NAFTA Talks Don't Panic PAM Transport

by Marty Cook  on Monday, May. 14, 2018 12:00 am   4 min read

PAM Transport’s CEO, Dan Cushman, does not expect calamity as the United States renegotiates NAFTA, though 40 percent of PAM’s revenue comes from hauling goods to and from Mexico. (Photo used in illustration of Dan Cushman by Beth Hall)

You might think Dan Cushman would be anxiously following the ongoing NAFTA negotiations in Washington, clutching a rabbit’s foot and guzzling coffee.

Cushman, the president and CEO of PAM Transport Inc. of Tontitown, owes much of his business to the North American Free Trade Agreement. Still, he’s taking a much more laid-back approach to the talks that could seal the trade deal’s fate.

Representatives from the United States, Mexico and Canada are dickering over adjustments and tweaks to the pact, which since 1994 has allowed trade without tariffs on most goods flowing among the three countries.

PAM notes that more than 40 percent of its revenue — which totaled $437.8 million in fiscal 2017 — comes from hauling goods to and from Canada and Mexico.

Arkansas exported $1.25 billion in goods to Canada and $847 million to Mexico in 2017.

Any upheaval in NAFTA would certainly trickle down to carriers like PAM that are significantly invested in Canadian and Mexican transit.

But President Donald Trump has called NAFTA “the worst trade deal maybe ever,” and his administration’s push for a new NAFTA has caused some consternation.

Trump has criticized NAFTA for taking automotive jobs from the United States and transferring them to Mexico, where wages are much lower.

The attempt to renegotiate NAFTA — which involves much more than just the automotive industry — has gone on for nine months, but a deadline looms on May 18.

PAM is especially exposed to changes in NAFTA because more than 55 percent of its customer base is automotive related, and some of the most contentious points with the current negotiations center on automotive parts and assembly.

PAM has one office and 750 trailers in Mexico, and the company said it crosses the border with loads more than 3,000 times every year.

“I’m not being complacent about any of this; it’s a big part of what we do,” Cushman said. But he said manufacturers and carriers will have a chance to adjust to NAFTA developments.

“Guess what? If something dramatic happens to [automotive customers], they’d have to shift everything they do. I don’t have a brick and mortar in Mexico; I have trailers in Mexico. I can shift my assets because it’s not like I have a plant in Mexico. The good thing about the trucking industry is they have wheels and I can roll them anywhere.”

Trump has criticized NAFTA for harming the United States by creating trade deficits. Economic experts say that’s logical because Americans consume more. Naturally, that means more imports compared with exports.

“I think there is plenty of evidence to suggest that NAFTA has been a success for the United States and for Mexico and for Canada, for consumers and workers across the three countries,” said Mervin Jebaraj, the director of the Center for Business & Economic Research at the University of Arkansas’ Sam M. Walton College of Business in Fayetteville.

Some observers believe Trump is criticizing NAFTA and threatening to withdraw as a negotiating tactic.

The administration wants 40 percent of cars and 45 percent of light trucks for the U.S. market to be manufactured in countries that pay a high wage, $16 an hour.

Because Mexican autoworkers make between $4 (for parts work) and $8 per hour (for assembly work), the $16 requirement would price out much of Mexico’s auto industry. That would be good for the United States, which would theoretically get some of those jobs back.But it could be bad news for consumers, who would theoretically see car prices rise if labor costs for making them rose from $4 or $8 an hour to $16.

Trump’s negotiators also want 75 percent of all components of a car to be from North American countries, up from the now-required 62.5 percent. The Washington Post recently reported that Mexico’s negotiators have countered with a 70 percent requirement, phased in over 10 years, while rejecting the high-wage requirement.

“I look at the things we’re asking for; I think there is some room there,” Cushman said. “I don’t know what wiggle room is there, but there is an agreement they can come to and not dramatically devastate the agreement. They’re asking for 40 percent of the cars have to be built in a country where the salary is $16 U.S. Mexico can’t comply. Are we really to dictate Mexico’s wage and hours laws? I don’t see that happening.”

Trump Factor
For Congress to approve a deal this year, negotiators have until May 18 to reach a NAFTA accord; Congress may be different next year, and Mexico may have a new president, as well.

That leads to questions about what Trump will do if negotiators reach a partial agreement or make no deal at all. Would he accept a partial victory or withdraw the country from NAFTA? Although withdrawal seems doubtful, Trump is known for his unpredictability.

“I have long since stopped trying to guess on that front,” Jebaraj said, declining to predict Trump’s line of thinking.

Cushman said he has little concern about NAFTA being torpedoed. The fallout from such a decision could be devastating.

“If we shut NAFTA down, what industry comes to mind that, right off the bat, would be crippled? Automotive industry, right?” Cushman said. “Let’s just think automotive. If he, if we, were to turn that agreement upside down, what are we going to do, cease trade? I’m not an expert, but I think you’d literally cripple General Motors, Chrysler, Ford because what do we do so much with them [is] cross borders.”

Jebaraj doesn’t believe NAFTA will be eliminated. It has proved to be too successful for too many industries, but the NAFTA negotiations and brinkmanship don’t make for easy boardrooms.

“This adds an element of uncertainty for people making investment decisions where they should build, what they should build and when and were,” Jebaraj said. “Our supply chains, for now, are inextricably linked between these countries. It would be hard to turn back that tide in any meaningful way.”

Cushman said he believes these are “glory” economic times and will continue to be. If NAFTA changes, or non-changes, cause problems, then trucks will be there to pick up the pieces.

“If something were to dramatically shift, I’m confident we could shift with it,” Cushman said. “Frankly, crazy times like that end up being windfalls for us.”

 

 

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