Free Trade Agreements and State-Level Trade. By Joan Shipps Office of Trade Policy Analysis Industry Analysis

Transcription

1 Free Trade Agreements and State-Level Trade By Joan Shipps Office of Trade Policy Analysis Industry Analysis February 7, 2013

2 Free Trade Agreements and State-Level Trade Executive Summary: OTPA has conducted an analysis of U.S. trade with FTA partners by state in order to identify the impact of FTAs at more specific and local levels. The main results of the analysis are that states trading patterns with FTA partners are generally a function of their global trade propensity (e.g., states that trade a lot with the world also trade a lot with FTA markets), and that NAFTA is by far the most significant FTA for the majority of individual states. Other causes of state trading patterns with FTA partners, such as the product sector composition of trade and geographical proximity, are also explored. Technical notes: Unless otherwise stated, statistics in this paper are derived from state-level trade data queries to the Trade Policy Information System (TPIS), an International Trade Administration database on U.S. and state-level trade. TPIS source data comes from the U.S. Census Bureau s Foreign Trade Division. The trade data discussed covers only trade in merchandise, and excludes the exports and imports of services. As such, this paper only concerns itself with trade in merchandise, including manufactured items, agricultural products, and oil. Additionally, state-level data uses a different methodology to calculate export and import values. This paper will therefore refrain from calculating state-level trade balances to avoid errors inherent in combining unlike data sources. However, trade balance data at the national level is provided. To the extent that trade balances are discussed in this paper, it will be at the national level only. Additional technical notes concerning the limitations of the data can be found at the end of this paper. Introduction: Free trade agreements (FTAs) are increasingly important to U.S. trade. In 2011, the United States had FTAs with 17 countries, 1 most of which were not in place 10 years ago. In 2012, the United States entered into FTAs with three additional countries: Korea, Colombia, and Panama. While analyses on national trade with FTA countries are widely available, there are few public resources analyzing FTA trade at the state level. Policymakers at the state and regional levels, however, have an interest in how their local economies are particularly affected by the growing significance of FTAs. 1 The 17 countries with which the United States had an FTA in 2011 were: Australia, Bahrain, Canada, Chile, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Mexico, Morocco, Nicaragua, Oman, Peru, and Singapore.

3 Recognizing the information gap, ITA has conducted the following analysis on FTAs and their distributional effects across states. 2 The paper consists of two primary sections: 1. Putting state-level FTA trade in context: A brief overview of U.S. trade with FTA countries, with emphasis on how relative levels of FTA trade are distributed among states; 2. Who trades with whom, and why: An analysis of the major factors contributing to states relative levels of trade with FTA partners. While general state-level trade trends are discussed throughout this paper, trade information on individual states is available in the paper s annexes. In particular: Annex 1contains data on individual states 2011 trade with FTA countries and with the world; Annex 2 contains data on how individual states exports to FTA countries were distributed in 2011; Annex 3 contains data on how individual states imports from FTA countries were distributed in For the purposes of this paper, states refers to the U.S. Customs Territory (the 50 U.S. states, Puerto Rico, the U.S. Virgin Islands, and the District of Columbia).

4 1. Putting state-level FTA trade in context: 3 Table 1 Comparison of 2011 U.S. trade with FTA partners and the world (values expressed in billions of U.S. dollars) FTA trading partners All trading partners % FTA share Number of trading partners 17 >= % GDP 4 $5, $69, % U.S. exports to $ $1, % U.S. industrial exports to 5 $ $1, % U.S. imports from $ $2, % Trade balance -$ $ % Trade balance, excluding oil 6 $ $ n/a Table 1 contains data comparing 2011 trade between 2011 U.S. trade with FTA partners and with the world generally. Primary findings from this data, and from state-specific data identified in Annex 1, include: The United States trades disproportionately with FTA countries. In 2011, FTA countries accounted for: 3 percent of U.S. trading partners and 8 percent of U.S. trading partners GDP; 41.9 percent of U.S. industrial exports to the world; 41.4 percent of U.S. exports and 30.8 percent of U.S. imports. The United States tends to fare better, in terms of trade balances, with FTA countries than with the world generally. In 2011: At 9.1 percent, the United States trade deficit with FTA countries as a share of its trade deficit with the world was proportionately smaller than either the United States global share of exports or imports accounted for by FTA countries; Excluding oil, the United States has a trade surplus with FTA countries, while maintaining a sizeable deficit with the world. 3 Section 1 of this paper, Putting state-level FTA trade in context, uses national-level, rather than state-level TPIS data, to provide trade balances and meaningful context for state-specific analysis that follows. 4 GDP figures are from the Central Intelligence Agency s (CIA) World Fact Book, link: 5 Industrial products are generally defined as non-agricultural goods. 6 Oil is defined as all products falling under the two-digit chapter heading 27 in the U.S. Harmonized Tariff Schedule.

