Texas Trade Problems – D Magazine
Texas pushed past California in the late 1990s to become the number one exporting state in the United States, and simply expanded its lead over the next quarter of a century. In 2019, overseas sales hit an all-time high of nearly $ 329 billion, well ahead of runner-up California’s $ 174 billion.
In 2020, the COVID-19 pandemic rocked global trade, and Texan exporters like everyone else took their lumps. The state’s shipments ended the year 15 percent behind the 2019 total – slightly worse than the country’s 13 percent. If the pandemic wears off and things return to normal, Texan exports should rebound this year, but what happens beyond that? Will exports still give the same impetus to economic growth?
There are doubts. Texas exports depend on the health of overseas economies, and COVID-19 will halt or recur in some locations, making economic recovery uneven. Perhaps more importantly, Texan exports are intertwined with events in the energy markets and politics. Oil, natural gas and coal have accelerated the rise in Texan exports over the past decade or so, and they are facing an uncertain outlook.
Texas is in no danger of losing its place as export king among the states – its lead is too great. Concern centers around the slowdown, or even slump, in export growth and its impact on the Texan economy.
According to data from the Census Bureau, Texas’s exports of goods have increased by an average of 10 percent – from $ 129 billion in 2005 to $ 329 billion in 2019. At the same time, gross national product grew by a little less than 6 percent a year – so Exports have driven the state economy, increasing from 13 percent of total production in 2005 to almost 18 percent in 2019.
How much Texans earn from exporting depends on factors over which they have no control – how fast other countries are growing, the openness to trade, the prices on world markets. The pandemic took a toll on global GDP, a bigger one than the 2009-10 financial crisis. It will take a year and maybe longer to hit the levels that supported $ 329 billion in Texan exports in 2019.
The World Bank’s annual Global Economic Prospects, released in January, predict a healthy recovery in growth this year – 4 percent for the global economy as a whole, assuming some progress is made in containing the pandemic. The sobering side: the hypothetical GDP growth in 2021 does not quite make up for the actual loss of 4.3 percent in 2020.
Now take a look at Mexico, the destination for nearly a third of Texan’s exports. The economy, badly hit by the pandemic, contracted 9 percent in 2020, and the World Bank doesn’t expect the country to make up for losses before 2023 and return to 2019 levels. China will lead the world in growth for the next few years, the World Bank says, but it won’t entirely make up for Mexico’s weakness.
Even if President Trump’s trading hawk is out of office, politics is unlikely to follow up on the market opening mania of the 1990s and early 2000s. The US, Mexico and Canada trade pact – the USMCA – is a done deal, and Texans needn’t worry about their two largest markets. However, countries trying to keep industries and jobs often believe that reducing imports will help, so the risk of increased protectionism seems greater than the prospect of progress in dismantling trade barriers.
Over the past 15 years, coinciding with the fracking boom, two broad categories – oil and gas and petroleum and coal products – have fueled growth in Texan exports (see chart). Fossil fuel sales accounted for more than half of Texas’s export profits from 2005 to 2019. Without the two categories, export growth would drop below 5 percent.
In “The next disruption of the energy industry” In our column in the April issue, we identified three challenges typically faced by Texan industry: global overproduction driving down prices, rapidly falling costs for wind and solar energy, and climate change measures aimed at reducing the consumption of fossil fuels Punish fuels. Not much has changed in the pandemic year other than President Biden is now in the White House speaking out against global warming.
To boost overall growth, the state could supply other products, but the data suggests this will not offset the decline in fossil fuel exports. From 2005 to 2019, they rose 74 percent a year, and no other category matched this growth rate during that period.
Only beverages and tobacco products (60 percent per year), furniture and furnishings (15 percent) and other industrial goods (13 percent) grew in 2005-19 with average growth rates of over 10 percent. In terms of dollars, they are all much smaller than the fossil fuel categories.
The future is not all bad. Texas will still export large amounts of fossil fuels. The state maintains export categories that make big bucks, including computers and electronics, chemicals, and transportation equipment.
The question for the economy is whether exports will be strong enough to spur growth. If exports stall, the Texan economy will have to develop other growth engines over the next decade. Fortunately, Texans can best adapt to changing times.
Michael Cox is an economics professor and Richard Alm is writer-in-residence at the Bridwell Institute for Economic Freedom at the Cox School of Business at Southern Methodist University.