Stakes are high for Wisconsin in NAFTA debate
Businesses, farmers and organized labor advocates in Wisconsin are closely monitoring President Donald Trump's comments about renegotiating the terms of the North American Free Trade Agreement and other aspects about trade relations with Mexico.
In pressing his case to Republican members of Congress on Thursday, Trump called NAFTA “a terrible deal” and “a total disaster from its inception.”
Among businesses in Wisconsin, the consensus regarding Trump’s tough trade talk is that an all-out trade war would be a disaster, but at the same time, taking a look at trade deals as well as tax policy and regulations would be welcomed.
“I’m a free trade guy. I believe in it,” said Rich Meeusen, chairman, president and CEO of Brown Deer-based Badger Meter Inc.
That said, there is room for an examination of trade policy, Meeusen said.
“Generally, I support some efforts to level the playing field on international trade because I do think we have been at a disadvantage,” Meeusen said. “I think our disadvantage has been both inflicted by other countries and self-inflicted. It’s been self-inflicted by having the highest tax rate in the world and by having all of the regulations we have. And it’s also been inflicted through some bad trade deals.”
The state's two largest export partners are Canada and Mexico. Together, the countries account for just under half of all state exports. Goods exported annually from Wisconsin to the two countries are valued at more than $10 billion.
“We do ship to Mexico,” said Mike Retzer, controller at Strohwig Industries in Richfield and leader of the Milwaukee chapter of the National Tooling and Machining Association. “So yes, we are interested in what’s going on here. We’re just trying to sort out what’s being proposed."
Trump’s proposals on business and the economy have helped spur a big run-up in the U.S. stock market that saw the Dow Jones industrial average close above 20,000 for the first time on Wednesday.
“What we have in the White House now is a professional negotiator,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co. Inc. “If we renegotiate (NAFTA), and it’s more favorable to the U.S. than it was in the principal negotiation, I think that’s bullish.”
Bittles says he believes Trump is looking at things from the perspective of a seasoned deal-maker.
“Don’t forget Trump is a negotiator. He’ll start out asking for the world, knowing he’s going to accept a whole lot less,” Bittles said. “That’s where he’s coming from, and I think that’s where most people miss the point.”
Besides, he says, the U.S. is a massive market for goods from other countries. Those countries would be foolish to risk their access to the American consumer.
“So, do you really want to get into a trade war with the U.S.? I don’t believe you do,” Bittles said.
Retzer said he would support any efforts to fortify manufacturing in the U.S., which he argues is held back on a number of different fronts, ranging from overseas competitors and government regulation to the U.S. dollar’s strength against foreign currencies.
“There is a reason countries are going after our manufacturing base,” Retzer said. “And that’s because it’s very valuable to be a manufacturer. It creates jobs. It creates wealth. You take inputs of raw materials and turn them into something that people pay for."
The shift in trade policy has affected the automotive industry, with Ford Motor Co. canceling plans to build a car factory in Mexico after Trump’s election.
Glendale-based Strattec Security Corp. is opening its own new factory in Mexico to paint door handles for cars to be made by Ford, General Motors and Volkswagen.
Strattec’s chief financial officer, Patrick Hansen, said the plant remains on track, and Ford is continuing with a plan to shift some work to Mexico.
Yet talk of border taxes this week by the Trump administration raised immediate concerns.
“It’d be pretty devastating,” Hansen said. Even cars that are made in the U.S. contain plenty of parts that are made overseas, particularly expensive electronic components, Hansen said.
In Strattec’s case, the foreign components include a circuit board contained in key fobs and the motors for the devices that automatically close trunks and doors on sport utility vehicles.
“A lot of the electronics aren’t made in the U.S.,” Hansen said.
By late Thursday, the White House had called in reporters to say the idea of a 20% border tax wasn’t set in stone and that it was one of a multitude of options on the table.
Organized labor also is closely monitoring the issue of renegotiating NAFTA.
“We are in favor of renegotiating NAFTA, but we don’t want to end up going from the frying pan to the fire, where it actually ends up worse,” said Phil Neuenfeldt, president of Wisconsin AFL-CIO.
