With the sixth and possibly last round of NAFTA negotiations kicking off this week in Montreal, the speculation that the Trump administration may exit the trade deal reminded me of a conversation I had with a leader in Canada's mold making industry.
At the Plastimagen show in Mexico City in November, I talked with Mike Hicks, a board member of the Canadian Association of Moldmakers.
He was exhibiting there, promoting Canada's mold making industry, and I asked him about the persistent trade surpluses Canada's tool shops run with the U.S.
Does it demonstrate unfair trade, or is something else going on?
The Trump administration's answer is unfair trade. It vocally argues the North American Free Trade Agreement's been a bad deal for the United States, costing tens of thousands of manufacturing jobs.
As people who follow this in the plastics industry know, overall, the plastics trade groups in the three countries like NAFTA.
Plastics associations in Canada, Mexico and the United States put out a joint statement last summer opposing the kind of big changes that the Trump administration has pushed for, while endorsing NAFTA "modernization."
The U.S. polymer industry has an $11 billion trade surplus within NAFTA, across all segments of the industry.
That's fueled by both U.S. resin production and tight-knit North American supply chains that see U.S. plastics part producers export a lot to other manufacturers in Mexico for final assembly.
But, for mold making and Canada, that's not the case. There's no U.S. surplus.
In 2016, the last year figures are available, U.S. mold makers ran a $735 million deficit with Canada, according to the Plastics Industry Association in the United States.
Canada accounted for more than half of the U.S. mold sector's global $1.2 billion trade deficit. Not China or another low-wage country, but Canada. And that $1.2 billion global deficit was itself the highest since at least 1994, U.S. figures show.
So, does that suggest the Trump administration has a point?
The U.S. government's top NAFTA negotiator, Robert Lighthizer, said in a strongly worded official statement in October that Canada and Mexico unfairly benefit under NAFTA: "Their companies have become reliant on special preferences and not just comparative advantage. Countries are reluctant to give up unfair advantage."
Hicks rejects that characterization.
"To be honest, I don't know what the special preferences would be," he said.
Hicks, who was in his booth in a Canadian pavilion surrounded by mold shops, sees another reason for Canada's success: the strong effort its industry puts into global trade promotion.
"The prime mold making in the world is done in Europe, traditionally. We go over there, do the trade shows, we make the investment, we roll up our sleeves and do some ground work behind the scenes," Hicks said.
He continued: "When those countries relocate, say BMW opens a plant, or Mercedes Benz, [or] Nissan, we've done the trade shows in those countries, so then when they need zone partners, they remember Canada because we've done these groundworks, where say maybe the United States hasn't done that type of groundwork and it's sort of like 'We're in the United States, so you should be doing business with the United States.'"
Economists could note other factors, like Canada's dollar historically being weaker than the U.S. dollar, which fuels exports.
And Hicks concedes his country's mold makers could be helped because in Canada's smaller economy, the industry is more noticeable to the government. The prime minister's office contacted CAMM ahead of NAFTA talks to solicit views, for example, he said.
He also argued some nuanced points, that Canada's mold industry has invested in factories in the United States and Mexico: "We're being a good neighbor if you will. It's not a one-sided NAFTA situation for us."
But, and this to me was the point I want to focus on, he believes Canada's mold industry puts more energy into industrywide efforts in global trade than the U.S. does. Canada's shops are "aggressive hunters. They do mostly export."
As an example, he said they're currently working on Brazil, even though Brazil's trade rules make it tough. CAMM takes a long view.
"Even though there's protectionist legislation in there right now that prohibits basically our Canadian mold shops from building molds and shipping from Canada to Brazil, we're still pioneering and prospecting," he said. "We're waiting for those tariffs to be broken down."
