By Kim Hoey
Special to Delaware Business Times
Delaware exports such as jet engines, watermelons, baked goods and medical equipment could face new trade barriers should the Trump administration go forward with a plan to renegotiate the North American Free
Trade Agreement (NAFTA).
NAFTA first went into effect in 1994 and eliminated most tariffs between Mexico, Canada and the United States. The purpose of the deal was to encourage economic activity between the three countries. Supporters at the time said it would create more than 200,000 jobs in the U.S., while detractors warned that it would send more jobs and industries abroad.
In the decades that followed, Delaware lost manufacturing jobs in the auto, steel and logging industries, but many debate whether NAFTA was the cause. In the meantime, Canada has become the state’s top global trade partner, and Mexico is ranked fourth, according the World Trade Center Delaware and the U.S. Census.
What a new deal might look like remains to be seen, but President Trump promised during his campaign to scrap the treaty and raise the cost of selling certain products into the U.S. Earlier this spring, Trump imposed new duties on steel and aluminum imports from the European Union, Canada and Mexico.
“This affects everybody,” said Beth Pomper, export adviser for Export Delaware, part of the Delaware Department of State. “The supply chain in the United States, in Delaware, is so integrated with Canada and Mexico.”
She gave the example of how some cows are born in the United States, sent to Canada to graze for two years, and then brought back for slaughter. “So is it a Canadian cow or an American cow?” She asked. “It’s really a very difficult situation.”
In Delaware, 26,600 jobs depend on trade with Canada and 15,200 on trade with Mexico, according to Pomper. The state sold $600 million in goods to Canada and $327 million to Mexico in 2017. Both countries combined account for 20.4 percent of the overall value of exports from the First State.
Bimbo Bakeries in Newark is another example of Delaware’s deep trade ties. Bimbo is Mexico’s leading bakery. The Newark factory employs 115 people and produces goods such as coffee cakes and doughnuts under the Entenmann’s name.
Pomper doesn’t expect these companies to go away. She and other organizations are working to maintain good relationships and a friendly environment for foreign businesses. Delaware will survive on reputation and relationships, Pomper said.
B&W Tek is an advanced manufacturing firm based in Newark that produces optical spectroscopy and laser instrumentation tools. The firm is trying to grow its Canadian and Mexican markets, and it doesn’t anticipate NAFTA getting in the way. Its specialized products give the company an edge.
“If they need something, they need something,” said Daniel Rau, marketing manager of B&W Tek. So if a company needs a laser spectrometer, they have limited options. The impact of the NAFTA talks, Rau added, is that other countries are taking a little longer to accept American products these days.
For some companies, NAFTA isn’t the problem but rather the uncertainty in the market as negotiations sputter along.
“Personally, I’m reasonably confused,” said Chris Ungerman, CEO of Halosil International, a New Castle-based company that manufactures disinfection systems. Its products are used in cooling towers and water treatment, as well as health care, research and agricultural disinfection. Exports to Mexico account for about 10 percent of its overall sales.
The continuing stops and starts of talks and the possibilities of changes being made have caused fluctuations in exchange rates that affect transportation, duties and taxes, according to Ungerman. The company is already dealing with different regulatory landscapes. These other fluctuations, he said, add another level of difficulty.
A number of prominent Delaware industries refused to comment on the situation so as not to aggravate the current administration with speculation.
Manufacturing is only one factor in Delaware’s overall global market. Delaware agriculture is a billion-dollar business here. Some products, like bananas, count toward our exports to Canada because they come into the country through the Port of Wilmington. Other agricultural businesses such as Perdue Farms, a major player in the chicken broiler industry, said they do very little trade with Mexico and none with Canada.
Still, Delaware Secretary of Agriculture Michael T. Scuse is concerned that a change in tariffs could affect local Delaware farmers. Delaware ships watermelons as far north as Canada, he said.
“Canada is our second largest and Mexico is our third largest agricultural trading partner,” Scuse said. “The reaction by our trading partners willhave an impact not only nationally, but also locally for agriculture products.”
Pomper warns that changes to NAFTA could affect everyone in Delaware. For example, car parts are made in Windsor, Ontario, and the many automobiles are manufactured in Mexico. If the proposed tariffs stand the average car will cost $40,000, she said. Fewer people would buy new cars and that would affect car dealerships in Delaware.
“This affects everything from a can of Coke to a car,” said Pomper. “If one country puts on tariffs, the other figures out how it will retaliate.”