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On the Road to North American Recovery

Christopher Sands

New figures released on March 3 by the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) show that the dollar value of U.S. trade with Canada and Mexico using surface transportation in December 2009 was 10.5 percent higher that in December 2008. The December 2009 value was 12.3 percent higher than in December 2004 (before the current economic downturn) and up 36.6 percent over the December 1999 figure a decade earlier.

To come up with this figure, BTS compiles the value of trade that moves by truck, rail and pipeline to calculate a total for all surface transportation. The BTS estimates that roughly 85 percent (by value) of all U.S. trade with Canada and Mexico is transported by one of these modes.

This increase is a promising sign of economic recovery for the three countries. In 2009, Canada was the largest single U.S. export market, and Mexico was the second. Although China is a major exporter to the United States and—like Canada and Mexico—depends on the U.S. export market for the majority of its international trade, Canada and Mexico rapidly turn export revenues into import orders for U.S. goods and services, while China’s export revenues are often invested in U.S. debt. So, increases in Canadian and Mexican exports to the United States have the potential to set off a virtuous cycle of growth that would boost the U.S. economy in a way that a Chinese export boom would not.

Border and transportation infrastructure are a major contributor to the growth in the value of trade moving surface transportation. Investments in U.S. border infrastructure began to be made in 2002 and are ongoing. While the George W. Bush administration introduced a rolling series of changes to inspection procedures at the border after September 2001, there are hopeful signs that under the Obama administration, the pace of change at the border is slowing and policies and procedures have begun to settle. As customs officers gain familiarity and experience with inspection requirements, software and technology, the border becomes more predictable, allowing more rapid clearance of legitimate shipments.

Yet growth in trade by surface transportation will gradually translate into pressure on aging infrastructure moving away from U.S. borders, especially interstate highways and rail trackage. The deadline for committing federal funds for projects under the American Recovery and Reinvestment Act of 2009 (ARRA) was February 19, 2010. Even with construction incentives, it will take time for new highway capacity to be built. And to date it appears that the rail component of the ARRA has been devoted principally to high-speed rail—a boon for commuters but not for freight.

Investment in surface transportation infrastructure involves a lengthy process from design to siting to engineering to construction. Neglect of U.S. infrastructure is not a new phenomenon, and fixing it, even by 2020, would require that initial steps be taken now. Fiscal constraints on U.S. federal and state budgets make this seem unlikely, and the potential for a second round of federal stimulus spending winning approval from the current Congress is not encouraging.

The linkage between growth in U.S. exports—which President Obama hopes to double, as he noted in his 2010 State of the Union address on January 28—and physical surface transportation infrastructure must become clearer to policymakers and voters worried about public spending. Otherwise, the promising signs of a North American economic recovery in the new BTS statistics will be proven unsustainable.