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Vol. 2, No. 2 ♦ March/April 1995 EL PASO BR A N C H U.S.-Mexican Trade Revisited T h e dominant factors affecting trade between the U.S. and Mexico in 1995 will be the peso devaluation and its detrimental effects on Mexican economic growth. As a follow-up to the last issue of Business Frontier, this article looks further at U.S.-Mexican trade by focusing on fig ures for year-end 1994 and the first two months of 1995. Exports to Mexico by state are evaluated for 1994 under two different measures of statewide export performance. The available 1995 trade figures are present ed as a first look at the December 1994 peso devaluation’s impact on U.S.-Mexican trade. U .S.-M exican Trade in 1994 Trade growth between the United States and Mexico surpassed 20 percent in 1994 during the first year of the North American Free Trade Agreement’s (NAFTA’s) imple mentation. Total U.S. exports to Mexico last year rose 22.3 percent, to a record level of $50.8 billion. U.S. imports from Mexico, at $49.5 billion, registered a slightly higher in crease of 24 percent. The United States in 1994 was thus able to maintain a trade sur plus with Mexico of $1.3 billion, down from $1.7 billion in 1993. U.S. Exports by State: Alternative Measures The Census Bureau provides two alterna tive measures for looking at the performance F E D E R A L R ES ER VE BA N K OF D ALLAS of U.S. exports by state. One is the origin o f movement (OM) series, available since 1987, which provides export data based on the state from which the merchandise actu ally starts its movement to the port of ex port. For many large agricultural products and bulk shipments, however, the state of ten reflects the consolidation point or port of exit. The Census Bureau reports, for ex ample, that exporting intermediaries locat ed in inland states ship agricultural com modities down the Mississippi River for export from the Port of New Orleans. These intermediaries often cite Louisiana, the state where the Port of New Orleans is located, as the state of origin of movement. The other measure of a state’s export performance is the exporter location (EL) series. Released since 1993, this measure provides export data based on where the exporter—defined by the Census Bureau as the principal party responsible for effect ing export from the United States— is lo cated. As the Census Bureau explains, “Exporters often are intermediaries who export goods that were produced or pur chased in a state different than their own. In other instances, the location of exporters may reflect the marketing or exporting di visions of manufacturing firms, which may not be where the goods are produced.” Hence, neither the origin of movement nor the exporter location series fully cap tures a particular state’s actual export pro- This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) ► duction performance. Both series, in some cases, will overstate and, in oth ers, understate the performance of a par ticular state’s export production. It’s therefore important to keep in mind the distinct characteristics of the two mea sures, with their individual limitations, when evaluating statewide export perfor mance. However, both series are useful in showing a state’s export-related ac tivity in general, if not strictly its ex ..I 1994 Exports to Mexico by State (Millions of U.S. Dollars) Origin of Movement Series % Change '93-'94 22.1 TOTAL 50,840.3 Texas 16,140.8 10.9 7,358.8 27.0 17.0 17.4 Texas 2,428.8 26.0 California 6,723.9 17.9 41.9 Illinois 2,081.2 37.7 23,849.5 California 7,657.6 Arizona Michigan Illinois 1,676.5 Michigan 1,522.2 17.5 Indiana 1,592.2 28.5 New York 1,098.2 27.9 Ohio 1,590.1 55.4 Ohio 982.9 30.9 New York 1,463.2 10.3 U.S. Exports to Mexico by Pennsylvania 853.8 30.6 Arizona 1,263.4 11.2 State Florida 844.1 New Jersey 1,184.9 Louisiana 753.2 11.8 50.3 Florida 1,160.6 38.0 27.4 port production. This section compares the 1994 performance of U.S. exports to Mexi S ource: C o n n ecticu t D ep artm en t o f E c o n o m ic D ev elo p m en t w ith d ata fro m M IS E R . co by state under both the OM and EL measures. Table 1 shows the top 10 exporting states to Mexico under the two series. The different measures produce different rankings. Texas, however, re tains the No. 1 position under both se ries, though its share in total U.S. ex ports changes. The OM series gives Texas a 46.9-percent share; the EL series shows a lower 31.8-percent share. Although