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The Importance of NAFTA and Trade Agreements in Logistics
Once you compete on a global stage, logistics becomes a new beast of its own. Suddenly, international trade agreements become incredibly important to the livelihood of your company. Free trade, fair trade, economic sanctions, economic embargoes, politics, and the like, can all affect your supply chain.
Why Trade Agreements Matter So Much?
When two nations (or more) enter into a trade agreement with each other, trade between the participating nations becomes easier. Prices get lowered, protectionism gets softer, and companies in the affected nations have an easier time shipping their goods overseas. Agreements can do many things, from leveling the economic playing field, to ensuring a nation can sell its crops (Canada buys oranges from Florida!), and more.
Such agreements not only facilitate an increase in trade between nations, but also legitimize the trading process. A new nation, for instance, can use a trade agreement to strengthen its economy, using the agreement as a recognizance of their sovereignty. Now, what does this mean for logistics?
When it comes to logistics, trade agreements bring stability to trade. Whether your are receiving goods, or shipping them internationally to a nation that has a trade agreement with your government, you know that certain stipulations of the trade agreement must be adhered to. Stability is good when it comes to the logistics industry. Ensuring that your supply chain is efficient and profitable is vital concerning the life of the business.
How Trade Agreements Affect Logistics Companies?
A great example of just how intertwined trade and logistics are can be viewed in Brexit.
Brexit has not been completed, since Article 50 was just recently invoked by UK Prime Minister Theresa May. Before the transition regarding leaving the EU is over, the UK will eventually have to renegotiate their trade agreements with the EU, and other nations and international unions.
Imagine for an instant that you run a logistics company in the UK. The UK, being a collection of islands, already makes transporting goods to the mainland difficult. Now, you have to worry about the uncertainty of future trade deals. Will the EU continue to trade with the UK? Will the EU attempt to harm the UK economically, thereby causing shipping prices to rise? Will EU contacts and clients prefer logistics companies on the mainland in the future? There are many uncertainties that can arise once a trade agreement is ended.
What is the Deal with NAFTA?
President Trump wants to renegotiate NAFTA. He does not believe it provides America with enough advantages. Instead, he believes it to be responsible for such modern economic calamities like the offshoring of jobs, and a trade deficit with Mexico. Now, while Trump was not the only candidate in the 2016 election to dislike NAFTA, he has been vocal about ending it. Like with Brexit, ending this trade agreement could produce similar results, especially the economic uncertainty of the logistics industry.
The dollar goes farther in Mexico, so Mexican companies can decide to undercut American and Canadian logistics companies for contracts and clients. In the end, trade agreements, though not always fair, do provide economic stability, which helps domestic companies, especially in the logistics industry, get ahead.