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Applying Operational PDCA to Trade and Tariff Risk

Daron Gifford, Plante Moran

Renaissance Center in Detroit, Michigan

The Trump administration is pursuing its balanced and fair trade agenda on several significant, parallel fronts: 1) negotiations on the North American Free Trade Agreement (NAFTA) with Mexico and Canada, 2) tariff response to the Section 301 investigation related to unfair Chinese intellectual property and other technology transfer infringements, and 3) the Section 232 investigation on the national security implications of all automobile and automotive part importation.

Because of these many moving pieces, taking an operations approach with the tried-and-true method of plan-do-check-act/adjust (PDCA), made popular by W. Edwards Deming and Toyota, might be the best way to coordinate the numerous business function areas involved and marshal-required resources to mitigate final market uncertainty, production and capital investment cost risk, and supply chain disruption danger.

The North American Free Trade Agreement negotiations

Recap: The United States, Canada, and Mexico continue to negotiate new terms for the 24-year-old NAFTA agreement. With the May 17 deadline set by U.S. Speaker of the House Paul Ryan come and gone, the negotiation strategy took a bilateral direction with the United States and Mexico negotiating major automotive terms, including domestic rules of origin, content labor rates, sunset clauses, and dispute resolution. The Office of the U.S. Trade Representative (USTR) announced on August 27 that, “a preliminary agreement in principle, subject to finalization and implementation” had been reached with Mexico. This preliminary agreement will be the basis for negotiation with Canada.

This strategy implies an August 31 deadline with at least the Mexican negotiators as the U.S. Congressional review requires a 90-day window, and this allows resolution before president-elect Andres Manuel Lopez Obrador takes office on December 1. The administration left open if this will result in a separate U.S.-Canada agreement or Canada being added to the U.S-Mexico agreement.

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