade agreements with other countries—partly in agriculture and grain trade—so, long term, it would fare better than anyone.”

While there’s been a lot of “political venom in the air” about NAFTA being such a horrible trade deal, Morgan said that we can’t discount the economic growth (about a trillion dollars) that has been created over the past couple of decades. “The United States has been a net beneficiary [of NAFTA] over the years,” Morgan noted. “However, at the outset of the NAFTA trade agreement, it was devastating for Mexico. It was this developing country with a highly protective government in the 1990s when NAFTA was passed. The pain Mexico went through is something we don’t remember. We remember the lost jobs in the United States, but Canada and Mexico also lost. Now we’ve got a Mexico that is strong and competitive, much of it a result of NAFTA, with a lot of U.S. investments there that have created a growing, thriving middle class that consumes products locally. It would be unfortunate if all that got disrupted.

“We’re looking at a 50% increase in PE capacity in the United States and the market is growing 2 to 3% a year,” added Morgan. “We’re enjoying a comfortable trade surplus in resin, and it should increase exponentially over the next few years. As a strong exporter of resin, tariffs would disrupt that. It would certainly not be in the interest of the plastics industry to see NAFTA go away.”

Morgan believes that a “slow negotiation is positive,” and just the fact that the sixth round in Montreal is taking place and that everyone is still at the table and talking details and issues is a good sign.   

“We’re hopeful that reasonable minds will prevail,” said Morgan. “M. Holland has invested [in Mexico] because of NAFTA, and we’re committed to that region, as well as Central and South America. The negative rhetoric has hurt Mexico and delayed investment decisions—uncertainty is never good for business.”