Regional Trade Centers will Evolve to Boost Manufacturing and Logistics, Business and Industry Trends Analysis

As of 2017, a new agreement was under consideration that would significantly impact global trade.  The Trans-Pacific Partnership (TPP) is a free trade agreement under negotiation between 11 countries:  Australia, Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States.  If agreed upon, the pact could greatly reduce tariffs between member countries (or eliminate them altogether in some cases).  The parties to the TPP feel it would add to their individual strengths as manufacturing and trading nations, help them with economic development and aid job creation.  However, membership in the TPP will also impose standards and obligations intended to level the playing field among these nations.  The Trump administration opted out of the TPP in 2017.

RTAs among nations can be designed to be very complex in order to cover multiple issues.  In their simplest form, they cut or eliminate tariffs and other barriers to trade, in order to help manufacturers boost their exports of goods to nations that are members of the agreement.  The agreements may also reduce barriers to trade in services, agricultural commodities and other commodities such as timber or minerals.

“Free Trade Agreements,” such as NAFTA are focused on reducing nearly all trade restrictions between two or more nations.  Trade agreements can be local in nature. In the United States, some manufacturers are reducing their offshore efforts.  They have found that it is simply too inefficient to attempt to manage supply chains, engineering or manufacturing centers that are thousands of miles away from their headquarters.  For a firm of 100 to 1,000 employees, attempting to send valued managers back and forth to Asia on a continuous basis is exhausting, expensive and inefficient.  Local and regional centers of trade and manufacturing may be enhanced as a result.

For example, the maquilladores manufacturing centers on the U.S.-Mexico border (where goods move from manufacturing plants in Mexico to distribution or final assembly centers nearby on the U.S. side) have enjoyed very strong growth in recent years.  This is partly because of the NAFTA agreement, but also because it is much easier for American firms to deal with plants on the nearby Mexico border.

This trend will accelerate, as companies from China, India, Germany, Brazil, Taiwan and Korea make investments or enter into partnerships in their core regions such as the Americas and the EU.  For example, Brazil’s JBS SA, the world’s largest meat company, has acquired such American meat firms as Pilgrim’s Pride.  Just-in-time inventory will be boosted, as some components and finished goods will be produced closer at hand.  Personal interaction might grow as well.  For instance, services providers would find it easier to visit their most important clients if they are located in nearby concentrations of regional manufacturing and trade.

The U.S. and Canada have tremendous potential to benefit from expanding regional trade agreements and activities with Latin America, a region that will enjoy significant growth over the long term.  While the size of its population is nowhere near that of Asia’s, the Latin middle class has been expanding at a rapid clip, and, compared to emerging nations in Asia, household income is already relatively high in many Latin nations.

This is not to say that the long-distance export of goods and services is a thing of the past—far from it.  Such trade will continue to grow.  However, over the mid-term we will see this flow become more sophisticated and efficient, and regional trade and manufacturing centers will be a natural evolution, with significant potential to cut shipping costs and create synergies among suppliers and manufacturers located near one another.  Global trade, in both goods and services, is expected to grow dramatically between 2015 and 2030.  That can only happen if a great deal of innovation is applied at every level of the system, from transportation to finance to engineering and manufacturing.