As the world adjusts to the surprise election of Donald Trump as the next U.S. president, various sectors are starting to take a closer look at what that win means for their respective markets.
Trade has been a touchy subject of late, and Trump has voiced his own agenda about how to manage America’s relations and what to do about pending and existing trade agreements he feels don’t work.
When it comes to nearshoring—which has picked up in popularity in recent years as brands and retailers look to mimic closer to market manufacturing models that shorten delivery times—it isn’t yet clear whether Trump’s win will have a positive, adverse or no effect on the trend.
Sourcing Journal spoke to three experts on the matter, a trade lawyer, a manufacturer based in the Americas and the managing director of an apparel industry network representing manufacturing in the Americas, to get some insight on the outlook.
What might Trump’s win mean for sourcing in the Americas, anyway?
Quite emphatically, Mike Todaro, managing director for the Americas Apparel Producers’ Network (AAPN), said Donald Trump has nothing to do with nearshoring.
“Re-localization is a matter of pressure on retailers to cut inventory and reduce markdowns, both of which impact margins. The brands who get the Americas have not changed and investment is being made to increase scale for them. Brands who are not familiar with sourcing in the Americas are sending plane loads of people down to find out more,” Todaro said. “Interest in sourcing in this hemisphere will continue to increase. In fact, I’d argue we’re at a tipping point for sourcing in the Americas.
Reshoring and nearshoring initiatives look likely to be a top priority of the Trump administration, according to Ron Sorini, principal and founder of Sorini, Samet & Associates, and former textile negotiator at the Office of the United States Trade Representative (USTR) during the NAFTA days, having helped settle the deal.
“I think this effort will primarily focus on reducing regulations that hinder U.S. manufacturing and restructuring the tax code to incentivize U.S. manufacturing,” Sorini said. “Many of the team advising the President-elect such as Carl Icahn, Wilbur Ross and Dan DiMicco have owned, invested in and run manufacturing in a wide range of industries such as steel, auto parts and textiles and this have a keen understanding how to revitalize U.S. manufacturing.”
Now that the election upset has had some time to sink in, Luis Aspillaga, CEO of World Textile Sourcing, a manufacturer based in Peru, said things could be positive for trade between America and its nearshoring neighbor markets.
“After the shocking results and thinking more with a clear head, I truly believe this will help the region,” Aspillaga said. “It’s clear he will not sign the TPP and will put on hold any future free trade agreements, but on the other side, I don’t think he will (actually, technically he can’t) renegotiate the actual agreement with Central and South America.”
What about NAFTA?
Donald Trump has been clear about his desire to scrap the North American Free Trade Agreement with Canada and Mexico, blaming the so dubbed “worst trade deal in history” for the loss of domestic jobs.
His public censure of the trade deal has at least some thinking there is room for improvements in NAFTA.
Speaking to the BBC earlier this month, Canadian Finance minister Bill Morneau said, “I think what we’ve heard from the early days of the Trump transition is that they’re going to want to talk about some things in NAFTA that might be able to be improved. The specific things we heard today probably are too early for us to really have an opinion on. But with any trade deal there’s ways to improve it. The strength in the relationship as a foundation will provide us with a framework going forward.”
“While termination [of NAFTA] is possible, I don’t think it is likely and I certainly hope it does not come to that,” Sorini said.
Should it come to that, the process for America to pull out of the deal is a simple one: the president would send a letter notifying Canada and Mexico of its intent to terminate and the U.S. would exit NAFTA six months later. Congressional approval isn’t required, according to Sorini.
“As Senator Rob Portman of Ohio recently said, it is time to modernize NAFTA. I agree,” Sorini said. “Our free trade agreements should be dynamic and changed by mutual agreement in a careful and predictable way to deal with changed circumstances.”
A serious discussion between the U.S., Mexico and Canada on how to address concerns raised about the deal in recent years, could come early in Trump’s administration, Sorini said, adding that the U.S. may want to put the issue of Mexico’s VAT rebate on exports to the U.S. back on the table and suggest enforceable language on labor and the environment, or a chapter on e-commerce.
In looking at what Trump’s America could mean for his business, Aspillaga said he has seen a better exchange rate as the U.S. dollar strengthens and Latin currencies and stocks weaken, but it remains to be seen whether that trend will hold.
“A general fear on one side and confusion and doubts on the other will make our clients more cautious with long term POS allocation, so this will result in more chase orders and shorter lead times—all good for our business.”
Todaro doesn’t think anything will happen to change NAFTA as apparel isn’t a major trade for NAFTA.
“It is for CAFTA,” Todaro said. “As I told one Central American president recently, the cultures, business, people and history within this hemisphere are wound together so tightly you could never unwrap it. But you can do nothing and watch it unravel.”
If nearshoring slows, will American manufacturing pick up?
If done right, Sorini said a slowing of the nearshoring trend will mean more American manufacturing.
“Many of the companies I talk with want to manufacture more in the United States and are eager to work with the administration and Congress in that regard,” Sorini said. “At the same time, we also must recognize the reality that not everything will be made in the United States. For goods made in the United States, we must better promote export opportunities. For these reasons, a trade policy that balances the interests of U.S. manufacturers with companies that must import products to remain competitive.”
While Todaro expects manufacturing in Central and South America to increase, he said production in the U.S. will likely remain flat.
“When trade laws are passed, there are two stages. The first is ‘rationalization,’ which is which side is cheaper/faster/better? Then there is ‘displacement,’ meaning jobs go away on the losing side. There is no third stage called ‘replacement,’” Todaro said. “When NAFTA passes, our membership of small apparel factories dropped from 350 to 150 in only two years. Every person in those factories are gone and this generation does not sew. On top of that, modern yarn and fabric mills are very highly automated and do not create significant jobs.”
While it isn’t easy to tell exactly how Trump will affect domestic manufacturing, it may not have all that great of an effect on apparel manufacturing specifically.
“I don’t think Trump will focus on the apparel business, I believe more in machinery manufacturing, steel manufacturing, in the extreme case he would like to review any actual agreement or impose tariffs,” Aspillaga said.