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How important was international trade for each US state’s economy in 2017? The map and table above help to answer that question. The table above shows GDP for each US state (data here) in 2017 (based on an average of the second and third quarter figures, data for Q4 aren’t yet available), the total trade volume (exports + imports, data here for merchandise trade only, data on trade in services aren’t available by state) last year, and the volume of international trade activities as a share of each state’s GDP, ranked from highest to lowest. Ignoring the District of Columbia, the average trade share of GDP for US states in 2017 was 17.2% (up from 16.7% in 2016), and ranged from a low of 5% for South Dakota to a high of 39% for Michigan. The trade shares by state are also displayed graphically in the map above — the greater the share of state trade activities (exports + imports) in relation to state GDP, the darker the shade of blue.
Following No. 1 Michigan as America’s most globalized state, the states with the next highest trade shares in 2017 were Louisiana (38.7%), Kentucky (38.1%), Tennessee (32.6%), South Carolina (31.9%), Texas (31.2%) and Indiana (25.7%). Overall, the trade share of GDP was 20% or higher in one-third (17) of states last year, 25% or higher in ten US states, and 30% or higher in six states.
Here are some thoughts on the US states with the highest international trade shares in 2017, and the policy implications of those trade shares:
1. Michigan. The auto industry clearly explains the importance of international trade to the US state economy that is the most highly globalized. Michigan’s auto-related exports represented the top seven state export categories in 2017 and 15 of the top 20 export categories, and almost all of the top 25 state imports last year (crude oil and natural gas were the only exceptions). Michigan’s top import trading partner is Mexico (followed by Canada) and its top state export trade partner is Canada (followed by Mexico), reflecting the fact that Michigan automakers buy a lot of auto parts from both Mexico and Canada, and they then export a lot of cars, especially to Canada. Between trade with Canada and Mexico, Michigan’s combined export and imports represented almost $134 billion in trading activities last year. Partly as a result of NAFTA, the North American auto industry relies increasingly on deep, cross-border supply chains for parts, supplies, materials, and finished products.
Exhibit A: For 2016 models, the average foreign content for GM’s fleet of vehicles sold in the US was 55.4% and the average foreign content was 53% for Ford vehicles. In contrast, the average foreign content for Honda vehicles sold in the US last year was less than 50%. The globalization of the auto industry blurs the line between “domestic” and “foreign” cars and makes that distinction increasingly irrelevant.
2. Louisiana. The Pelican State moved up to the No. 2 most highly globalized state last year from No. 3 the previous year. The state is “centrally located along the Gulf Coast with access to deep-water ports and railway lines, making it an ideal place for industry to flourish,” especially the oil and gas industries. In 2017, Louisiana’s top imports were two types of crude oil and its top import trading partners were Saudi Arabia, Venezuela, Russia, Iraq, Algeria and Canada. Now that the US is becoming a major exporter of liquefied natural gas (LNG), Louisiana’s energy exports are set for a major expansion in the coming years. The country’s first major LNG terminal opened in 2016 in Sabine Pass, LA, and a record volume of LNG exports – 708 trillion cubic feet – left the Sabine Pass facility in 2017, nearly four times LNG exports the previous year. There are as many as six other LNG facilities that could eventually operate in Southwest Louisiana, and the Cove Point export terminal in Maryland just opened this week to become the second US LNG export terminal.
3. Kentucky was the third most highly globalized US state last year, having moved up from the No. 5 spot several years ago. The Bluegrass State produced more than 1.3 million vehicles last year, ranking the state third in the US for light vehicle production and first on a per capita basis. Ten vehicle models are produced in Kentucky: Toyota Camry, Camry Hybrid, Avalon, Avalon Hybrid; Ford Escape, F-Series Super Duty, Expedition, Lincoln MKC; the Chevy Corvette; and the Lexus ES350. The state is also a global leader in aerospace manufacturing, and “civilian aircraft, engines and parts” was Kentucky’s No. 1 export category by far in 2017, and 13 of the top 20 state exports were automotive or aircraft related. Aircraft and automotive parts, supplies, and engines were also among the state’s top 25 import goods in 2017.
4. Tennessee, the state with the fourth highest trade share of GDP last year has emerged as a major automotive manufacturing center, with three major assembly plants (Nissan in Franklin, GM in Spring Hill, and Volkswagen in Chattanooga) and automotive operations in 86 of the state’s 95 counties. Automotive-related manufacturers in Tennessee include Hankook Tire, Bridgestone Americas, Calsonic Kansei, Magneti Marelli, SL Tennessee, Denso Manufacturing, Yorozu Automotive, Alcoa, Dupont, and M-Tek. That automotive activity helps explain the state’s highly globalized economy and why five of the top 12 imports and three of the state’s six top export goods in 2017 were auto-related.
