Railroad leaders stress importance of trade deals

One thing President-elect Donald Trump made very clear on the campaign trail is that he is not, by any stretch, a fan of the North American Free Trade Agreement (NAFTA).

At times, he said that, if elected, NAFTA could go away entirely, but based on a report in the Wall Street Journal, it looks like he may be willing to “settle” for some changes to  NAFTA instead of not scrapping it altogether. The WSJ report noted that comments from Trump and his inner circle indicate they want “big changes” made to NAFTA, including special tariffs or other barriers to reduce the nation’s trade deficit with Mexico and new taxes hitting for U.S. companies that have moved production to Mexico, and the removal of a NAFTA provision that enables Canadian and Mexican companies to challenge U.S. regulations outside of the court system.  

While Trump’s election win has been viewed as a boon for big business, it was clear at last week’s RailTrends conference in New York, which was hosted by Progressive Railroading magazine and independent railroad analyst Tony Hatch, that tinkering with NAFTA could actually be bad for business.

“We believe that NAFTA is good for the U.S. economy,” said Kansas City Southern president Pat Ottensmeyer. “It is certainly too big to be taken lightly. There were a lot of horrible things said about NAFTA, with some people calling it devastating or a big mistake.” 

Ottensmeyer said he is hopeful and confident that individually and through different organizations the freight railroad sector will have a voice at the table with policy makers to make sure there is a reasonable outcome for NAFTA, as there is too much at stake.

And he also made it clear that opposition to NAFTA is not new terrain, highlighting how in 2008 both President Obama and Republican candidate John McCain each made strong statement about the U.S. opting out of NAFTA. What’s more, Ottensmeyer said that the door appears to be open for a dialogue between businesses and policy makers, cabinet members and other officials that could be considerably different from the campaign rhetoric over the last several months.

“There is just too much at stake when you look at the trade numbers for the U.S. with Canada and Mexico,” he said. “When you opt out of NAFTA, you opt out of everything. You just cannot opt out of Mexico, so…it would be very harmful to the North American economy and potentially have social consequences as well depending on how far it went."

From a KCS perspective, Ottensmeyer said the company’s biggest export is corn from the upper Midwest into the heart of Mexico. And with its business across the border, for both imports and exports, being very well balanced in that it moves a lot of auto parts into Mexico that become finished vehicles and exported back to the U.S., with the U.S. contents of Mexican produced vehicles more than 50 percent.

Other railroad industry stakeholders at RailTrends stressed the importance of leaving trade deals intact.

“I am confident that the President-elect recognizes the importance of trade to the world economy, and he certainly has invested around the world and understands the need to have trade and will be working with the National Association of Manufacturers, the U.S. Chamber of Commerce and others,” said Ed Hamberger, Association of American Railroads president and CEO. “We want fair trade and need to make sure the lanes of trade remain open.”

The concept of removing or altering existing trade agreements has the potential for a disaster scenario, according to Chuck Baker, president of the National Railroad Construction & Maintenance Association.

Something like an import restriction spiraling into a trade war is not impossible to envision, Baker said, while adding it is something that should and could be avoided.

“Getting to fair trade is not an impossible thing, but there will be a lot of people with different opinions about what fair trade means and we don’t get to unilaterally impose those definitions in those sensitive negotiations so I think that is a real soft spot we are going to have to keep a close eye on.”