NAFTA’s unexpected impact on Illinois

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Representatives from Canada, Mexico and the U.S. recently entered into the fourth round of negotiations on the North American Free Trade Agreement. While interests are wide-ranging and competing, the major focus has been on “rules of origin,” which look at the location breakdown of where products are manufactured to determine trade statistics, procurement and preferential treatment.

As negotiations continue, the State of Illinois, its economy and its real estate could be affected in good, bad and surprising ways:

The singularity is near

NAFTA

While some argue that the U.S. has lost 350,000 manufacturing jobs since 1994 due to trade with Mexico, others note this decline started well before NAFTA began. Tracking employment against manufacturing output is the most telling, as we’re seeing a sharp increase in productivity, despite fewer jobs. The answer: Robots and automation are making U.S. manufacturing more efficient. It’s not “Westworld,” but maybe it’s not far off..

Illinois is increasingly exposed

NAFTA

In the past decade, Illinois exports to NAFTA markets have grown by nearly $10 billion. It’s significantly more than the growth in exports to Korea, CAFTA-DR, Peru and Colombia combined, meaning we’re heavily invested. While our state has seen its share of budget challenges, NAFTA is evidently one long-term relationship that continues to pay dividends. And just what are we sending to our friends in Mexico and Canada?

What we’re giving: Oil and cars and soybeans, oh my!

NAFTA

Illinois is such a key exporter in NAFTA, with approximately half of our exports heading to those markets, because of our diversified economy and production of basic staples, from oil to automotive to vaccines. With manufacturers accounting for 26.3 percent of occupied space in suburban Chicago, any potential changes to NAFTA could dramatically impact these companies’ approaches to supply chain and space optimization, as well as their financial performance.

What we’re getting: More oil, phones and bottles of beer!

NAFTA

With no access to crude oil in-state, it’s become Illinois’ top import at $18 billion annually. Other top products range from tech to pharmaceuticals to beer, indicating our wide range of import requirements and reliance on free trade agreements. While we’re a state strong in raw materials, we depend on the global manufacturing network to send us goods like cell phones, with enough pieces made in enough countries to rival a rock band’s world tour.

Where it hits our jobs and real estate

NAFTA

With the majority of Chicago area jobs in trade, transportation and utilities, we have a lot at stake in this round of NAFTA negotiations. Analysis of Chicago market tenants that fall in the top six import and export industries revealed that they account for approximately 5.3 million square feet locally, a conservative number.

In addition to our local companies that make products and send them through the supply chain, industries from pharmaceutical to electronic trading to hospitality depend on the free flow of goods and services across borders. NAFTA may be one of many free trade agreements, but it definitely hits closest to home.

For more information on how policy changes affect local real estate, click here.