The Impact of the Terrorist Attacks of 11 September 2001 on International Trading and Transport Activities

In the wake of the terrorist attacks on New York City and Washington, D.C., emergency measures were taken to tighten security at air and seaports as well as land border crossings. Some disruption of trade flows during the immediate aftermath of the attacks seemed almost inevitable, yet additional frictional trading costs due to tighter security have affected trade not only in North America but also world-wide and have potential to continue to do so in the medium to long term. Anecdotal evidence suggests that the short-term business environment of transport operators and trading companies has been affected by new security measures and the increased perception of the risk of terrorist attacks. Businesses faced longer delays at airports, seaports, and land-border crossings, higher expenditures on security equipment and personnel, and augmented insurance fees. There were major disruptions of trade flows in the immediate aftermath of the terrorist attacks, but over time trade operations seemed to have returned towards normal again. Also, flexible responses of businesses and customs services to the new border situation have helped to remove some temporary bottlenecks. Yet, some modest increase in frictional costs due to increased security concerns is likely to persist, even though the exact amount is hard to predict, as general economic developments mask the effect of the terrorist attacks. Some have likened the higher frictional trading costs to additional taxes on business activity or increases in border tariffs. Yet, a comparison with business spending on mandatory pollution abatement equipment seems more appropriate, as the higher expenses for the private sector provide benefits to the general public (higher environmental quality and lower risk of terrorist attacks, respectively), but are generally not accompanied by additional tax or tariff revenues for governments. Not all commodities and countries will be affected to the same extent by the increases in frictional costs. Differences across products are due to varying ratios of transport and insurance costs to goods-value, divergences in prevailing transport modes, and differing roles in the production process. For example, just-in-time deliveries in the automotive industry were markedly affected by delays due to more elaborate customs inspections. Concerning cross-country effects, intra-NAFTA trade was naturally strongly impeded by the tightening of security at US borders, but the trade of other countries with substantial exposure to North American markets, notably imports and exports of Latin American countries, were also significantly disturbed by the longer delays at borders and other frictional cost increases.