The North American Free Trade Agreement has meant about five times more business with Mexico over the past 20 years for the trucks and trains crucial to Nebraska’s economy.
While it is hard to separate normal economic growth from trade attributable to the treaty, any prosperity related to it might be in peril. President Donald Trump has said the treaty is unfair to U.S. manufacturers and should be scrapped — a power play well within his authority.
A lot might be at stake for some big Nebraska corporations.
Top Nebraska employers such as railroads Union Pacific and BNSF Railway and trucker Werner Enterprises have seen their freight volumes with Mexico rise since the implementation of the treaty in 1994 that pretty much did away with tariffs on goods exchanged among companies in the United States, Mexico and Canada.
In other words, as U.S. factories and farms took advantage of new customers south of the border — and as Mexican ones did the same with their northern neighbors — the trains and trucks hauling the lumber, tennis rackets, beer, corn, electrical components and so on found themselves flush with additional cargo.
And those businesses that have benefited from eased trade regulations with Mexico are key to Nebraska’s economy. Omaha-based Union Pacific employs about 8,000 people in the state, while Texas-based rival BNSF employs 5,000 in Nebraska. Werner is one of the nation’s top trucking firms, with 7,000 trucks and 600 metro-area headquarters workers, saying in regulatory filings that it is one of the largest truckers moving in and out of Mexico. (BNSF is owned by Omaha-based Berkshire Hathaway, which also owns this newspaper.)
As for the numbers, they portray a notable increase in cross-border trade since the treaty’s enactment.
In 1995, the total value of all U.S. rail-transported imports and exports with Mexico amounted to $14 billion, according to the U.S. Transportation Department. Fast forward to 2015, the last full year for which statistics are available, and the value of that trade had skyrocketed to $75 billion, an increase of more than fivefold.
Put in a wider context, U.S. railroad business with Mexico was about on par with the current gross domestic product of a small nation such as Iceland or Guinea. Now, that trade is about equal to the gross domestic product of larger and more diversified economies such as Bolivia and Costa Rica.
For trucking firms such as Werner, the data is similar. In 1995, truck trade with Mexico amounted to about $80 billion. By 2015, that had vaulted almost fivefold to $375 billion.
Keith Larsen, a lawyer with Omaha’s McGrath North whose practice includes international trade, said NAFTA was designed to foster trade among Canada, the U.S. and Mexico, and clearly did so. For a 10-year period starting in 1994, it reduced tariffs to zero on nearly all products, a regimen enforced by a Free Trade Commission, which includes representatives from all three countries.
Larsen said it is generally agreed that the treaty is responsible for the increased trade between the United States and Mexico.
“The impact on jobs is a different story, of course,” Larsen said, acknowledging the loss of U.S. manufacturing payrolls as factories moved to Mexico or suffered from new competition originating there. “And economists are all over the map in assessing the pros and cons of NAFTA.”
Robert Scott, an economist with the Washington-based think tank Economic Policy Institute, said NAFTA has cost Nebraska about 3,000 jobs over the years, from factory relocations and increased sales of goods imported from Mexican factories, at the expense of sales from U.S. plants. Nationwide, almost 700,000 such jobs have been lost, Scott estimates.
Other studies cite much lower job losses. And some argue that while certain industries such as textiles have been decimated, overall U.S. employment is higher now than before the treaty.
“In any case, Mexico is not the most pressing trade problem facing the United States,” Scott said. “China, Japan and Germany are.”
Those nations, he said, compete unfairly with the United States in global trade via currency manipulation and government subsidy of business. None, of course, is as nearby as the southern neighbor of the United States, where Union Pacific and BNSF hand off to and pick up goods at the border from other rail carriers operating in Mexico.
But Scott said he isn’t overly concerned about U.S. railroads even if NAFTA disappears, with a handful of large freight carriers operating in the United States in designated areas and no new competitors likely to emerge.
“The rail industry is the last thing I am worried about,” Scott said. “They are essentially regulated monopolies.”
Both Berkshire Hathaway-owned BNSF — the largest U.S. railroad — and second-biggest Union Pacific referred inquiries about NAFTA to the Association of American Railroads. A representative from the association said NAFTA had been good for the railroads.
But Union Pacific, which serves all six border rail crossings into Mexico, is closely following the matter, company executives said on a conference call with analysts and investors last month. Chief Executive Lance Fritz said on the call that the exchange of goods between the countries — which accounts for 11 percent of Union Pacific’s freight volumes — is a proposition by which each nation adds something of value to the imports of the other before reaching the end user.
“Cross-border trade, specifically with Mexico, when you dig deeper, a large percentage — more than half, the lion’s share — has value added on both sides of the border and is inextricably linked to our economy,” Fritz said. “So we have been giving that kind of feedback to elected officials and regulators for a long time.”
In 2004, Union Pacific was collecting about $1 billion a year from Mexican trade, or about 8 percent of annual operating revenue. A lot of it was vehicle parts from U.S. manufacturers selling to auto plants in Mexico, whose finished units U.P. then hauled back north for sale to new car buyers in the United States.
In 2015, the same trade was in effect, but on a larger scale: more than double about 10 years earlier in dollar terms, to $2.3 billion, or about 10 percent of operating revenue. (Western U.S. rival BNSF doesn’t break out such detailed statistics on Mexico, as it is a wholly-owned division of Berkshire Hathaway without stockholders of its own. The company, however, serves five of the six rail-border crossings into Mexico.)
On the trucking side, in 2015, Mexico accounted for $191 million of Werner Enterprises’ $2 billion in operating revenue, or about 10 percent. In 2002, Mexican revenues were $61 million, or about 5 percent of overall company operating revenue.
So is all of that commerce beneficial to Nebraska’s freight haulers really under threat? Or is all of the bluster more of a political game designed to soften up the other side for some renegotiation of terms?
“NAFTA has likely been instrumental in U.S. trade growth with both Canada and Mexico,” said Daniel Sherman, a transportation industry analyst with St. Louis-based wealth adviser Edward Jones. “The question the stock market is trying to answer now is whether that trade is under threat or are we just adjusting the terms a bit. I would argue, and the market seems to currently believe, that we are in the process of adjusting the terms.”