President-elect Trump is already marching through his first 100-day agenda. Near the top of that list is withdrawing from NAFTA—or re-negotiating it.
On the campaign trail, Trump’s primary criticism of NAFTA is that it hollowed out American manufacturing. It didn’t, but his stated objective is shoring up productivity and retaining good jobs. He also promises to work with the U.S. Congress to pass an American Energy & Infrastructure Act that leverages public-private partnerships to spur $1 trillion in infrastructure investment over 10 years.
Stand up a North American Infrastructure Bank
The Bush Center has developed a recommendation that would enable Trump to do both by working with Mexico and Canada to create a North American Border Infrastructure Bank to help plan, finance, and coordinate the building of the next generation of border infrastructure projects. Here’s why we need it and how it would work.
Improving border infrastructure would reduce delays at border crossings that create a drag on all three North American countries. Border crossings for commercial goods are the critical nodes in the infrastructure that support regional supply chains and production. To get a sense of the magnitude, approximately $2.4 billion worth—2 million tons—of goods move between the United States, Canada, and Mexico on any given day. Three-fifths of that cargo moves by truck.
The cost to the U.S. economy and workers of border delays has been quantified. The Canada West Foundation says that staffing shortfalls and inefficiencies in security and customs procedures along the U.S.-Canada border will grow to cost the U.S. economy $15 billion annually by 2020. According to the North American Research Partnership, delays at the San Ysidro land port of entry between San Diego and Tijuana cost the U.S. economy $1.5 billion each year in lost output, and over 9,000 jobs that go unrealized, at just that border crossing.
Conversely, the University of South California in 2013 estimated that adding 33 more Customs Border Patrol (CBP) officers — one more at each of 17 U.S. passenger land ports of entry, 12 major freight crossings and four major airports — would create an additional $66 million in GDP, 1,094 annual jobs and $21 million in time saved.
“Let’s modernize NAFTA so it becomes a more powerful, modern vehicle.”
— Enrique Pena Nieto, President of Mexico (reported by Bloomberg.com)
It’s obvious why this should be an initiative among the three governments that control the borders. What’s less obvious is why the functions of planning, financing, and coordinating border projects should be housed in a North American Infrastructure Bank as the Bush Institute has proposed.
Less Politics, Less Time, and Lower Costs
Part of the complexity of border projects is that there are many government entities and jurisdictions involved in planning, approving, funding, building, and operating them, and just as many politics at play. Witness the debate over building a better bridge between Detroit and Windsor to accommodate the 2.5 million trucks each year that carry 25 percent of all U.S.-Canada cargo traded. Politics and public opposition on the Michigan side resulted in Canada agreeing to finance the bridge, including the inspections on the U.S. side, and connector highways in Detroit to boot.
A North American Infrastructure Bank could roll the best thinking in North America on infrastructure needs into one institution with the capacity to analyze, model, and forecast cargo and passenger traffic throughout North America, enabling it to provide objective projections of volumes and routes. Making impartial, data-driven projections accessible to public and private stakeholders in all three countries would make for better decision-making and prioritization.
Too many infrastructure projects never enter the planning phase due to the prohibitively high cost to local communities of conducting feasibility studies and meeting all pertinent regulatory requirements. Modeled on multilateral banks around the world, a North American Infrastructure Bank could operate with capital funded by the governments of the United States, Canada, and Mexico used to leverage private lending capacity, thereby relieving public budgets of a major burden. A North American border Infrastructure Bank could also facilitate coordination among agencies and entities building border projects, helping projects come in on time and at cost.
Promote the Tools of North American Competitiveness
Failure to improve border infrastructure and inspection procedures to handle increasing volume will exacerbate delays and increase the cost of goods that producers have to hold in inventory, diminishing the benefits of just-in-time production and delivery. That reduction in competitive advantage puts North American jobs at risk.
The United States has an opportunity to build its infrastructure advantage working with its two most important trading partners and neighbors. The leaders of Canada and Mexico have already expressed a desire to work with Trump.
In a congratulatory phone call to President-elect Trump, Canadian Prime Minister Trudeau said he was open to re-negotiating NAFTA. Mexico’s President Enrique Pena Nieto, speaking at an Asia Pacific Economic Cooperation Forum (APEC) Leaders meeting last weekend, said he was interested to “modernize” NAFTA so it becomes a more powerful, modern vehicle.
For those who believe in the economic success of NAFTA, concern over Trump’s characterization of NAFTA as “the worst trade deal in history” is giving way to the notion there’s no such thing as bad publicity. For years, advocates of updating NAFTA couldn’t garner sufficient political attention to include energy liberalization, digital trade, or serious attempts at regulatory coherence.
President-elect Trump has put NAFTA front and center. Regardless of whether the agreement is re-opened to address old or new issues, policymakers should consider new ideas to encourage greater economic cooperation across the continent. An improved approach to investing in border infrastructure is of mutual interest and benefit to all three countries, which makes it a good place to start the discussion.
Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.