Small Business Cities

Trump's NAFTA trade war may derail some small-business manufacturers

Key Points
  • The Trump administration's effort to win NAFTA concessions from Canada and Mexico is nearing its March deadline.
  • Some small-business manufacturers fear their concerns will be neglected, including supply-chain disruptions for dealers and distributors, price increases they can't pass on to customers, even risk of bankruptcy.
  • As much as 98 percent of exporting companies are small- and medium-sized businesses with fewer than 500 employees.
Small biz sounds off on NAFTA

Susan Cary-Hanson just wants a seat at the table for small businesses like hers when it comes to trade negotiations. The co-CEO and owner of PGC Solutions, a small manufacturer that makes custom parts for companies including Deere and Bobcat, has concerns about how potential changes to the North American Free Trade Agreement being pursued by the Trump administration might disrupt her company's exporting to Mexico and Canada.

Edina, Minnesota-based PGC is 67 years old and exports around the globe. Exports to Mexico and Canada represent just under 10 percent of its business, with 1,600 parts sent out for 55 different companies.

"My biggest concern is that I don't know how this will impact me as a small manufacturer and how this is going to affect our end customer," said Cary-Hanson. "But I do know that shipping to Mexico or Canada, our customers are not going to take a price increase."

Talks to renegotiate the trade deal are wrapping up their fifth round Tuesday, with leaders from the United States, Mexico and Canada continuing to discuss potential changes to the decades-old agreement. A March 2018 deadline is fast approaching. President Donald Trump has called NAFTA the "worst trade deal" ever signed in the past and, as commander-in-chief, has vowed to renegotiate it.

(L-R) Canadian Foreign Affairs Minister Chrystia Freeland, U.S. Trade Rep Robert Lighthizer and Mexican Secretary of Economy Ildefonso Guajardo Villarreal make statements to the media after a NAFTA press event in Washington, October 17, 2017.
Yuri Gripas | Reuters

For small importers and exporters the potential changes bring uncertainty.

Optima Products in St. Louis Park, Minnesota, manufactures and distributes specialty health-care seating products. It owns a manufacturing facility in Jefferson, Wisconsin, and also has a partnership with a company in Quebec City, Canada, that accounts for 70 percent of its business. The products Smith imports are distributed across the United States.

"Worst-case scenario, we might lose the privileged status of NAFTA products going back and forth across the border," said Optima president and owner Marvin Smith. "It could add some costs both ways, it could interrupt our distribution network and also cause some concerns across our dealers and distributors across the country."

Hopefully it wouldn't cause us to shut the doors, but if we were not able to remain competitive, that would be a problem.
Marvin Smith
owner and president of Optima Products 

The company's current business design is built around the relationship it's formed with the Canadian counterpart, Smith said. "We don't have the capabilities to produce the chairs we are buying from Canada, so we just don't know. Hopefully it wouldn't cause us to shut the doors, but if we were not able to remain competitive, that would be a problem," he said.

Data from the International Trade Administration show that in 2015 some 98 percent of exporting companies were small- and medium-sized businesses with fewer than 500 employees.

A 2016 exporting survey from the National Small Business Association, a nonpartisan advocacy group, showed that while small companies can be a powerful force in trade, barriers exist, including a lack of knowledge over how to get started, and concerns over payment. The group is supportive of NAFTA.

"We are supportive of NAFTA and most trade deals," said Molly Day, vice president of public affairs for the group. "The majority of small- and midsize exporters say they are more likely to enter a new market if it is covered under a free trade agreement with the U.S. Furthermore, just 5 percent report actually being hurt by FTAs."

Barry Wood, VP of Marketing at Wood’s Powr-Grip in Laurel, Montana, says he isn’t overly concerned about how the renegotiation of NAFTA might impact his business.
Photo: Jim Abel

Not all small companies have concerns over what a new deal may mean for business. Barry Wood, vice president of marketing and commercial development at Wood's Powr-Grip in Laurel, Montana, doesn't think changes will be swift or harmful if NAFTA is indeed overhauled. Bilateral deals, something Trump has floated, could even be a positive for business, Wood said, making whichever country is left out more inclined to cooperate.

The company makes industrial suction cups and exports to both Canada and Mexico, the latter being its bigger market. Even if NAFTA went away entirely, Wood said he can't fathom new tariffs being put in place immediately that would be detrimental to business.

"President Trump is a negotiator, and he starts with the extremes," Wood said. "I don't think it's what people are used to — most of our politicians come to the table and try to present what they think is reasonable. Whereas he is trying to get to the ends of what he wants it to be. He will ask for the world and come back down. He wants it to end up at a reasonable point."

As negotiations continue, back at PGC, Cary-Hanson is sure of one thing: Changes to trade or not, she's planning to look out for her customers.

"We do whatever we need to do. We are already having to retool for export control, so we will do the next right thing to support our customers," she said.

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