While Canadian carriers in an export-based economy benefit mightily from the North American Free Trade Agreement, their U.S. counterparts stand plenty to lose as well, according to several American trade experts who spoke to Heavy Duty Trucking.
In his first full week in office, President Donald Trump has made reexamination of international trade agreements a top priority for his administration. While it’s still unclear what the president has in store for NAFTA, several economists and academics agreed the North American trucking industry as a whole has benefited greatly from various free trade agreements, namely NAFTA; and although some U.S. carriers would face less competition if NAFTA were curtailed, even more would be negatively impacted as a result of the loss in overall freight demand.
The article, titled Will Trump’s Take on Trade Be Boost or Bust for Fleets, pointed out that cross-border trade generated by NAFTA was worth $89 billion to the U.S. trucking industry last year.
“Trade and trucking are synonymous, and the increased movement of freight yields more good paying jobs and growth in American companies,” said Bill Sullivan, executive vice president of advocacy for the American Trucking Associations. “We want to help the administration and Congress build a trade framework that helps grow our economy, including the trucking industry.
“Since 1995, the value of goods traveling between the U.S. and Canada has risen dramatically – nearly 168% to $712 billion, supporting thousands of jobs in the trucking industry … We will work to support any trade policies that help grow good-paying American jobs and the trucking industry.”
Marina Whitman, professor of Business Administration and Public Policy at the University of Michigan, contends some aspects of Trump’s economic plans would benefit truck fleets, such as reforming corporate taxes and certain moves to deregulate the industry, however, “the strong protectionist slant taken by the Trump administration is, I think, significantly damaging to industry in general and trucking in particular, since trucking is highly sensitive to any disruption in this highly integrated market.”
Whitman said private, high-level meetings are taking place as Canadian officials and business stakeholders work with American counterparts to convince the Trump administration of the dangers of disrupting these highly integrated markets. “There are no other markets trucking can look to if these agreements end,” she added. “Digital commerce cannot make up the shortfalls that will occur in the trucking industry if that happens.”
Greg Wright, a professor of economics at the University of California, Merced, said U.S. fleets should be “wary” of any moves that undo such agreements in haste.
“My understanding is that upwards of 60% of NAFTA trade is truck-based … so there is probably little replacement for this trade coming from anywhere since these are the U.S. land borders. There is of course a simultaneous growth in internet-based commerce which certainly can be good for trucking … but I see this as separate from NAFTA, meaning that losing NAFTA would be a pure loss of demand for trucking.”
In general, Wright told HDT any policy that raises the cost of trade with Canada and Mexico will hurt American trucking. “This is an important point because it highlights the larger issues here,” he noted. “Foremost, U.S. exporters are also U.S. importers: There is an enormous overlap between the set of firms engaged in these activities. More generally, two-thirds of global trade is in intermediate goods, meaning inputs into the production process, with the result that when US imports are taxed, firms face higher costs and firm productivity falls. It is absolutely true that some jobs may be saved, but the existing evidence indicates that this is a very inefficient [costly] way to save jobs.”
The reality today, Wright added, is that the global supply chain is incredibly sophisticated and NAFTA is emblematic of that. “Auto transmissions are made in Canada and brake lights in Mexico, etc. and trucking keeps the whole process going,” he said.
NAFTA benefits American trucking companies in two ways, Charles Hankla, associate professor of Political Science, Georgia State University, tells HDT. Most directly, he said NAFTA has greatly facilitated the ability of American trucking companies to move freight across the border into Mexico and Canada, significantly increasing the market for those services. Less directly, but probably of equal importance, Hankla said NAFTA has encouraged the integration of production across the three countries, creating demand for raw materials, capital goods, and finished products to be moved back and forth across the borders.
“Of course, NAFTA has also allowed Canadian and more recently, after an extended dispute, Mexican truckers to carry freight into the United States, increasing competition for American trucking companies,” Hankla noted. “But the overall growth in business has certainly offset this effect.”
“In the final analysis,” he added, “any U.S. trucking firms that do a lot of business in Mexico and Canada, or that work for companies that are dependent on international trade, whether for inputs or markets, should be concerned about the direction that the Trump administration is heading.”
Full HDT article here.