How a Canadian rail shutdown could worsen US inflation

Two major Canadian freight rail companies locked out thousands of workers on Thursday, shutting down cross-border shipping routes and risking serious damage for the U.S. economy, industry experts told ABC News.

The rail lines carry everything from chemical inputs to auto parts, holding the potential to cause shortages for a range of products American consumers and businesses depend on. While the damage is minimal so far, a prolonged shutdown of weeks or months could slow U.S. economic growth, rekindle inflation and put some workers out of a job, the experts said.

“Right now, I do not think the sky is falling,” Joseph Schofer, a professor emeritus of civil and environmental engineering at Northwestern University, told ABC News. “In a week or two, effects will begin to develop.”

The shutdown will cost the Canadian economy about $250 million per day, according to Brendan La Cerdaa, director of economic research at Moody’s Analytics. If the strike continues for a week or two, the U.S. economy could start suffering costs of about $70 million per day, La Cerda said.

More than 9,000 Teamsters workers are off their jobs after Canadian National Railway Co. (CN) and Canadian Pacific Kansas City Ltd. (CPKC) locked them out when they failed to reach a deal on a new contract. It’s the first time both railways have been simultaneously halted.

“Throughout this process, CN and CPKC have shown themselves willing to compromise rail safety and tear families apart to earn an extra buck. The railroads don’t care about farmers, small businesses, supply chains, or their own employees. Their sole focus is boosting their bottom line, even if it means jeopardizing the entire economy,” Teamsters Canada Rail Conference President Paul Boucher said in a statement on Thursday.

In a statement, CN said it had negotiated with workers in good faith for nine months, offering better wages and shorter hours.

“Without an agreement or binding arbitration, CN had no choice but to finalize a safe and orderly shutdown and proceed with a lockout,” the company said on Thursday.

Similarly, CPKC said the lockout came about after months of unsuccessful negotiations.

“We fully understand and appreciate what this work stoppage means for Canadians and our economy. CPKC is acting to protect Canada’s supply chains, and all stakeholders, from further uncertainty and the more widespread disruption that would be created should this dispute drag out further resulting in a potential work stoppage occurring during the fall peak shipping period,” the statement said.

What does the Canadian rail shutdown mean for the U.S. economy?

A brief shutdown of the top two Canadian freight rail companies would not meaningfully impact the U.S. economy, experts told ABC News. However, they added, a prolonged lockout would damage the nation’s economic performance and risk accelerating inflation.

Many companies rely on Canadian rail lines to deliver raw goods that play a vital role in the supply chain. Affected industries include auto companies, chipmakers and fertilizer manufacturers, experts said. Perishable goods also reach U.S. consumers on trains from Canada.

As a smaller-scale version of the supply blockage incurred during the COVID-19 pandemic, a Canadian freight rail shutdown could hinder economic activity of businesses that import raw materials, rising prices for consumers who encounter shortages for some products.

“The producers will probably absorb some of those price increases in the short term, but eventually they could get passed on to consumers,” Kyle Handley, a professor of economics at the University of California, San Diego, told ABC News.

Over the coming weeks, a shutdown could slow gross domestic product growth and cause layoffs at directly impacted firms, such as auto factories, Jeff Macher, a professor of strategy and economics at Georgetown University’s Center for Business and Public Policy, told ABC News.

“A prolonged stoppage could lead to a certain amount of job losses,” Macher said.

The potential supply disruption could arrive at a vulnerable period for the U.S. economy. Growth is cooling but remains solid. Price increases have slowed dramatically but remain higher than the Federal Reserve’s target level.

For now, questions remain over the duration and scale of the U.S. economic fallout, experts said.

“If the stoppage ends within a week or so, it’ll have no effect on U.S. GDP,” Macher said. “If it extends beyond that, then it could bleed into and impact the U.S.”

ABC News’ Aaron Katersky and Zunaira Zaki contributed reporting.