Trump’s Trade Tweets Hurt Kansas City Southern Railroad | KCUR

Trump’s Trade Tweets Hurt Kansas City Southern Railroad

Feb 1, 2017

The KCS-MILW Joint Agency Yard is located near the Missouri River in Kansas City's East Bottoms.
Credit Frank Morris / KCUR 89.3

President Donald Trump’s threats to disrupt trade with Mexico aren’t just concerning people south of the border. Each time Trump attacks the North American Free Trade Agreement (NAFTA), the executives at a 130-year-old railroad with headquarters in downtown Kansas City, Missouri, hold their breath. Like a lot of U.S. companies Kansas City Southern depends on cross-border trade.   

Kansas City Southern takes Midwestern corn and auto parts to Mexico, and hauls finished cars, car parts and household appliances like washing machines and refrigerators back.

"They are the NAFTA railroad," explains Jason Seidl, the managing director for Cowen and Company and a Wall Street analyst for Railway Age.  

"Anything that negatively affects trade with Mexico is going to negatively affect Kansas City Southern."

Seidl says Donald Trump’s presidency threatens trade.

Trump has targeted the nearly $60 billion trade deficit with Mexico by threatening to punish companies moving production there, and adding a tariff. He’s called NAFTA a "disaster."

The stock market is up sharply since Trump’s election, with investors betting that lower taxes and less regulation will boost most company’s bottom lines. The Dow Jones U.S. Railroads Index has climbed about 25% since the election. But Seidl says Trump’s protectionist threats have pushed down the price of Kansas City Southern stock.

"Uncertainty is the number one killer for stock performance, and that’s what we have right now," laments Seidl. "We’re one tweet away from it (Kansas City Southern) underperforming the group that day, and based on the president’s current tweet rate that could be a lot of tweets between now and the end of the year."

And it’s not just tweets. Last month, Ford Motor Company abruptly scrapped plans to build a $1.6 billion assembly plant in Mexico. 

“This was a big plant, and it was going to be served by Kansas City Southern,” says Tony Hatch, a senior transportation analyst with ABH Consulting. “I think that would have been a minor blow. I think the symbolism has been a major blow.”

Hatch says Kansas City Southern serves about a dozen other Mexican auto assembly plants, so losing one new one isn’t crushing. But Hatch says President Trump is upending carefully laid plans, on both sides of the border. 

“For Kansas City Southern, it’s been very painful,” says Hatch. “They’ve done everything they could. They’ve invested a lot of money. So, all of the sudden, you’re playing some kind of complicated game, and you get right to the point where you’re going to be a leader in the game, and they say, 'Ah sorry, here’s a new set of rules.'”       

Of course NAFTA has long inspired fierce opposition, traditionally on the left, and opponents argue that a “new set of rules” is long overdue. NAFTA’s been in place almost a quarter century. Its critics say the agreement has cost hundreds of thousands of American jobs, and depressed American wages.  

Supporters say it has boosted trade with Mexico enormously and kept prices down for consumers. Andrew Selee, executive vice president of the Wilson Center, argues that the free flow of capital and goods has actually preserved North American manufacturing.

"We’ve really bet, in the past 20 to 25 years, that Mexico and the U.S. and Canada getting closer together in trade is a good thing for all the economies, that keeps us competitive in North America, that we’re able to compete against Europe and Asia and other parts of the world," says Selee. "And a lot of companies, like Kansas City Southern have made bets on this, have invested heavily in that trade relationship."

Few think trade between the U.S. and Mexico is likely to shut down altogether, but it’s likely to change under this administration, in ways that seem increasingly hard to predict.  

Frank Morris is a national correspondent and senior editor at KCUR 89.3. You can reach him on Twitter @FrankNewsman.