Long ago, in an era far away (re: 1992), a political consultant named James Carville hung a sign in the campaign headquarters of an upstart politician named Bill Clinton. That sign had three points:
- Change vs. more of the same.
- The economy, stupid.
- Don’t forget health care.
Twenty-five years later, and the country is still obsessed with the second bullet point (often erroneously quoted as, “It’s the economy, stupid!”). The recession of 2007-2009 – spurred on by the failure of the housing market, excessive private debts, various market factors, and so on and so forth – led to a financial crisis unrivaled since the Great Depression. Unemployment soared, people lost their homes, and the federal government spent $831 billion, under the American Recovery and Reinvestment Act of 2009, to keep the country afloat.
It has been a difficult climb back to the top. There have certainly been setbacks along the way. But, we are starting to see an improvement. Unemployment recently dropped from 4.4% to 4.3%. We added 209,000 jobs in July, surpassing expectations. Global inflation is down, but the trade gap has been narrowed. Pearson is cutting jobs, but retailers in bankruptcy have found a new life online.
The big jobs news today in the Wall Street Journal, however, is about Toyota. According to their report:
“Toyota Motor Corp.’s decision to build a $1.6 billion American car plant with Mazda Motor Corp. paid immediate dividends with a positive tweet from President Donald Trump, but in the long run it also could help Toyota meet demand for popular pickup trucks. Toyota said it plans to open the factory with Mazda by 2021, with the location yet to be decided. Eventually, the plant will be able to produce 300,000 vehicles and employ 4,000 people, it said…. Within hours of Friday’s announcement, Mr. Trump tweeted: ‘A great investment in American manufacturing!’”
And it certainly is a great investment – but it is not the only one Toyota is making. Toyota still plans to move ahead with production in Mexico, as well as in the United States. Mazda has been making cars in Mexico since 2012 (and will continue to do so, it seems), but is hedging its bets against changes to NAFTA.
A quick look at NAFTA in Ohio
Mazda’s choice to work with another car manufacturer like Toyota is not new – it partnered with Ford from 1974 through 2015 – but Mazda’s decision to bring production back to the U.S. is what is interesting. In 2011, Cleveland.com reported that “Ohio lost 34,900 jobs — 0.6 percent of its total state employment — through NAFTA, concludes the report by the Economic Policy Institute… [placing] Ohio fourth among all states, the District of Columbia and Puerto Rico in terms of percentage of total jobs lost to NAFTA.” Many of these jobs were in the industrial and manufacturing sectors, specifically in regard to auto manufacturing. The steel industry in Ohio also dried up. In what remains one of the most appalling examples of people hurt by NAFTA, workers at the Dixon Ticonderoga factory were forced to train the workers who would then replace them on the line, for lower wages.
So, no – NAFTA hasn’t always been terrific for Ohio. But if our President’s cage rattling brings manufacturing and industrial work back to the state, even in smaller numbers than we had once enjoyed (automation accounts for much of the loss of jobs throughout the country, no matter what industry you are in), that could be a good thing for a number of industries.
Preparing your company for the future
If NAFTA is renegotiated then companies of all sizes and in all industries may need to change the way they conduct business. Inc.com recently proposed two options that small businesses might have under the risk of renegotiation: 1) move your offices out of North America (easier said than done, perhaps, unless you work in e-commerce); or 2) “double down” on the markets now, while everyone is still hemming and hawing.
Those might be good solutions for some businesses, but not all. We suggest a different approach, that starts with reviewing:
- All of your contracts, especially any safeguards you have in place to ensure that the highest standards in manufacturing are being met by your suppliers and vendors.
- Your list of suppliers and vendors, as you may end up needing new ones.
- NAFTA’s rules of origin, to ensure that any products you are manufacturing contain the right amount of North American-made parts. The National Law Review provides an excellent explanation of how the rules could affect the retail industry.
- Trucking provisions, as well as scenarios that may cause you to change the number of drivers you have.
- Your training modules and programs for new employees. You might consider offering tuition reimbursement for employees who learn Spanish or French for your job.
- Any protections for your intellectual property and trade secrets that are currently in place.
- Your bottom line. If the renegotiation leads to business interruption, you may face tough decisions about wages, raising prices, or closing up shop.
Talks are slated to begin on August 16, but there is no deadline when it comes to a final discussion. Even if you don’t do any business in Canada or Mexico, you might be surprised how much the renegotiation could affect your company. For now, keep a close eye on what happens with those talks between President Trump and our neighbors to the north and south.
Alex Gertsburg is a managing partner at Gertsburg Licata. He may be reached at (216) 573-6000 or at [email protected].
Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.
