Economy Watch: Industrial Still Likely to Benefit from Free Trade

While the Trump administration plans to bolster U.S. exports and reduce imports, a trade war with China or a U.S. withdrawal from NAFTA are unlikely, which bodes well for industrial development and absorption, according to a recent Cushman & Wakefield research report.
Jason Tolliver, Head of Industrial Research, Americas, Cushman  Wakefield
Jason Tolliver, Head of Industrial Research, Americas, Cushman & Wakefield

The Trump administration’s focus on bolstering U.S. exports and reducing imports could drive policy changes that impact industrial real estate markets in the U.S., Cushman & Wakefield reported in a logistics and industrial research briefing released on Monday. Even so, the report concludes that a trade war with China, or a U.S. withdrawal from NAFTA, remain unlikely—which is good news for industrial development and absorption.

“The importance of China, Mexico and Canada as export partners makes withdrawal from the North American Free Trade Agreement or a trade war with China unlikely scenarios,” said Jason Tolliver, head of industrial research, Americas at Cushman & Wakefield.

The company’s industrial research weighs the impact of trade with China—the U.S.’s second-largest trading partner and its third-largest export market, as well as a major driver of the industrial-related warehouse demand in the U.S.—and concludes that China remains too important of a trade partner for the U.S. to engage in a trade war.

As for NAFTA, that too is so important that fundamental change is unlikely. Still, all three NAFTA partners recognize the need to update the agreement, Tolliver noted. The Cushman & Wakefield report explained that U.S. trade with Canada and Mexico has increased more rapidly than with any other countries since the signing of NAFTA in 1995, and U.S. warehouse inventory has increased by a net of 3.5 billion square feet to help accommodate that growth.

More broadly, the momentum for free-trade agreements is still there, which ultimately is a driver for industrial space absorption. The U.S. is currently engaged in complicated trade obligations with 20 countries through 14 free trade agreements. Free trade partners account for nearly 70 percent of U.S. exports and more than 80 percent of imports.