In the United States, more than 60,000 factories have closed in the past 10 years. Millions of jobs were lost as outsourcing to Mexico, China, Vietnam, India, Colombia and other countries became the go-to strategy for companies.
In Wisconsin, plant closures have disrupted lives, scattered families and emptied schools. Once-thriving communities have become shadows of their former selves as jobs have left for other countries.
“When you look at the trade deficit between America and Mexico, and America and the rest of the world, clearly something is wrong with these trade agreements,” Neuenfeldt said.
Yet those who count on foreign trade, including Wisconsin’s farming community, are nervous about disrupting things too much.
“If you are in the business of producing exports, you want to be assured that your export market will be there,” said Michael Slattery, a Manitowoc County farmer who spent nearly 20 years working in domestic and international finance, including 12 years for Japan’s largest bank.
“What Trump is really doing is destabilizing agreements that have taken years, if not decades, to come to fruition. That is really dangerous,” Slattery said.
Mexico has been a huge buyer of U.S. farm products, but in the event of a trade war, Mexico could turn to Brazil and other countries as an alternative to the United States.
Combined, Brazil and Argentina now export more soybeans than the U.S. and are expected to rapidly expand their market share in coming years.
That would raise the stakes in a trade war between Mexico and the United States.
“Mexico could say, ‘You are putting our people out of jobs, so we will get our soybeans from Brazil, corn from Argentina, and wheat from Canada or Australia,' ” Slattery said.
Kurt Bauer, president and chief executive of the trade group Wisconsin Manufacturers & Commerce, also has misgivings about ending or renegotiating NAFTA.
“I think NAFTA has worked out pretty well for Wisconsin,” Bauer said. “You’re talking about our two largest trading partners. Canada is overwhelmingly our No. 1 partner, and Mexico is second.”
The state’s trade balance with Mexico is in Wisconsin’s favor, and Canada provides crucial raw materials to Wisconsin manufacturers and businesses.
"Including a lot of energy and oil that we use to make plastics and run our factories and to run our economy,” Bauer said.
He said tariffs by the U.S. would result in retaliation.
"Right now we have a free market that I think is working for Wisconsin workers and Wisconsin manufacturers and other businesses as well,” Bauer said. “I think the president needs to look very closely at the relationship we have here in North America and hopefully see it as a model.”
He said even the possibility of changes to NAFTA could have a negative effect on decisions business owners make about expanding operations.
"When you’re talking about changing relationships, and we’re not sure what it’s going to look like, it creates uncertainty. And of course the private sector never likes uncertainty. So they’re less likely to invest and more likely to be cautious,” Bauer said.
Economist Sara Walker does not see the wisdom in undoing NAFTA, which she said likely would result in retaliatory tariffs and raise the cost of doing business.
"Why would you want to tap the brakes on a source of growth? Why would you want to tap the brakes on our economy, which depends on trade?” asked Walker, who is senior vice president and investment officer for Green Bay-based Associated Bank.
Walker said she doesn’t agree with the notion that NAFTA is killing manufacturing jobs.
"I don’t think NAFTA is the culprit here,” she said. “The culprit – and I feel strongly about this – is the advance of technology. That’s what’s contributed to the loss of manufacturing jobs.”
The repetitive tasks once performed by humans in factories increasingly are handled through automation.
"It’s very easy to use Mexico or China as a scapegoat, where really it’s just the advancement of our economy and our capabilities,” Walker said.
Rather than “ripping up” a trade agreement and dealing with all the uncertainty and hard feelings that might spur, she said, a better jobs initiative would be to make sure Americans are trained and retrained as skills needed by employers change.
Wisconsin has about 13,000 manufacturing jobs that are unfilled, and about 70% of WMC members say they are having trouble finding employees.
"I think we have a wonderful high-quality workforce in the United States, but there are people who need training and help to adapt to this new world,” Walker said.
Journal Sentinel business reporters Joe Taschler, Rick Barrett, Paul Gores and Thomas Content contributed to this report.