Texas Trade: Further Thoughts 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.
posted @ 08:37 AM CST [link]
Friday, October 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.
posted @ 08:44 AM CST [link]