5. South Carolina, the state with the fifth highest trade share of GDP in 2017, has a highly globalized economy partly because of the growing presence in the state of the world’s largest aerospace company – Boeing – and the company’s three commercial airplane building facilities, including one for the company’s Boeing 787 Dreamliner. In addition, the state has also become a major motor vehicle center, boasting more than 400 automotive manufacturing plants, parts suppliers and other auto-related companies including assembly plants for Mercedes-Benz and BMW, and a new Volvo facility under construction that will begin producing the new 2019 S60 sedans this summer. Reflecting those two manufacturing industries (aerospace and automotive), 11 of the state’s top 20 export goods and nine of the top ten import goods were related to either airplane production or automobile production in 2017.
6. Texas at No. 6 is a highly globalized economy as a result of its proximity to Mexico and also because of its thriving oil and gas industry. In 2017, more than one-third (38.6%) of Texas’s imports were from its No. 1 import trading partner Mexico (more than double No. 2 China’s 17.4% share of the state’s imports), and nearly 37% of the state’s exports were to its southern neighbor. By category, the Lone Star State’s four largest export categories and largest import category in 2017 were energy-related, reflecting the state’s booming oil and gas industries in the Permian Basin and Eagle Ford Shale areas.
Bottom Line: Many US states, especially those that are automotive, aerospace or energy-intensive, are highly globalized and depend on foreign trade for a large share of their state’s economic output and jobs. The dollar value of international trade activities (exports + imports) represented more than 20% of the dollar value of state economic output (GDP) for almost one in three US states in 2017, and 31% or more for the six states profiled above. Manufacturing activities in the US for automobiles, commercial airplanes, energy and other manufactured goods are increasingly dependent on intricate, borderless global supply and value chains for inputs, raw materials, parts, supplies, and final products that make international borders increasingly meaningless in the global marketplace for America’s and the world’s largest multi-national corporations.
The main beneficiaries of those complex global networks of sourcing, production, and distribution are the consumers in the US and elsewhere who get access to the best products in the world at the lowest price and greatest value. Ironically, that’s the one group you’ll never hear Trump talk about when he discusses trade issues and pursues his protectionist agenda — the US consumer and the US-based firms like GM and Boeing that depend on imports for their competitiveness. The analysis above of trade shares by state also demonstrates how imports (inputs) and exports (final products) are inter-related. Restricting import inputs in any way (e.g., increasing their cost with tariffs) will necessarily adversely affect US exports. In Trump’s fantasy world of international trade, he somehow thinks he can penalize US companies with tariffs that will raise their input prices for critical commodities like steel and aluminum, but with no reductions in exports for companies like Boeing, GM, and Ford. In the real world, those increased costs for inputs from tariffs will reduce domestic and foreign sales (exports) for US-based firms, reduce their competitiveness, and reduce their staffing levels (jobs). For example, one recent estimate puts the increased costs of commodity inputs (steel and aluminum) for just one company – GM – at $1 billion as a result of the Trump tariffs on those critical inputs. No wonder GM stock has fallen by almost 9% since early last week, representing a loss in market value of nearly $5 billion.
Trump’s punitive tariffs on America firms that purchase steel and aluminum will certainly help some domestic steel and aluminum firms and their workers in the short-run, but will increase the cost of imported inputs for Boeing, Ford and GM, and many other US manufacturers and hurt some of our most competitive firms, destroy more jobs than are saved, raise prices for US firms and consumers, and impoverish America, not make it great. Trump’s protectionism is superficial and short-sighted because it ignores the complexities and dynamics of world markets and global supply chains, and ignores all of the unseen, delayed and hidden costs of trade protectionism that will make many 2016 pro-Trump, but trade-dependent American states like Louisiana, Kentucky, Tennessee, South Carolina and Texas weak again, not great again.
Finally, if Trump thinks he can renegotiate NAFTA and increase US jobs in industries like America’s automotive sector, he should think again. Here’s what the Ann Arbor-based Center for Automotive Research concluded in a January 2017 research report (my emphasis):
Any move by the United States to withdraw from NAFTA or to otherwise restrict automotive vehicle, parts, and components trade within North America will result in higher costs to producers, lower returns for investors, fewer choices for consumers, and a less competitive U.S. automotive and supplier industry. Counter to the incoming Trump Administration’s goal of creating manufacturing jobs, the withdrawal from NAFTA or the implementation of punitive tariffs could result in the loss of at least 31,000 U.S. automotive and parts jobs.
In other words, disturbing the intricate network of global supply and value chains for the automotive industry would not make America or America’s automakers great again. Rather, the country’s automakers would be much poorer, and so would the tens of thousands of auto workers in Michigan, Kentucky, Tennessee, Ohio, Indiana and South Carolina who would lose their jobs, along with the millions of American car buyers who will face higher vehicle prices.
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