California and Arizona are in the top 10 exporting states un der either series, their rankings also change. California’s second-place po sition and Arizona’s third-place rank ing under the OM series drop to third and eighth, respectively, under the EL series. Michigan is No. 5 under the OM series but ranks as the secondmost important exporting state to Mexico under the EL series. Illinois’ No. 4 po sition is the same under both series. Pennsylvania and Louisiana show up in the OM top 10 but not in the top ► Exporter Location Series % Change ’93—'94 22.1 TOTAL 50,840.3 1994 Texas Exports to Mexico by Selected Industries (Millions of U.S. Dollars) Origin of Movement (OM) and Exporter Location (EL) Series OM %Change ’93—’94 TOTAL 23,849.5 EL %Change ’93-94 17.0 16,140.8 10.9 Electronic, electric equipment, excludes computers 5,799.2 12.9 3,279.1 16.2 Transportation equipment 3,757.4 19.9 1,462.2 -17.1 Industrial machinery, computers 2,397.6 22.7 1,977.9 15.8 Fabricated metal products 1,514.2 27.8 680.5 41.6 Chemicals and allied products 1,430.5 25.1 1,484.1 17.6 Instruments and related products 1,125.1 7.0 422.0 1.0 Rubber and miscellaneous plastic products 1,067.5 47.4 663.9 23.3 Food and kindred products 1,031.8 1,087.5 9.2 Primary metal industries 1,009.5 17.0 15.7 728.9 4.5 Apparel and other textile products 727.1 23.8 844.0 34.8 -2.0 Paper and allied products 717.3 24.3 678.2 Agricultural production—crops 633.0 -7.4 558.1 12.5 Petroleum and coal products 473.0 6.6 373.5 -7.9 Furniture and fixtures 444.8 -10.8 200.3 9.1 88.6 73.8 92.5 138.8 Agricultural production—livestock Source: C on n ecticu t D ep artm en t o f E co n o m ic D ev elo p m en t w ith d ata fro m M ISE R . Table 3 10 EL list. Pennsylvania under the EL measure drops to 11th place, while Top U.S. Exports to Mexico1 (Millions of U.S. Dollars) 1994 Difference Year Ago TOTAL 1 2 3 4 5 6 7 8 9 10 11 12 50,840.3 Electric machinery, apparatus, appliances Road vehicles Miscellaneous manufactured articles Manufactures of metals General industrial machinery Office machines and equipment Machinery specialized Cereals and cereal preparations Articles of apparel and clothing Power-generating machinery Paper, paperboard Plastics in primary form 13 Meat and meat preparations 14 Textile yarn, fabrics 15 Plastics in nonprimary form 7,483.6 5,493.4 2,575.7 1,900.6 2,455.9 2,073.9 1,631.6 1,106.8 1,176.1 1,785.0 1,315.7 902.4 712.8 971.8 704.2 Jan.-Feb. Difference 1995 Year Ago 9,259.2 7,375.8 -107.2 1,452.0 913.5 712.7 512.4 1,340.0 673.7 330.5 303.5 316.1 248.7 197.4 128.8 188.1 258.0 210.3 157.1 64.0 157.7 109.4 239.1 -140.3 -30.5 22.7 -51.7 -66.2 -62.2 2.6 24.4 481.6 444.7 442.8 303.8 296.8 257.3 252.4 214.6 186.4 177.0 175.8 28.5 17.0 25.9 -36.6 17.4 6.7 S ource: B u reau o f th e C en su s, F o reig n T rad e D ivision. 'R a n k in g o f p ro d u c ts is b y U .S . d o llar v o lu m e in c re a se in 1994 o v e r p rev io u s year. Table 4 (Millions of U.S. Dollars) TOTAL 11 49,492.8 Electric machinery, apparatus, appliances Telecom, and sound rec. equipment Road vehicles Power-generating machinery Office machines and ADP equipment General industrial machinery Articles of apparel and clothing Professional scientific instruments, parts Miscellaneous manufactured articles Iron and steel Furniture and parts, bedding Manufactures of metal Petroleum, petroleum products Nonmetallic minerals Vegetables and fruit 8,118.9 5,473.1 7,152.0 2,337.7 1,780.0 1,791.5 1,888.7 1,528.2 1,442.2 637.9 1,107.2 946.1 4,994.3 637.2 1,623.1 Jan.-Feb. Difference 1995 Year Ago 9,575.4 9,489.9 2,377.3 1,592.5 1,468.4 971.9 1395.2 492.7 264.7 323.9 363.5 256.1 248.7 146.7 293.7 260.8 184.5 172.3 889.4 11.8 42.6 205.2 22.8 90.5 1,511.8 1,042.7 714.0 689.5 604.2 474.8 427.9 312.3 250.1 225.1 194.1 186.4 133.6 96.3 Source: B u reau o f th e C en su s, F o reig n T rade D iv isio n . ‘R an k in g o f p ro d u cts is by U .S . d o llar vo lu m e in c re a se in 1994 o v e r p revious year. in the top 10 list under the OM series but do under the EL series are Indiana and New Jersey. Those two states un der the OM series hold 17th and 12th place, respectively. When evaluating a state’s export industry profile, the same two series of origin of movement and exporter loca tion are available. Focusing on Texas —the main U.S. exporter to Mexico— its export levels by industry change ac cording to the measure used. (Table 2 shows Texas’ exports to Mexico in 1994 under the OM and EL series.) Consequently, the