Free Trade Essential to America’s Railroads and Small Businesses

By at 21 March, 2018, 9:38 am

by Raymond J. Keating-

International trade plays a vital role in the U.S. economy, with real total trade (exports plus imports) equaling 29.3 percent of U.S. real GDP last year, compared to a mere 6.1 percent in 1955, for example. Indeed, in industry after industry, trade matters.

Free Trade and Railroads

Consider, for example, the importance of trade to the freight railroad industry.

In early March, SBE Council released a report titled “All Aboard! Entrepreneurs and Small Business Power America’s Freight Railroads,” which explained the key role that entrepreneurs and small businesses play in the freight railroad system, and how important these railroads are to the overall U.S. economy. That report focused on the fact that partial deregulation some 40 years ago saved the failing railroad industry by enabling and incentivizing industry players to make decisions based on market conditions, which led to vast improvements in industry efficiency and productivity, capital investment, maintenance and safety, and profitability, along with reduced costs and enhanced service for customers. The final message was to avoid re-regulation efforts pushed by various special interests that would do real harm to small businesses, workers, consumers and the overall economy.

Likewise, it is important for the entrepreneurs, small businesses, large firms and workers in the railroad industry that the U.S. reject the special-interest call to retreat from global leadership on free trade. Nothing positive will come if the U.S. goes down the destructive, anti-growth path of protectionism, that is, imposing or raising governmental barriers and costs (like tariffs and quotas) to individuals and businesses being able to trade across international borders.

In a March 2017 study from the Association of American Railroads, it was reported:

● “42% of rail carloads and intermodal units are directly associated with international trade.”

● “35% of annual rail revenue is directly associated with international trade.”

● “Robust international trade means more jobs for U.S. railroaders. The rail trade data discussed above implies that approximately 50,000 rail jobs, worth over $5.5 billion in annual wages and benefits, depend directly on international trade. This does not include other significant job-related impacts, including employees at ports who handle shipments moving by rail, jobs at firms that supply goods and services to railroads and others in support of trade-related rail movements, and secondary and tertiary job impacts derived from the expenditures of railroad employees, port employees and their suppliers.”

In the policy mix right now is a great deal of uncertainty swirling around NAFTA, the trade agreement between the U.S., Canada and Mexico. Will President Trump undermine or even pull out of NAFTA, or will current renegotiations lead to positive results on such matters as strengthening intellectual property, data flow and market access?

On NAFTA, the AAR has noted, “Perhaps nothing exemplifies the benefits that come from trade as much as the free flow of goods between the U.S. and Mexico. Today, bilateral trade between the two nations exceeds $500 billion a year. Like much global trade, the relationship is complex. Of all the goods imported to the U.S. from Mexico, around 40 percent of their value actually comes from parts and other components originally made in the U.S. To take just one example, American-made parts are exported to Mexico and used in the assembly of new cars and trucks. These vehicles are then sent back to the U.S. where they are sold—a win-win for businesses on both sides of the border.”

It was wisely concluded in the March 2017 report: “While policymakers debate ways to help U.S. workers displaced by globalization, they must exercise caution and maintain the remarkable gains our economy has made through engagement in international trade. Stepping away from the global economy will cause irreparable harm to not just the rail industry but the economy as a whole.”

The Impact on Small Business

Again, the harm resulting from undermining or abandoning free trade would hit small businesses hard. In terms of trade in general, 76.2 percent of U.S. exporters have fewer than 20 employees, and 86.7 percent fewer than 50 workers; while 75.2 percent of importers have fewer than 20 workers, and 85.5 percent fewer than 50 workers.

And as for the railroad industry, as noted in SBE Council’s “All Aboard! Entrepreneurs and Small Business Power America’s Freight Railroads,” consider that in the Support Activities for Rail Transportation sector, 63.2 percent of firms have fewer than 20 workers and 81.2 percent fewer than 100 workers, and in the Railroad Rolling Stock Manufacturing industry, 43.2 percent have fewer than 50 workers and 69.8 percent fewer than 100.

So, it matters that governmental barriers to trade – such as tariffs and quotas – be kept low or eliminated. Through trade agreements with other nations, the U.S. expands benefits and opportunities for U.S. entrepreneurs, businesses, workers, investors and consumers.

Unfortunately, the U.S. is stepping further back from its global leadership role in advancing free trade, and is taking steps to raise trade barriers. Contrary to pro-growth measures on the tax and regulatory relief fronts, President Trump is working against increased growth and opportunity on the trade front, by pulling out of the Trans Pacific Partnership; imposing tariffs, such as on steel and aluminum; threatening to shut down our free trade agreement with South Korea and to impose big tariffs on goods from China; and raising uncertainty about NAFTA, with the lingering possibility of the U.S. pulling out.

If this Administration is serious about ramping up economic, income and job growth, then U.S. leadership and action on free trade is a must.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


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