5 2. Who trades with whom, and why FTA trade is important for most states, but not all states trade with the same FTA countries and in the same quantities. There are various factors affecting the scope of states relationships with their FTA partners; the four most notable are listed below. It should be noted that these factors are not mutually exclusive, nor do they affect all states to equal extents. a) NAFTA; b) States overall trade tendencies; c) The product composition of states imports and exports; d) Geography. a) NAFTA Percentage Range Table 2 Number of states trading with NAFTA countries in 2011, arranged by import and export shares Exports to Canada as % of FTA exports Exports to Mexico as % of FTA exports Exports to NAFTA as % of FTA exports Exports to NAFTA as % of world exports Imports from Canada as % of FTA imports Imports from Mexico as % of FTA imports Imports from NAFTA as % of FTA imports Imports from NAFTA as % of world imports 0%-25% %-50% %-75% %-100% Table 2 identifies the number of states trading in various proportions with NAFTA countries, relative to their trade with FTA countries and with the world generally. Primary findings from this data include: Most U.S. states have no more important FTA trading partners than Canada, Mexico, or both. In 2011: 34 states exports to Canada and Mexico made up at least 75 percent of their exports to all FTA partners; 33 states exports to NAFTA countries made up at least 25 percent of their exports to the world; 40 states imports from FTA countries were at least 75 percent accounted for by imports from Canada and/or Mexico; 29 states imports from the world were at least 25 percent accounted for by imports from NAFTA countries.

6 b) States overall trade tendencies States relative tendencies to trade with the FTA countries tend to mirror the levels of trade they engage in with the world overall. In general, states that trade the most with the world are also among those states that trade the most with FTA countries, while states that trade the least with the world tend to be among those states that trade the least with FTA countries. Notably, many states that do not trade much with FTA countries in value terms still have high shares of FTA trade relative to their trade with the world. North Dakota, South Dakota, and New Mexico, for example, are among the states that export the least to the world, but more than 60 percent of what each of these states does export goes to FTA countries. Other trends on big states, small states, and their relative trade with FTA countries, as derived from 2011 trade data, include: States that trade the most with the world have the highest values of trade with most FTA countries, collectively and on a country-specific basis; As a share of world exports, the percentage of FTA exports tends to be relatively constant among states that export the least to FTA countries and states that export the most to FTA countries, in value terms; States with the lowest shares of world exports accounted for by FTA countries still send, on average, about one-fifth of their exports to FTA markets. Annexes 1, 2, and 3 contain specific data on state-level trade with FTA countries overall, the world, and individual FTA partners. c) The product composition of states imports and exports Product composition affects state-level trade flows. Most states export and import a wide range of products when trading with FTA countries. Some states, however, are more specialized than others in terms of what they tend to export and import, and this specialization can have significant impacts on how much a state trades with FTA partners, and on with which FTA partners a state tends to trade. As noted in Table 3, 18 states 2011 exports to FTA countries, for example, were at least 30 percent made up of goods within a single industry. 7 7 In this context, the term industry corresponds with the chapter headings in the U.S. Harmonized Tariff Schedule.

