One of our major macroeconomic narratives for this year is the easing of trade tensions among major North American trading partners, and Canadian Pacific’s $25 billion deal to purchase Kansas City Southern marks a significant move in this direction.
The deal would create the first railroad network covering Canada, Mexico and the United States, and helps advance the vision of an integrated North American economy, first articulated in the 1980s.
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.
At a minimum, this deal creates a vast rail network that will connect manufacturing and agricultural nodes deep into Mexico to support global trade through the Gulf of Mexico.
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.