The Real Economy, Canada

Rail deal is a sign of increasing North American economic integration

Apr 16, 2021
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Economics The Real Economy

Canadian Pacific’s $25 billion deal to purchase Kansas City Southern marks a significant move toward easing tensions among North American trading partners this year and fulfilling the vision of an integrated economy on the continent.

By creating the first railroad network covering Canada, Mexico and the United States, the deal promises to connect manufacturing and agricultural nodes from Canada deep into Mexico to support global trade through the Gulf of Mexico.

The major winners from this deal will be the North American auto, manufacturing and agriculture ecosystems. At a minimum, this implies a much deeper integration of the continent’s global supply chains, which should benefit all of these industries as well as revitalizing North American rail.

The merger should also help reduce environmental challenges by shifting transportation from roads to rails.

Given that two of the Biden administration’s major policy goals are rebuilding the nation’s infrastructure as well as mending trade relationships, excluding China, policymakers will be looking closely at how they can facilitate the development of single rail lines throughout the three economies.

The takeaway

This deal points to a greater opportunity for Canadian, Mexican and American middle market firms to get their goods to market in a cheaper and more environmentally friendly manner.

RSM contributors

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The Real Economy Blog was developed to provide timely economic insights about the middle market economy. It is offered as a complement to RSM’s macroeconomic thought leadership, including the quarterly The Real Economy Canada.

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