On the campaign trail, President Donald Trump called the North American Free Trade Agreement “one of the worst things to happen to manufacturing in the United States.” Since the election, his top aides have suggested renegotiating it will be an early priority.
But for the plastics industry, reopening NAFTA could carry significant risk.
That’s because the U.S. plastics industry, in sharp contrast with much of the rest of manufacturing, has a trade surplus with Mexico.
Trade groups like the Plastics Industry Association say the surplus is “directly attributable” to NAFTA, which it said “has benefited American companies and American workers greatly ever since it entered into force.”
The head of the association, Bill Carteaux, said in January that concerns about risks to its export position were so high the group would be “fighting a rear-guard action on trade issues, like doing our best to keep the White House from unwinding NAFTA.”
U.S. plastics companies have an $11 billion surplus with Mexico, and balanced trade with Canada. But the Trump administration points to a larger figure in its critiques of NAFTA: the $60 billion trade deficit in manufactured goods that the United States has with Mexico.
It argues that NAFTA has cost the United States 850,000 jobs, and called it an example of a “notably” bad trade deal.
Those who follow trade policy say it’s not at all clear what the Trump administration will do.
Trump has threatened to impose tariffs or a 20 percent border tax, in part to pay for a new wall on the U.S.-Mexico border. That worries industry lobbyists and business groups along the border, who think tariffs could increase prices and disrupt complex supply chains. They worry that the Trump administration’s plans will be too blunt.
“Renegotiating NAFTA is a good idea in theory but it will have broader implications than people realize,” said Charles Sholtis, CEO of Plastic Molding Technology Inc. in El Paso, Texas. “I’m in favor of renegotiating NAFTA. But to go out and take a machete and slap on a 20 percent tariff is a huge mistake.”
Analysts say it’s possible that a NAFTA rewrite could include more measured ideas, like changing rules of origin on what constitutes North American content. But most of public focus so far has been on more dramatic steps like tariffs and taxes.
“We just don’t know what the policies will be,” said Robert Atkinson, president of the Information Technology & Innovation Foundation, at a Jan. 31 forum on manufacturing policy in Washington. “We’ll just have to see how it plays out.”
Trade surplus with Mexico
A priority for the plastics industry will likely be protecting the industry’s overall trade surplus with Mexico.
Each of the industry’s four sectors — resins, products, molds and machinery — had trade surpluses with Mexico in 2015, the most recent figures are available from the Plastics Industry Association. And in each of those four categories, the U.S. industry’s surplus with Mexico was its largest globally.
The U.S. resin sector had the biggest surplus with Mexico, at $6.4 billion, followed by plastic products, at $4.2 billion.
Mold making had a $326 million surplus, and the machinery sector had a $210 million surplus.
Sholtis said the U.S. plastics industry has a surplus in all four segments because it can supply technology-intensive components, materials and equipment that are harder for Mexico’s labor intensive assembly factories to source locally.
Michael Taylor, a plastics industry trade consultant, said the surplus reflects the competitive position of U.S. plastics firms vs. Mexican companies, particularly in selling to automotive and consumer electronics factories in Mexico.
“Our global competitiveness position has improved tremendously in recent years,” he said.
Taylor, president and CEO of MDT World Consulting Inc. in Washington, said that while NAFTA could be improved, he hopes policymakers move cautiously.
“Renegotiations are great if you’re looking to improve it, but I would point out that the first rule of renegotiation is to do no harm,” said Taylor, who was vice president of international affairs and trade at the Plastics Industry Association from 2010 to 2016.
The Trump administration has not laid out all its cards on trade policy, but it has appointed officials who are very skeptical of current trade agreements.
The administration’s nominee for Commerce Secretary Wilbur Ross, who is also chairman of plastics distribution firm Nexeo Solutions Inc., told a Senate committee hearing in January that current trade deals have hurt domestic U.S. manufacturing.
“Dating back to at least 1993, the U.S. has entered into a series of poorly negotiated trade deals that have not distributed the gains from trade fairly,” according to a Trump campaign policy paper from September that Ross co-authored.
But the plastics association argues that free trade deals have, on balance, helped the industry.
It said, for example, that the industry has a positive trade balance with the 20 countries where the United States has specific free trade deals, including a surplus of about $5 billion in plastics products with those nations.
That’s in contrast to China, where the U.S. plastics industry has an overall deficit, including a $12 billion deficit in plastic products.
Globally, the U.S. plastics processing sector has a big trade deficit — $8.1 billion. But the U.S. resin sector has such a large trade surplus with the rest of the world that the overall plastics industry has a global surplus of $7.1 billion.
“We’re a net exporter, which can’t be said about a lot of manufacturing sectors in the U.S.,” Carteaux said. “All of the rhetoric and the discussions going on about tearing up NAFTA and stopping [the Trans Pacific Partnership trade agreement] and all those things, those are concerns of ours.”