In a recent column, I highlighted trends in Texas import and export activity. Without a doubt, foreign trade is a huge component of the Lone Star State economy. While Texas exports are sure to increase, changes in the trade environment in the near future will affect the way business is currently done. Here are a few patterns to watch; I’ll start with one that stands to boost trade and some others that could have negative effects.
Texas could see growing trade volumes with China, now number eight on the list of our trading partners. In its World Trade Organization accession, China agreed to certain tariff-rate quotas and an end to export subsidies. These actions should prove beneficial to the US in years to come, even though currently they have had little impact on our economy so far.
One challenge is the Bioterroism Act, coming into play in the middle of December of this year. The Bioterrorism Act gives the Federal Drug Administration new authority that will increase logistical costs and result in strict inspections of their food and beverage exports to the United States. The intent of the Bioterrorism Act is to safeguard the distribution of food in the US during a food contamination emergency. One regulation stipulates that food companies have to give substantial notice of import arrivals and keep records concerning where each ingredient in each food came from. These new stipulations also apply to food contamination that is not terrorist-related.
Many producers in Canada and Mexico fear that the conditions concerning food outlined in the Act will cause problems. In 2002, Mexican exports of food to the US comprised almost 90% of their total exports. For Canada, it was over 65%. If Canada and Mexico find themselves at a significant disadvantage in exporting their goods to the United States, it could translate into both of these countries purchasing lower amounts of goods from America and in turn, Texas. In a similar vein, the potential implementation of the US VISIT program to monitor border crossing could cause serious economic dislocations. I’ll likely have more to say about that later.
Weakening currencies abroad decrease the affordability of US goods; together with ongoing sluggishness in many economies, currency issues will put a damper on future expansion in US exports. A weakening currency is a problem Mexico is struggling with; recently, the peso hit a historic low (though there are no signs of the bottom falling out of the peso’s value in the near-term horizon). While such devaluation can be good for the Mexican economy in that it stimulates demand in foreign markets for relatively more affordable Mexican goods, it’s a problem that could spell trouble for Mexico in the near future if not controlled. The peso could slip even further, to about 12 pesos per US dollar, which could eventually lead to difficulties for Texas in terms of total export values.
Much has been made in the headlines of the US economy’s “jobless recovery.” While the severity or possible longevity of this phenomenon is debatable, it is clear that quality jobs are vital to the ongoing health of any economy. In July of this year, the number of non-farm jobs was exactly the same as it was some three years prior, an enviable position relative to many areas which lost far more jobs than they gained over the period.
Unlike many other sources of economic activity, export-related businesses typically involve a wealth of high-paying jobs and industries vital to the long-term success of the state economy. At the same time, imports often provide lower-priced goods which increase the well-being of society. The economies of other nations benefit in similar ways from their own trade. In short, foreign trade is a “win-win” situation which should be maximized through the ongoing pursuit of free trade.