10/24/2003: "Foreign Trade and the Lone Star State Economy"
International trade has become increasingly important to the Texas economy over the past three decades. Globalization and technological advances have made international communication and interaction faster, easier, and cheaper. Trade barriers with beginnings deep in the heart of the Great Depression have fallen left and right, facilitating relationships that require intense nurturing now and in the future. From the end of WWII to the dawning of this new century, tariffs and other inhibitors of world trade fell from a high of 40% to almost 1.5%. While there have been some moves more recently to increase tariffs for specific commodities (such as steel), it has become apparent that these levies have harmed the US economy, and there are signs that they may be reduced or eliminated in the future.
The US economy has been struggling to right itself since its departure from record-setting highs in the late 1990s. Like all states in the union, Texas was affected by the downturn. However, one aspect of Texas’ economy, its trade ability and potential, has helped produced growth during a difficult period.
Texas has been doing its share of helping the national economy, overtaking New York and California as America’s top exporting state. Our exports totaled $95.5 billion in 2002, accounting for over 13% of total US exports.
Mexico and Canada, America’s trading partners in the North American Free Trade Agreement, are Texas’ top trading partners. Exports to these two countries have comprised more than half of the Lone Star State’s total for several years, and the proportion of trade to Canada and Mexico has been growing over time. Taiwan, Japan, and Singapore round out the top five, with the United Kingdom holding the number seven spot as well as serving as our number one trade partner from the European Union. In the decades to come, Mexico and Canada are expected to remain the Lone Star State’s most important trading partners thanks to geography and NAFTA.
When President Clinton signed NAFTA in the early 1990s, a prominent Texan remarked that a giant “sucking” sound would be heard as American jobs moved south to Mexico. Cheap labor and soft economies can be rather alluring. While some jobs have moved south, NAFTA has also created new jobs here in the states and increased levels of Texas exports to Mexico. Moreover, most of the jobs lost were destined for foreign, cheap-labor markets regardless of the NAFTA agreement. The economic growth, both in the US and beyond, sparked by freer trade across these borders has led to the creation of high-wage jobs (see the accompanying article), resurgence in key industries, and stability on many fronts.
Over the past two years, our top exports to Canada (electrical machinery, vehicles, and plastics) have remained constant with the total value of Texas exports increasing from 2001 to 2002. Similarly, our imports have increased over that time period as well. While proximity to Mexico leads to a far greater volume of goods flowing south, Canada represents a huge market for Texas goods which is likely to expand further in the years to come.
Although the current economic recovery has occurred in fits and starts, there are now signs that both the national and state economies are poised for stronger growth. Real gross state product (RGP), employment, and personal income are projected to increase at moderate paces. Trade and consumer spending will be a key aspect of that growth. Border trade is expected to continue sustaining retail trade, which has fallen somewhat, in Texas. The weakening of the US dollar bolsters Texas’ trade profile, making Texas products more affordable abroad. This should result in more money for Texas and growth for the US economy in the long run.