Trade and tariffs will remain hot supply chain topics in 2019 as business leaders await legislative approval of the United States-Mexico-Canada Agreement (USMCA) as well as any further action on looming tariffs on Chinese imports.
The November 30 signing of the USMCA put trade on the front burner for the retail supply chain in particular, according to Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation. The USMCA is an update to the 1994 North American Free Trade Agreement (NAFTA) that Gold says will ensure North American retail trade remains "pretty seamless."
"NAFTA has been a big component of the retail supply chain since its inception [more than] 20 years ago," Gold said in late December, noting that the NRF and others were still wading through details of the agreement to determine its full impact on the supply channel. "The important thing is that we still have a trilateral agreement with Canada and Mexico."
Leaders of all three countries have signed the USMCA, but it must receive legislative approval in all three countries as well before taking effect, which could be as early as January 2020. The NRF and other industry groups, including the American Trucking Association and the American Apparel & Footwear Association, have all urged quick passage of the agreement in 2019.
Gold says the agreement's "rules of origin" are likely to have the biggest impact on the American retail supply chain. Essentially, these are zero-tariff requirements for how much of a product must be made or sourced in the United States. Much of the focus has been on how these changes will affect the automotive industry, but Gold says it will affect other sectors as well, including the apparel market.
"The biggest issue is the rules of origin [concerning] content requirements and how that will shift the market," Gold explains, adding that whether or not production will come back to the United States as a result of such changes is "still a big question."
Tariffs are the other big issue heading into 2019. While praising the signing of the USMCA, some industry groups took the opportunity to criticize the Trump administration's tariff policies, encouraging the president to remove tariffs on steel and aluminum imports from Canada and Mexico that were imposed last spring. Although those tariffs remain in place, businesses received a reprieve when the administration announced December 1 it would delay the implementation of new tariffs on $200 billion worth of Chinese imports set to take effect in January. The administration said it would delay raising those tariffs from 10 percent to 25 percent for 90 days while the United States and China continue trade talks.
Gold says the delay is a positive move in that the two countries are talking, but he says the uncertainty of the tariff situation will loom large over retailers in the New Year.
"For retailers, as you're trying to plan out your year, not knowing how your costs will be impacted is a challenge," Gold says, noting that it's especially difficult for smaller companies that are not able to absorb the tariffs as easily as their larger counterparts. "It's that uncertainty that has folks concerned."