series used to evaluate a state’s export performance matters, especially in comparisons with other states. The measure used Top U.S. Imports from Mexico1 1994 Difference Year Ago Louisiana drops to 30th. In the same manner, two states that do not appear 109.5 523.7 411.3 145.4 8.3 61.1 137.2 39.5 62.9 71.71 should, therefore, be noted in any analy sis of state-by-state export performance. (The state export data presented in the previous issue of Business Fron tier reflected the OM series in all cas es. One reason this particular series was selected was that it allows for a historical evaluation of a state’s export perfor mance since it’s available as of 1987. The EL series starts with 1993.) U .S .-M exican Trade in 1995 The December 1994 peso devalua tion, along with its negative repercus sions on Mexican economic growth, will affect the pattern of U.S.-Mexican trade in 1995. Data through Feb ruary 1995 show what was already < expected at the outset from these events: lowered U.S. exports to Mexico and increased imports from that country relative to the 1994 levels. Chart 1 shows the performance of U.S. trade with Mexico in relation to the peso-dollar exchange rate. Also, Tables 3 and 4 show the top products traded between the United States and Mexico last year and their performance dur U.S. Trade with Mexico and the Exchange Rate M x« sr 65 6 Co3TO 6w! ing the first two months of 1995. During January-February 1995, U.S. exports to Mexico totaled $7.4 billion, 1.4 percent lower than their level during the year-earlier period. By contrast, U.S. imports from Mexico were up 33.4 percent for the same period and equaled $9.5 bil lion. Thus, the $1.3 billion trade surplus the United States held with Mexico last year turned into a deficit of $2.1 billion during January and February. In terms of the performance of specific U.S. exports to Mexico during Januaiy and February, road vehicles decreased 17.2 percent, after a 1994 increase of almost 20 percent; general industrial ma chinery contracted 14.1 percent, after a gain of 24.4 percent in 1994; office machines and specialized machinery decreased 21 percent and 24 percent, respectively, after respective increases of 27.3 percent and 37.2 percent in 1994; meat and meat prepa rations fell 36.4 percent, after a 1994 increase of a similar magni tude, 35.4 percent. On the other hand, among those products that, despite the devaluation, still recorded important increases during the first two months of 1995 were electrical machinery (21.7 percent), primary plastics (19.6 percent), apparel articles (14.9 percent) and power-generating machinery (12.5 percent). Conclusion Though NAFTA and a growing Mexican economy were at the center of record U.S.-Mexican trade figures in 1994, this year the dominant factors affecting trade between the two coun tries will be the peso devaluation and its detrimental effects on c in O o Mexican economic growth. Preliminary Mexican figures show an $88 million trade surplus for the country during the first quarter of 1995. This is a very important development for Mexico since one of the factors precipitating the peso de valuation last year was the country’s acute current account deficit of almost $30 billion, which included a trade deficit of $18.5 billion. Last year, for example, Mexico’s first-quarter trade balance amounted to a trade deficit of $4.3 billion. Mexico’s current austerity economic program, together with continued structural reform, should help the country deal with the crisis triggered by the devaluation. Indeed, although authorities in Mexico project a 2-percent economic contrac tion this year, they expect growth to resume in 1996. Thus, the basic conclusion for U.S.-Mexican trade remains: U.S. exports to Mexico will be less dynamic this year than last, while the opposite will hold for U.S. imports from Mexico; however, over the long run, U.S.-Mexican trade should thrive as NAFTA and a more stable, growing Mexican economy create opportunities for both countries. — Lucinda Vargas Economist Business Frontier is a bimonthly publication of the El Paso Branch of the Federal Reserve Bank of Dallas. The views expressed are those of the author and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or the Federal Reserve System. Subscriptions are available free of charge. To be placed on the mailing list, please write to Lucinda Vargas El Paso Branch - Federal Reserve Bank of Dallas P.O. 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