New President, New NAFTA

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The Trump Administration will seek modest changes to the North American Free Trade Agreement renegotiation process. According to a draft of a letter sent to Congress last week, the Administration is seeking a more conventional approach to trade negotiation.

NAFTA, which was established in 1994 between Canada, the U.S., and Mexico, aims to reduce trading costs, increase multilateral investment, while helping North America become more competitive.However, during the 2016 presidential campaign, President Trump made the debate over free trade one of the central topics of his campaign.

What is the plan for the renegotiation?

The persistent U.S. deficit in goods trade with Canada and Mexico demands that the administration take quick action to revise the relationship and adapt to the new global environment. In 2016, the U.S. deficit in goods with Canada is $42.848 billion (Data from Census.gov.foreign-trade/balance), which is only 2% of the total Canadian trade of $545 billion.

The trade deficit in goods with Mexico is $63.191 billion. Exports are $231 billion, made up primarily of auto parts and petroleum products, while imports are $294 billion, with cars, trucks, and auto parts being the largest components.

In addition, this administration believes that Mexico has taken millions of manufacturing jobs from the U.S. Should the U.S. or Mexico just leave NAFTA?

My short answer is NO. According to the data provided by Mexican government, more than 80% of Mexican goods exports are tax free to the United States, and since the signing of the trade agreement, all kinds of US companies in Mexico have grown with large number of jobs.

In the United States, some U.S. manufacturers get hurt because of NAFTA, while most American farmers profit from the agreement. Withdrawing from NAFTA will aggravate the U.S. goods trade deficit and tensions will continue to escalate, and eventually this will lead to the rupture of NAFTA.

Mexican cars will be more competitive in the United States due to depreciation of the peso, and the trade deficit will expand. On the other hand, Mexico is the third largest agricultural export market for the United States and U.S. exports of agricultural products will be more expensive for Mexican consumers.

As President Trump moves to revisit the North American Free Trade Agreement with Mexico and Canada, some are concerned these negotiations would actually limit the aggregate benefits the United States can gain. Some even claim that the United States may be handing a leadership role to China, a country that has repeatedly ignored intellectual property laws and manipulates its own currency.

Handing this role to a country who’s bad practices are at the helm of whats wrong with global economy could make for a trying situation, and one that President Trump should think about before passing the torch to China.

New world, New policy: Overcoming the Burden of Foreignness

burden of foreignnessWhy should we worry about misaligned participations in trade? According to the U.S. Department of Commerce, less than 1 percent of U.S. firms export. Tens of thousands of small-business manufacturers and service sector firms could export their goods and services, but do not. These companies often fear the challenges of going overseas. But all firms entering new markets face shortcomings and disadvantages when compared to local competitors. Due to a lack of local knowledge, unfamiliarity with market conditions, insufficient insights into consumer behavior, and newness to political decision making, all new entrants encounter a “burden of foreignness.” Policymakers need to help prospective exporters overcome this burden and successfully access new opportunities overseas.

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Shame Curbs Bad Behavior

In China, no one is safe on March 15th, World Consumer Rights Day. An Evening Gala is hosted every year by CCTV, China Central Television since 1991. The purpose is to name and shame companies for their misconduct against consumer interest.  In decades past, firms like Starbucks, LG and Hewlett-Packard have been called out when offering poor products or irresponsible customer service. Many Chinese companies and state-owned enterprises like China Mobile have been inducted in this Hall of Shame as well.

This year, the Evening Gala aimed mainly at the misconduct in E-Commerce and Social Media. According to the State Ministry of Industry and Commerce, during this gala, Elema, a billion-dollar food delivery company, was shamed for making food under unsanitary conditions; Yipai (Easy Pass), China’s leading online automobile marketing platform, was accused of hurting consumers by providing personal   information to outsiders; Taobao, the biggest online shopping website founded by technology giant Alibaba, was  named for fraudulent consumer reviews which influenced product  rankings.  The Gala quickly became a battle cry for corporate PR teams, who had to come up overnight with explanations and damage control.

Will these allegations curb bad behaviors in companies and individuals? The answer seems to be “yes”. A new law prohibits indoor smoking in Beijing.  Individuals breaking these regulations can be fined $30, restaurants up to $155. In addition to the fines, repeat offenders see their names posted on a government website for one month, alongside a list of their offenses. Witnesses to infractions are urged to notify the government. Social shaming pressure is expected to make the new law more effective – and it works!

Shame can be used to focus attention on some “bad apples”, especially when it comes to major collective problems. It helps to be creative and focused when choosing targets. Companies, such as British Petroleum or SeaWorld, do not feel guilt. However, the people working in these corporations do. Their thoughts and behavior can be influenced by public disapproval and even mortify them. Public opinion can be essential for companies, especially if they are producing consumer brands, such as IPhones or agile Orcas. Reputational risks are a concern, and public shaming can be most effective if targeted at ”friendly” corporations and their employees.

One must ponder the question: can “shame” really work in implementing government policy? Jennifer Jacquet, author of Is Shame Necessary?, claims success for a website run by the state of California that lists the names of people who have not paid their taxes. The site targets only the top 500 delinquents, and the state has retrieved more than US$395 million in back taxes since it was launched in 2007.

Another possible and very helpful area for “shame policy” is immunization of a country’s population. Typically, 90 percent of people need vaccination for there to be true immunity. People can opt-out and get a “free-ride”, since everyone around them is taking the needle for them. However, with reduced compliance, immunization doesn’t work anymore. That’s where shaming can help encourage participation.

Another example is the Rainforest Action Network and its shaming campaign against banks which financed coal companies doing mountain-top removal in the Appalachia region. After a five-year campaign, two of the nine banks have changed their policy of lending to coal companies. Two out of nine may seem like limited success, but every march starts with the first step.   Shaming can act as a stop-gap for the period when people are concerned about something and when actual change comes about.

Working to avoid shame can lead to better weights and measurements. Who wants to be ridiculed by competitors or lose a long-developed fine reputation. Particularly in fields such as marketing, where the brand and personal perceptions are paramount, shaming can become a major influence if not the rationale for the curative marketing approach which aims to heal relationships between business, government and consumers. Avoiding shame by reducing, eliminating and making up for past mistakes, can strengthen a company’s unique selling proposition and let it emerge as a seasoned competitor.

On Freedom and International Marketing, Part 6: The Input of Culture

This is one of the published series on the linkages between freedom and international marketing.

Cultural studies tell us that there are major differences between and even within nations. International marketing, through its linkages via goods, services, ideas, and communications, can achieve important assimilations of value systems. On the consumer side, new products offer international appeal and encourage similar activities around the world: many of us wear denim, dance the same dances, and eat pizza and

On the consumer side, new products offer international appeal and encourage similar activities around the world: many of us wear denim, dance the same dances, and eat pizza and sushi. It has been claimed that local product offerings help define people and provide identity and that it is the local idiosyncrasies that make people beautiful. Some even offer the persistence of the specific breakfast habits of the English and the French as evidence of local immutability in the face of globalization. Yet, we should remember that values are learned, not genetically implanted. As life’s experiences grow more international and more similar, so do values. Therefore, every time international marketing forges a new linkage in thinking, new progress is made in shaping a greater global commonality in values.

It may well be that international marketing’s ability to align global values which makes it easier for countries, companies, and individuals to build bridges between them, may eventually become the field’s greatest gift to the world.