North American Competitiveness

Yesterday I attended a conference “Made in North America: Competitiveness, Supply Chain, and Transportation in the NAFTA Region,” which was part of World Trade Week’s events here in New York. From the interesting panels there emerged three main points, one positive and two less so.

The positive outlook is that macroeconomic and global winds look quite favorable for North America. The general feeling was that while the last twenty years of globalization focused on China’s rise, the next twenty years will not. Rising labor costs in China will soon reach Mexico’s levels, and energy costs, proximity benefits, and complications over intellectual property issues will all favor North American nations over their Asian competitor.

But given these encouraging headwinds, the specialists all felt the United States, Canada, and Mexico were not making the most of their opportunity, and that the trade reorientation that is occurring (for instance, the billions of dollars invested in Mexico by big name auto makers) is not because of, but rather in spite of, today’s policies.

One of the biggest challenges for the three North American countries continues to be their inability to lessen trade regulations. While tariffs are disappearing, other hurdles continue, and have even multiplied in recent years, often because of concerns over Chinese imports of tainted food products, dry wall, and the like. The data collection and paper work now necessary to import a whole range of products can add some 10 to 12 percent to the costs of invoices and trade more generally. Ironically, many of these new regulations hit the United States’ neighbors harder, since goods come on individual trucks over short distances (rather than, for example, on huge container ships with two weeks lead times). The three countries also have yet to resolve disparate customs forms, railroad protocols for some types of packages, and other small scale irritants that can have outsized effects on trade and manufacturing.

A second issue is physical infrastructure. North America isn’t prepared to take advantage of the likely global reshuffling that will occur as China’s economy changes. Its roads, rails, ports, and airports aren’t equipped for the production chains of today, much less for those of tomorrow, as most are geared east to west rather than north to south. The United States’ ports are also at or near capacity—reflected in the minimal growth of the last several years. (Container trade has instead shifted south, some to Mexico but much to the rest of Latin America—areas to which the United States should pay more economic attention).

If energy prices continue to increase, China begins to look inward, and more manufacturing becomes customized, the world could see a re-regionalization of production. But North America won’t be able to capture or capitalize on the opportunity if the United States, Canada, and Mexico don’t work together to change bilateral and trilateral policies and invest in infrastructure.