7 Table 3 States whose exports to FTA countries are at least 30 percent composed of a single industry 8 State Industry Industry description % exports to FTA countries Alabama 87 Motor vehicles 41.2% Alaska 26 Ores 55.0% D.C. Washington 88 Air and spacecraft 65.9% Delaware 30 Pharmaceuticals 46.8% Hawaii 88 Air and spacecraft 64.9% Indiana 87 Motor vehicles 38.3% Louisiana 27 Oil 49.2% Michigan 87 Motor vehicles 43.4% Missouri 87 Motor vehicles 30.6% New Hampshire 85 Electrical machinery, equipment 40.7% New Mexico 85 Electrical machinery, equipment 42.8% North Dakota 27 Oil 31.5% Oklahoma 84 Nuclear machinery, equipment 32.6% Puerto Rico 30 Pharmaceuticals 43.6% Rhode Island 71 Jewelry, precious gems & metals 41.2% Vermont 85 Electrical machinery, equipment 65.2% Virgin Islands 27 Oil 99.4% Wyoming 28 Inorganic chemicals & metal compounds 38.7% While there are a number of examples of how product composition affects FTA trade relationships, below are two of the most definitive cases in which sectoral trade explained state FTA trading patterns. While product-specific trade data are not included in this paper due to space considerations, state-level trade data and information on states shares of FTA trade with specific FTA partners are derived from the general trade data in Annex 1 and the country-specific trade data in Annexes 2 and 3. In 2011, Washington, D.C. exported the least to and imported the least from FTA countries of any area in the nation, but was also the country s 7 th largest exporter, by value, to Bahrain, Morocco, and Oman. The vast majority of exports to the world that were shipped from Washington, D.C were in the areas of aerospace and defense. Meanwhile, products that Bahrain, Morocco, and Oman imported from the United States the most in 2011, by value, included airplanes and helicopters. The product composition compatibility between exports that pass through Washington, D.C. and Bahrain, Morocco, and Oman s imports from the United States is likely due to the fact that Washington, D.C. is home to policymakers with vested interests in defense and security in the Middle East. As such, Washington, D.C. not only primarily exports defense articles, its primary export markets are in the Middle East. 8 In this context, the term industry corresponds with the chapter headings in the U.S. Harmonized Tariff Schedule.

8 New York was single-handedly responsible for absorbing more than a 38 percent of all U.S. imports from Israel in 2011 more than any other state. New York s largest category of imports from the world in 2011 covered jewels, precious metals, and jewelry items generally, and accounted for more than a quarter, by value, of the state s total imports. The single largest Israeli export to the United States in 2011, by value, was diamonds. The product composition of New York s imports and Israel s exports were sufficiently compatible that 89.4 percent of New York s imports from Israel in 2011 were diamonds. d) Geography In the cases where FTA partners are located in relative proximity to U.S. states, geography can be a factor in whether or not a given state will trade more or less with a particular FTA country. Based on 2011 trade data, examples of probable geographic impacts on state-level FTA trade include: The three states with more than 80 percent of their FTA exports going to Canada were Vermont, Maine, and North Dakota all of which are situated along the Canadian border. At 34.2 percent, Australia s share of Hawaii s FTA exports was more than double that of any other state in the nation. Hawaii also had the country s highest share at 26.4 percent of FTA exports destined for Singapore. Florida was the ninth largest exporter to FTA countries by value, and some 31.0 percent of its FTA exports went to CAFTA member countries. While Florida is indeed one of the country s major exporters, it appears especially good at exporting to six, small nearby countries in Central America. Should this trend continue going forward, one might expect Florida to also become a major exporter by value and/or by share to Colombia and Panama, which became new FTA partners in As noted previously in this paper, states that tend to trade the most with FTA countries tend to do so across the board, regardless of the relative location of the state s FTA partner. Annexes 2 and 3 provide data on the country-specific composition of individual states trade with FTA countries in Additional technical notes The following are notes, per the U.S. Census Bureau s Foreign Trade Division, on this paper s source data, including state- and national-level export and import data. 9 General source data definitions In this paper, exports refer exclusively to total merchandise exports, a combination of domestic exports and foreign exports. Domestic exports are 9 Technical notes on source data are available from the U.S. Census Bureau s Foreign Trade Division, link:

