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5 Ways Trump's NAFTA Efforts Will Impact Commercial Real Estate

Tensions are mounting as North American Free Trade Agreement negotiations proceed. 

Should a three-way agreement to revise NAFTA fail, President Donald Trump has said he is open to bilateral trade pacts with either Canada or Mexico.

President Donald Trump

The collapse of the 1994 agreement could have a massive impact on industries, including manufacturing, agriculture and energy, as well as the auto industry, which arranged its supply chain system around NAFTA terms, the New York Times reports.

Commercial real estate will also be impacted should the deal fall through in the following ways:

1. Industrial And Logistics Market Disruption

Industrial areas and other secondary and tertiary logistics and industrial markets could be hurt by the move toward increased protectionism because supply chains have become reliant on international trade relationships. A disruption to the interlinked supply chains would have a significant impact on the flow of goods and materials.

2. Lack Of Cross-Border Shipping Could Mean Higher Costs

Many manufacturers work with companies on both sides of the border, and employ more than 40 million Americans who oversee international trade.  Products often move across the border several times during the manufacturing process, which means shipping a few miles rather than across an ocean is key to keeping costs low for these companies. A container from China can take up to three weeks to deliver to the U.S. and can cost upward of $8K to ship compared to $3K from Tijuana.

3. Construction Jobs Are At Risk On Both Sides Of The Canada-U.S. Border

Above is the Mexico-U.S. border between San Diego on the left and Tijuana on the right.

The construction industry could take a serious hit if NAFTA negotiations fall apart. According to EDC statistics, a tariff increase would cost Canadians more than 362,000 jobs and a 1.9% decrease in the Canadian gross domestic product. It is projected that Americans would feel a similar effect given the fact that Canada is a chief trade partner in 32 states. 

4. Anti-Dumping Cases Could Increase

Retail, restaurant and agriculture groups have raised concerns about the damage the latest proposals could do to U.S. businesses and consumers. The groups recently expressed concerns about the possibility that imposing tariffs on Mexican products could result in U.S. seasonal produce growers filing anti-dumping cases against Mexico. Dumping occurs when foreign manufacturers sell products in the U.S. for less than they are valued at, thereby negatively impacting the U.S. economy. Retailers fear these anti-dumping suits would result in international manufacturers retaliating against American producers of avocados, tomatoes and other food typically imported from Mexico.

5. A Stronger Economy

Supporters of the NAFTA negotiation believe change is necessary and could benefit the commercial real estate industry by leading to a stronger economy.

RBM LLP real estate attorney and international real estate lawyer at O&O Realty Holding Ed Mermelstein told Bisnow there has been inconsistency in the economies of Canada, Mexico and the U.S., with the former two benefiting more from NAFTA.

“There is a a disparity in the economies, especially Mexico. Ultimately the idea would be if we expanded their economies that it would benefit the U.S., but … [the deal] has been very one-sided for years,” Mermelstein said. “NAFTA renegotiation will benefit the commercial real estate industry because real estate tends to do best during a strong economy.”