Border closure would affect far more than your avocado toast

A few days ago, I was standing in a Target store with my wife holding a box of Luvs baby diapers. It was time to refill the supply we keep on hand for the two days a week that our granddaughter spends with us. “Made in Mexico,” the box said. 

I immediately envisioned Procter & Gamble’s North American supply chain, and hundreds of others like it. And I thought about the seeming near miss that supply chain had just experienced.

{mosads}Just two days earlier, President Donald Trump walked back his threat to close down the U.S.-Mexico border to people and goods, instead handing Mexico a “one-year warning” to address his concerns about migrants traveling north through that country on the way to the United States. It must have come as a relief to U.S. multinational corporations like P&G.

But it shouldn’t have. 

Yes, Trump’s latest trade retreat might have spared businesses (for now) the adverse repercussions that shutting down the border between the United States and its third-largest trading partner would cause. But the threat alone may also inflict damage on trade across North America.

Free trade has been a fixture for Mexico, the United States and Canada since the mid-1990s when all three countries ratified the North American Free Trade Agreement (NAFTA).

In the past 25 years, multinational companies have woven their supply chains across the continent, moving parts and goods from country to country, conceptualizing, designing, manufacturing and assembling across three tightly connected, trade-dependent countries.

The Trump administration’s recent threats come as lawmakers in Mexico, the United States and Canada weigh the merits of a revised three-country trade treaty, the United States-Mexico-Canada Agreement (USMCA). The agreement aimed to modernize the quarter-century-old NAFTA in a way that reflects the new digital economy. 

The new treaty, like the one before it, is predicated on the promise of the free movement of certain goods across the United States’ northern and southern borders. The Trump administration’s recent threats defy that promise and may cast the United States as an untrustworthy partner.

The political context is staggering, and so is the business context.

Mexico accounted for some $557 billion in U.S. commerce last year. Canada is our second-largest trading partner, with $582 billion. Only China is larger, at $636 billion. 

It is a perfect setting for a series of unintended and largely unappealing consequences. Headlines have warned that if the border were to close, the United States would face an avocado shortage within about three weeks. The truth is that shortages of goods would be far more wide-reaching.

Those shortages, from fresh food to manufactured goods, would drive up prices, weigh on corporate profits, pressure consumers and strain the U.S. economy. The avocado effect is very small potatoes.

North American trade is critical trade — not just for Procter & Gamble. Unilever, General Motors, Ford, General Electric, 3M, Dupont, Xerox, Hewlett Packard, Motorola, IBM, Coca-Cola, Caterpillar and many others thread their supply chains across the U.S.-Mexico border.

Closing the border would sever those supply chains, hindering commerce in our most essential trading region. It would imperil hundreds of thousands of jobs at home. 

Amy and I left Target and stepped into the parking lot, where SUVs pulled in and out of their perfectly symmetrical spaces. So many of them, I thought, are products of North American trade — designed in the United States, assembled in Canada, with parts from Mexico. I tossed the baby diapers into our car, and we headed home.

Gary Cohen is a clinical professor of international business, global trade and supply chain management at the University of Maryland’s Robert H. Smith School of Business.