Top transportation executives weigh in on NAFTA

Although only a few more days remain until Donald Trump is sworn in as the 45th President of the United States, there have been more than a few days since the election to ponder what happens next, when Trump’s campaign rhetoric, andTwitter-speak, take up permanent residence in the oval office.

From a freight transportation and logistics presence, there are many things to consider, effective January 20. One thing is what specifically the vision will be for Trump’s proposed trillion-dollar infrastructure plan and another is what will happen to U.S. relations with China, with Trump labeling China a currency manipulator and saying on the campaign trail that he would plead his case to the World Trade Organization and place tariffs on Chinese-bound exports to the U.S.

But closer to home is Trumps disdain for the North American Free Trade Agreement (NAFTA) with China and Mexico, which he views as a failure while stating he prefers bilateral trade agreements instead of multinational deal-based ones.

At times while campaigning, he said that, if elected, NAFTA could go away entirely, but based on a November report in the Wall Street Journal, he indicated 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.  

Given the several billion dollars in trade between the U.S. and its NAFTA partners each month, which is typically in the neighborhood of $90 billion, as per the DOT’s Department of Transportation Statistics, give or take, any potential actions taken by the incoming administration to lessen this cross border trade activity is not necessarily being welcomed with open arms by many freight transportation services providers to say the least.

“We believe that NAFTA is good for the U.S. economy,” said Kansas City Southern president Pat Ottensmeyer at the RailTrends conference late last year. “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.” 

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 leading up to the election.

“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."

Ottensmeyer is not the only executive lamenting NAFTA’s fate.

XPO Logistics Chairman and CEO Brad Jacobs said before the election that one of the most relevant issues for transportation is what happens to Mexico, explaining that XPO has around $800 million of cross-border business with Mexico mainly for intermodal, and it is a also big part of its trucking business, too.

And Jacobs quipped before the election in an interview that were a wall to be built at the U.S.-Mexico border, he would “hope there is a way for it to let trucks and trains in.”

One of the most powerful voices in the industries we cover, FedEx Chairman and CEO Fred Smith, made a powerful case for NAFTA’s effectiveness in a December speech at the National Competitiveness Forum.

Calling NAFTA a “lynchpin of our current economic competitiveness,” Smith noted that NAFTA eases trade among 450 million people in the U.S., Canada, and Mexico, with NAFTA trade more than quadrupling in 20 years and, in turn, boosting the economies of each country.

Citing U.S. Chamber of Commerce data, Smith said nearly 14 million U.S jobs depend on trade with Canada and Mexico, and he said that according to the Peterson Institute NAFTA makes the U.S. $127 billion richer each year.    

As for the Trump’s suggestion that the U.S. withdraw from NAFTA, Smith explained that would be catastrophic for the U.S. economy, specifically the nature of North American supply chains, as “few people understand how NAFTA has woven the productive capacity of North America into one integrated platform. The United States, Canada, and Mexico make so many things together.”

What’s more, U.S. withdrawal from NAFTA would result in what Smith called “massive economic repercussions,” including” thousands of U.S. companies having to shift supply chains at great cost and disruption to their businesses, as well as Americans needing to understand that NAFTA withdrawal does not ensure Mexico-based production comes back to the U.S, as potentially many U.S. manufacturers would either find suppliers in other countries or use Mexican production to export to other markets under Mexico’s 40-plus free trade agreements.

When high-profile executives like Ottensmeyer, Jacobs, and Smith each make their respective cases for NAFTA to not go away, it requires some attention in terms of what the U.S. leaving it could bring in terms of both economic and manufacturing competitiveness and over all success as a nation. This is a situation that requires close attention come January 20.