9 defined as: Exports of domestic merchandise include commodities which are grown, produced or manufactured in the United States, and commodities of foreign origin which have been changed in the United States, including U.S. Foreign Trade Zones, from the form in which they were imported, or which have been enhanced in value by further manufacture in the United States. Foreign exports are defined as: Exports of foreign merchandise (re-exports) consist of commodities of foreign origin which have entered the United States for consumption or into Customs bonded warehouses or U.S. Foreign Trade Zones, and which, at the time of exportation, are in substantially the same condition as when imported. Meanwhile, references to imports in this paper refer to general imports. These types of imports are defined as: General Imports measure the total physical arrivals of merchandise from foreign countries, whether such merchandise enters consumption channels immediately or is entered into bonded warehouses or Foreign Trade Zones under Customs custody. Limitations of state-level trade data State-level export data limitations In certain cases, the export origin of movement does not reflect the transportation origin. Specifically whenever shipments are consolidated, the state will reflect the consolidation point rather than the origin of movement. This effect is particularly noticeable for agricultural shipments. For these shipments intermediaries located in inland states are shipping agricultural commodities down the Mississippi River for export from the port of New Orleans. In this case, the state reflects Louisiana, the state where the port of New Orleans is located, as the state of origin of movement. The states in which the commodities were grown and originally shipped are lost. Another impact is on the states of distribution for non-manufactured exports. When goods are generally stored and then exported by central offices or intermediaries. The most visible result is to understate exports from the original production state and to overstate exports from the general office or consolidation point. For example, New York has ports that handle high-value shipments of non-manufactured products that may stand out. State-level import data limitations In certain cases, the state of destination may not reflect the final location for which the imported goods are destined. Rather for these shipments, the state of destination, as known at the time the entry documentation is filed, may reflect an intermediary, storage or distribution point. From there, these shipments may later be distributed to another location in another state as the ultimate destination. For example, a consolidated shipment of many automobiles may be shipped by the importing company to a distribution point in one state with the intent of later shipping the automobiles to numerous states for final sale.

10 Annex FTA and world merchandise trade data, by state (export and import values are expressed in billions of U.S. dollars) State FTA exp World exp FTA exp as % of world exp FTA imp World imp FTA imp as % of world imp Alabama $ 6.08 $ % $ 3.39 $ % Alaska $ 0.80 $ % $ 0.59 $ % Arizona $ 9.29 $ % $ 8.33 $ % Arkansas $ 2.68 $ % $ 2.06 $ % California $ $ % $ $ % Colorado $ 2.74 $ % $ 5.01 $ % Connecticut $ 4.02 $ % $ 9.38 $ % D.C. Washington $ 0.21 $ % $ 0.10 $ % Delaware $ 1.97 $ % $ 1.27 $ % Florida $ $ % $ $ % Georgia $ $ % $ $ % Hawaii $ 0.36 $ % $ 0.21 $ % Idaho $ 2.58 $ % $ 2.35 $ % Illinois $ $ % $ $ % Indiana $ $ % $ $ % Iowa $ 7.13 $ % $ 4.57 $ % Kansas $ 5.16 $ % $ 2.70 $ % Kentucky $ 9.61 $ % $ 8.11 $ % Louisiana $ $ % $ $ % Maine $ 1.32 $ % $ 2.25 $ % Maryland $ 2.86 $ % $ 5.03 $ % Massachusetts $ 6.87 $ % $ $ % Michigan $ $ % $ $ % Minnesota $ 8.45 $ % $ $ % Mississippi $ 4.62 $ % $ 6.80 $ % Missouri $ 6.77 $ % $ 6.44 $ % Montana $ 0.79 $ % $ 5.30 $ %

11 Annex 1, continued State FTA exp World exp FTA exp as % of world exp FTA imp World imp FTA imp as % of world imp Nebraska $ 4.28 $ % $ 1.15 $ % Nevada $ 2.02 $ % $ 1.70 $ % New Hampshire $ 1.84 $ % $ 8.72 $ % New Jersey $ $ % $ $ % New Mexico $ 1.34 $ % $ 0.89 $ % New York $ $ % $ $ % North Carolina $ $ % $ $ % North Dakota $ 2.56 $ % $ 2.68 $ % Ohio $ $ % $ $ % Oklahoma $ 3.06 $ % $ 6.77 $ % Oregon $ 4.63 $ % $ 4.57 $ % Pennsylvania $ $ % $ $ % Puerto Rico $ 2.92 $ % $ 5.61 $ % Rhode Island $ 1.00 $ % $ 2.15 $ % South Carolina $ 7.59 $ % $ 6.35 $ % South Dakota $ 0.98 $ % $ 0.48 $ % Tennessee $ $ % $ $ % Texas $ $ % $ $ % Utah $ 3.24 $ % $ 7.72 $ % Vermont $ 2.11 $ % $ 3.11 $ % Virgin Islands $ 0.40 $ % $ 0.27 $ % Virginia $ 5.79 $ % $ 4.59 $ % Washington $ $ % $ $ % West Virginia $ 2.00 $ % $ 1.68 $ % Wisconsin $ $ % $ 8.01 $ % Wyoming $ 0.58 $ % $ 1.72 $ % Total $/ Avg. % $ $ 1, % $ $ 2, % Data Source: U.S. Department of Commerce, U.S. Census Bureau, Foreign Trade Division

