How important is international trade to each US state’s economy? Pretty important for a lot of our states



Mark J. Perry

How important was international trade for each US state’s economy in 2016? The map and table above help to answer that question. The table above shows GDP for each US state (data here) in 2016, 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 for US states in 2015 was 16.7%, and ranged from a low of 4.7% for South Dakota to a high of nearly 39.0% 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 Michigan, the US states with the next highest trade shares in 2016 were Kentucky (35.1%), Louisiana (34.6%), Tennessee (32.5%), South Carolina (32.1%), Texas (28.6%) and Washington (27%). Here are some thoughts on the US states with the highest international trade shares in 2016, 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. Auto-related exports represented nine of the top 10 state export categories for Michigan in 2016 and nine of the top 10 state imports last year. Michigan’s top import trade partner is Mexico and its top state export trade partner is Canada, reflecting the fact that Michigan automakers buy a lot of auto parts from Mexico and they then sell a lot of cars to Canada. Partly at least thanks to NAFTA, the North American auto industry relies increasingly on 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 distinction between “domestic” and “foreign” cars and makes that distinction increasingly irrelevant.

2. Kentucky was the second most highly globalized US state last year, having moved up from the No. 5 spot in 2015. The Bluegrass State is now the fourth-largest state truck producer and fifth-largest passenger car producer in the US, and home to four automotive assembly plants for GM (Corvette), Ford (two locations producing the Expedition, Lincoln Navigator, and Super-Duty trucks) and Toyota (Camry, Avalon, and Lexus). 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 2016, and more than half (13) of the top 25 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 2015.

3. Louisiana. 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 2016, Louisiana’s top import was crude oil, its top import trading partners were Saudi Arabia, Venezuela, Russia, and Iraq. Now that the US is becoming a major exporter of 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 last year in Sabine Pass, LA, and there are as many as six other LNG facilities that could eventually operate in Southwest Louisiana.

4. Tennessee has emerged as a major automotive manufacturing center, with three major assembly plants (Nissan, GM, and Volkswagen) and automotive operations in 86 of the state’s 95 counties. That helps explain the state’s highly globalized economy and why five of the top 13 imports and four of the state’s 12 top export goods in 2015 were auto-related.

5. South Carolina has a highly globalized state economy partly because of Boeing’s three commercial airplane building facilities in the state including the company’s Boeing 787 Dreamliner final assembly and delivery facility. 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 S60 sedans next year. Reflecting those two manufacturing industries, nine of the state’s top ten export goods and nine of the top ten import goodswere related to either airplane production or automobile production in 2016.

6. Texas is a highly globalized economy as a result of its proximity to Mexico and also because of its energy industry. In 2016, more than one-third (35.3%) of Texas’s imports were from Mexico (more than double China’s 16.0% share of the state’s imports), and nearly 40% of the state’s exports were to its southern neighbor. By category, the Lone Star State’s largest export category and largest import category in 2016 were energy-related, reflecting the state’s booming oil and gas industries.

7. Washington’s highly globalized economy is largely because of the extensive manufacturing activities of Boeing, the world’s largest aerospace company and America’s largest exporter by the value of goods sold abroad. In 2016, the state exported more than $46 billion worth of civilian aircraft (mostly Boeing products) which represented more than 58% of the state’s total $79.6 billion in exports last year.

Bottom Line: Many US states, especially those that are manufacturing- 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 2016, and 27% or more for the seven states profiled above. Manufacturing activities in the US for automobiles, commercial airplanes, energy and other manufactured goods are increasingly dependent on intricate, cross-country, global supply and value chains for inputs, raw materials, parts, supplies, and final products that make international borders increasingly irrelevant in the global marketplace.

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 at the lowest price and the greatest value. Ironically, that’s the one group you’ll never hear Trump talk about when he discusses trade issues — the US consumer and the US-based firms like Ford 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. Imports and exports go together hand-in-hand, and 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, but with no reductions in exports for companies like Boeing, GM, and Ford. In the real world, those increased costs for inputs from tariffs would reduce domestic and foreign sales (exports) for US-based firms, reduce their competitiveness, and reduce their staffing levels (jobs).

If Trump imposes punitive tariffs, that protectionism would certainly help some import-competing domestic firms and their workers in the short-run, but would increase the cost of imported inputs for Boeing, Ford and GM, 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. To paraphrase Milton Friedman, “trade protectionism is a monument to the power of superficial thinking.” Superficial and short-sighted because it ignores the complexities and dynamics of world markets, and ignores all of the unseen, delayed and hidden costs of trade protectionism that would make many trade-dependent American states 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 and South Carolina who would lose their jobs, along with the millions of American car buyers who would face less choice and higher prices.

View the original report here. 

Mark J. Perry, is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for and the AEIdeas blog.