TRADE AGREEMENTS: NAFTA, MEXICO, & CANADIAN BORDERS AND POLICY Site Selectors Guild Annual Conference Tucson, Arizona March 2017

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1 TRADE AGREEMENTS: NAFTA, MEXICO, & CANADIAN BORDERS AND POLICY 2017 Site Selectors Guild Annual Conference Tucson, Arizona March 2017

2 Our Breakout Team Bob Hess MaR Highfield Jim Renzas Ulrich Schmidt Gregg Wassmansdorf Facilitator: Deane Foote 2

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4 About The Study Extensive guide to international costs 2016 is 11 th published edition 20-year history behind the study Ranks locations based on business costs 10 countries, 100+ cities 19 industries 26 business cost factors Six months of research 50,000+ data elements 4 44 sponsors in 4 countries Australia; Canada; Netherlands; United States

5 Cost Components Analyzed 5

6 Most Cost Compe]]ve Countries 6

7 Overall Interna]onal Cost Results 7

8 Business Sector Results Digital Services Corporate Services R&D Services Manufacturing 8

9 HOURLY WAGES; TIJUANA VS U.S. LOCATIONS Fully loaded wage cost per hour in USD $16.00 $15.50 $15.50 $14.00 Chart Title $13.50 $13.50 $5.00 $4.00 Silicon Valley Dallas Charlotte Tijuana Skilled Machine Operator Machine Operator 9

10 ANNUAL COST ESTIMATE Cost of Goods Made per Year (In Thousands $USD) Annual Cost Savings from Moving Operation to Tijuana = $1.3 MM/Year or about 20% Chart Title Facilities Equipment Materials Labor Import Duties $10,000 $8,000 $6,000 $4,000 $2,000 $0 Silicon Valley Dallas Charlotte Tijuana 10

11 ANNUAL COST ESTIMATE WITH TRUMP BORDER TAX AS PROPOSED AT 20 % Cost of Goods Made per Year (In Thousands $USD) Annual Cost Savings from Moving Operation to Tijuana = $380,000 or 4.3 % Chart Title Facilities Equipment Materials Labor Import Duties $10,000 $8,000 $6,000 $4,000 $2,000 $0 Silicon Valley Dallas Charlotte Tijuana 11

12 Why Trade? Outbound: Revenue genera]on (market entry sales) Inbound: Compe]]ve sourcing (finished or in- process) 12

13 Why Trade? The Cross- Border Supply Chain Source: Mar]nrea Interna]onal 13

14 NAFTA in Perspec]ve A dynamic economic region becoming more intertwined every year U.S. combined trade deficit with China, Japan & Germany is 7.5 x that of Mexico Source: Geopoli]cal Futures; U.S. Department of Commerce 14

15 NAFTA in Perspec]ve Source: Murat Yukselir, The Globe & Mail and Sta]s]cs Canada 15

16 NAFTA in Perspec]ve Source: The Globe & Mail and U.S. Census Bureau 16

17 NAFTA 2.0? We have a very outstanding trade rela]onship with Canada. We ll be tweaking it. We ll be doing certain things that will benefit both of our countries. On the southern border for many, many years the transac]on was not fair to the United States. It was an extremely unfair transac]on we are going to make it a fair deal for both countries. President Donald Trump, February 13, 2017 Un]l...the U.S. government has effec]vely built its strategy for how to deal with NAFTA, I think there s s]ll a great deal of uncertainty ler in this one. Bruce Heyman, immediate past United States Ambassador to Canada, February 2017 Canada and Mexico have been a very good example of keeping the light on in the world... other countries would be watching to see how Mexico, Canada and the U.S. define the future of trade rela]ons. Mexican Minister of the Economy Ildefonso Guajardo, February

18 NAFTA 2.0 Poten]al Outcomes Physical barriers Border thickening Unwind trilateral NAFTA in favor of three bilateral trade agreements VISA requirement changes Tariff increases by sector (products and/or services) NAFTA rule changes for cross- border employee movement Border adjustment taxes Refusal or delays co- opera]ng on non- trade issues (e.g. security, migra]on, an]- narco]cs ini]a]ves) 18

19 Metros at Risk by Pending Trade Disputes Source: Garner Economics LLC 19

20 Metros at Risk by Pending Trade Disputes Source: Garner Economics LLC 20

21 Discussion Q s Many companies have announced America 1 st projects (GM, Ford, Carrier, Foxconn, Intel). Who s next and why? With NAFTA being tweaked and a Border tax possible, what s next for site selec]on? What should US regions/ci]es be preparing for? 21