Labour Strikes Don’t Strike Down Economic Growth

Editors’ Note: MarketMinder Europe doesn’t make individual security recommendations. The below merely represent a broader theme we wish to highlight.

Could striking workers bring some major economies to a halt? The summer has featured several high-profile industrial actions, including train drivers here in the UK, threatened October East and Gulf coast port worker strikes in America, and a rail shutdown in Canada. We have seen some analysts argue labour stoppages could hurt growth, but we caution investors against overrating industrial actions’ economic impact—the fallout likely isn’t as severe as warnings suggest, according to our research.

In our experience, industrial actions can stir strong emotional responses, and to be clear, we aren’t for or against these moves. But from an investment standpoint, we classify labour actions as sociology. They can be important and relevant to politics and society at large, but we think what matters from a market standpoint is their effect on economic activity and whether it is milder or worse than anticipated. So this is where we focus.

To start with, several UK labour unions are pushing for higher pay and threatening strikes in the coming months—with some train drivers planning to walk out every weekend for the next three months from August’s end.^[i] Motorway workers in France walked off the job in July whilst a Dutch public transportation work stoppage is set for September.^[ii] In the Americas, an October longshoremen strike looms at US East Coast and Gulf of Mexico ports, and Canada’s two biggest railroads locked out workers this week after failing to reach a deal with the union. That said, the Canadian government intervened on Thursday, imposing binding arbitration on the parties and had Canada’s Industrial Relations Board unilaterally extend the existing collective bargaining agreement to have workers return.^[iii] Theoretically, this should get the trains running in the next few days, though one union has announced it will launch a fresh action next week.^[iv]

We have seen commentators already warn about the fallout. For example, according to shipping advisory firm Sea-Intelligence’s estimates, East Coast and Gulf of Mexico port workers would need up to six days to clear the backlog from a one-day strike.^[v] Should a labour stoppage last two weeks, the firm estimates dock workers would still be clearing the associated inventory backup in 2025.^[vi]

In Canada, officials warned a railway work stoppage would be a “catastrophe” for the Canadian economy.^[vii] In addition to hampering the country’s large mining, energy and materials industries, a strike could disrupt cross-border commerce—particularly the movement of US agricultural goods.^[viii] Some worried a prolonged strike could even affect some municipalities’ drinking water, as the Chemical Industry Association of Canada warned a rail shutdown would make shipments of chlorine used in water treatment unavailable.^[ix]

Sound ominous? We suggest taking a step back to consider why feared scenarios aren’t assured. One, our research shows harsh rhetoric and speculative projections are part of negotiations, but they don’t necessarily make strikes inevitable. See US railway workers in 2022 and West Coast longshoremen in 2023: Despite long-running, contentious talks and threats to strike, both groups ultimately struck deals to keep working.^[x]

Labour and management could also kick the can until they do reach agreement. Consider last August, when Australian liquefied natural gas (LNG) plant workers voted to strike (which purportedly drove a short-term spike in natural gas prices).^[xi] Though one affected company reached a deal quickly, the other went back and forth with the union for two months before reaching an 11^th hour deal.^[xii]

We have found businesses are also preparing for work stoppages—they aren’t sitting back and twiddling their thumbs. In Canada, logistics firms have lined up extra trucking capacity on both sides of the Canadian border in the event railway activity halts.^[xiii] Whilst trucks can’t fully replace trains, they can help on the margins. In the US, companies have been ramping up imports this summer, partly as a precaution against the potential port strike.^[xiv] However, businesses are also accounting for other potential challenges, including disruptions tied to Red Sea attacks, implementation of China tariffs, elevated hurricane risks and even the later Thanksgiving holiday date this year (which means a shortened shipping timeframe).^[xv] In our view, this highlights a broader point: Companies must navigate myriad obstacles as part of daily business operations—labour is just one of many variables.

Labour stoppages at Canada’s railways and America’s ports also aren’t new to markets—our review of history shows they have seen this story before and recognise the limited macroeconomic impact. Five years ago, in November 2019, Canadian National Railway workers struck for eight days, which led to some heating fuel shortages and a slowdown at chemical factories.^[xvi] But the stoppage didn’t derail the economy. Whilst gross domestic product (GDP, a government-produced measure of economic output) growth slowed in Q4 2019 to 0.1% q/q, it didn’t contract.^[xvii] Trucking firms picked up some slack, but many businesses simply waited for the strike to end.

Or go back a decade, when a months-long labour dispute at 29 US West Coast ports weighed on commerce and delayed delivery of a host of goods, from holiday merchandise and seasonal clothing to housewares and agricultural produce.^[xviii] By the time the dispute resolved in February 2015, the containers on ships waiting to dock at the ports of Los Angeles and Long Beach would stretch over 960 kilometers if put in a straight line.^[xix] Now, we did observe the strikes affected economic data in the short term. US goods imports fell on a monthly basis in January and February (-3.2% and -3.4%, respectively) before rebounding sharply in March (7.3%) as longshoremen worked through the backlog.^[xx] Exports also took a hit.^[xxi] But the interruptions didn’t derail US GDP, which still grew in Q1 2015—and throughout the nine-month standoff between the longshoremen and the ports.^[xxii] Yes, we are aware lower imports actually help GDP math, but we are talking about goods destined for sale at US stores.^[xxiii] Consumer spending held up fine despite the merchandise headwinds, supporting growth.^[xxiv]

To be clear, we think labour stoppages cause real economic pain and inconvenience, but like other big singular events (e.g., a natural disaster), strikes tend to delay or reroute economic activity—they don’t destroy it.