12 Annex 2 By state, percent of 2011 U.S. FTA merchandise exports to individual FTA countries (export values are expressed in billions of U.S. dollars) State 2011 FTA exports (in billions of U.S. $) Australia Bahrain Canada Chile Costa Rica Dominican Republic Alabama $ Alaska $ Arizona $ Arkansas $ California $ Colorado $ Connecticut $ D.C. Washington $ Delaware $ Florida $ Georgia $ Hawaii $ Idaho $ Illinois $ Indiana $ Iowa $ Kansas $ Kentucky $ Louisiana $ Maine $ Maryland $ Massachusetts $ Michigan $ Minnesota $ Mississippi $ Missouri $ Montana $ El Salvador Guatemala Honduras Israel Jordan Mexico Morocco Nicaragua Oman Peru Singapore

13 Annex 2, continued State 2011 FTA exports (in billions of U.S. $) Australia Bahrain Canada Chile Costa Rica Dominican Republic Nebraska $ Nevada $ New Hampshire $ New Jersey $ New Mexico $ New York $ North Carolina $ North Dakota $ Ohio $ Oklahoma $ Oregon $ Pennsylvania $ Puerto Rico $ Rhode Island $ South Carolina $ South Dakota $ Tennessee $ Texas $ Utah $ Vermont $ Virgin Islands $ Virginia $ Washington $ West Virginia $ Wisconsin $ Wyoming $ Total $/Avg. % $ Data Source: U.S. Department of Commerce, U.S. Census Bureau, Foreign Trade Division. El Salvador Guatemala Honduras Israel Jordan Mexico Morocco Nicaragua Oman Peru Singapore

14 Annex 3 By state, percent of 2011 U.S. FTA merchandise imports from individual FTA countries (import values are expressed in billions of U.S. dollars) State 2011 FTA imports (in billions of U.S. $) Australia Bahrain Canada Chile Costa Rica Dominican Republic Alabama $ Alaska $ Arizona $ Arkansas $ California $ Colorado $ Connecticut $ D.C. Washington $ Delaware $ Florida $ Georgia $ Hawaii $ Idaho $ Illinois $ Indiana $ Iowa $ Kansas $ Kentucky $ Louisiana $ Maine $ Maryland $ Massachusetts $ Michigan $ Minnesota $ Mississippi $ Missouri $ Montana $ El Salvador Guatemala Honduras Israel Jordan Mexico Morocco Nicaragua Oman Peru Singapore

15 Annex 3, continued State 2011 FTA imports (in billions of U.S. $) Australia Bahrain Canada Chile Costa Rica Dominican Republic Nebraska $ Nevada $ New Hampshire $ New Jersey $ New Mexico $ New York $ North Carolina $ North Dakota $ Ohio $ Oklahoma $ Oregon $ Pennsylvania $ Puerto Rico $ Rhode Island $ South Carolina $ South Dakota $ Tennessee $ Texas $ Utah $ Vermont $ Virgin Islands $ Virginia $ Washington $ West Virginia $ Wisconsin $ Wyoming $ Total $/Avg. $ $ Data Source: U.S. Department of Commerce, U.S. Census Bureau, Foreign Trade Division. El Salvador Guatemala Honduras Israel Jordan Mexico Morocco Nicaragua Oman Peru Singapore

16 Office of Trade Policy Analysis The Office of Trade Policy Analysis (OTPA) serves as the International Trade Administration s principal advisor on trade policy issues affecting the competitive position of multiple U.S. industries and also represents the Manufacturing and Services division in key international trade negotiations and policy initiatives. U.S. Department of Commerce 1401 Constitution Ave., NW Washington, D.C