EconSouth (First Quarter 2004)

Center photo courtesy of Mercedes-Benz

Southeastern Exports:
Engine for Growth

 

Agriculture, manufacturing, and automobiles have helped boost Southeastern exports recently. In fact, exports from most of the region’s states are expanding faster than those from the rest of the nation, and the outlook is promising for continued growth.

Photo by Flip Chalfant
The region’s exports are still relatively concentrated in primary goods, such as agricultural products, and intermediate products. But exports from advanced manufacturing industries—particularly the transportation equipment sector—have increased considerably in recent years.

Exports from Southeastern states have risen steadily in recent years. During the 1997–2003 period, exports from Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee rose 2.5 percent annually while the nation’s exports rose 1.2 percent (see chart 1). Transportation equipment and other high-value-added manufacturing led much of the expansion in Southeastern exports.

For the Southeast and the United States as a whole, a few industries and destination countries make up the bulk of exports. In 2003, more than 70 percent of the value of the region’s exports came from five industries: food and farm products, chemicals and plastics, transportation equipment, computer and electronic products, and machinery excluding electrical equipment (see chart 2). These industries accounted for a similar total share of exports nationally, but the nation’s share of food and farm products was smaller and its share of computer and electronic products was larger than the Southeast share.

Nearly half of Southeastern exports go to Canada, Mexico, Japan, China, Brazil, Germany, and the United Kingdom (see chart 3). Not surprisingly, these seven countries are also among the United States’ leading trade partners. Mexico, Germany, and China have been the fastest-growing export markets for the Southeast, each averaging 12 percent growth annually during 1997–2003. Japan and Brazil, in contrast, posted nearly flat export growth during that period.

Free trade agreements and low foreign tariffs have been key to export growth. When the North American Free Trade Agreement (NAFTA) was signed 10 years ago, the agreed-upon schedule of tariff eliminations was touted as a boon for trade between the United States, Canada, and Mexico. Demand from NAFTA partners has indeed led much of the growth in regional exports even though this demand softened in 2001 and 2002 as those countries’ economies weakened. Exports to Canada and Mexico have accounted for about one-fourth of all Southeastern shipments in recent years.

Chart 1
Average Annual Growth Rate of Exports, Southeast and United States, 1997–2003

Note: Machinery does not include electrical machinery.
Source: Calculations by the Federal Reserve based on data from Haver Analytics

Advanced manufacturing industries—relatively high value-added industries—compose a large and rising share of Southeastern exports to these countries. Exports to Canada are relatively concentrated among motor vehicles and computer/electronic products while Mexico demands computer/electronic products and transportation equipment and parts.

China and Japan are also significant export destinations from the Southeast. Both countries demand similar types of exports: agricultural products and intermediate products such as paper, lumber, and chemicals. During 1997–2003, Japan accounted for more than 18 percent of the Southeast’s agricultural exports, and China accounted for 5 percent. Southeastern exports to China have yet to live up to analysts’ hopes for the dramatic increase predicted before China was granted permanent normal trade relations status beginning in 2002. But the country is still emerging as much faster-growing export market than the more established Japanese market.

Exports vital to farm and factory
Exports play a large role in the region’s agricultural sector, accounting for nearly 20 percent of the Southeast’s farm income in recent years. Although food and farm exports are important to rural communities, their export performance tends to vary significantly by export market and product.

Poultry, the leading income-producing farm sector in the Southeast, is highly dependent on a few global markets, particularly Russia. Poultry exports to Russia have varied considerably in recent years because of political and trade frictions with the United States. However, the market gained some stability in 2003 when the United States and Russia signed an agreement guaranteeing U.S. exports for the next five years.

Cotton exports were up strongly in 2003 because of both the global economic recovery and a poor crop in China. This development particularly has helped cotton farmers in areas of Alabama, Georgia, and Mississippi and is in marked contrast to 2001 and 2002, when cotton prices dropped sharply and exports declined.

Chart 2
Shares of Major Industries in
Southeastern Exports, 2003

Note: Machinery does not include electrical machinery.
Source: Calculations by the Federal Reserve Bank of Atlanta based on data from Haver Analytics

Exports may help the region retain some factory jobs in the face of the long-running decline in manufacturing employment. Manufacturing exports in 2001 accounted for about 13 percent of the value of industrial shipments from the Southeast, up slightly from 12 percent in 1997. Manufacturing jobs, which make up over 10 percent of all nonfarm payroll jobs in the Southeast, are highly concentrated in a few export industries, namely, transportation equipment, machinery, and computer and electrical equipment. These three industry groups averaged an annual growth rate of about 4 percent during the 1997–2003 period, far exceeding performance at the national level.

Intermediate products such as lumber and pulp and paper are still important exports in most Southeastern states. But these products’ export growth rates are highly variable, and their shares of total exports have not been as dominant recently as in past decades. Meanwhile, despite continued declines in domestic production, textile and apparel exports are strengthening in some areas thanks to growing intraindustry trade with Mexico and Caribbean countries.

Southeast auto exports zooming
Automobiles dominate the Southeast’s fastest-growing industrial export segment—transportation equipment. Most major global producers, including Ford, General Motors, Daimler-Chrysler, Honda, Nissan, and Hyundai, have set up plants in the Southeast in recent years, and many have been exporting part of their production. The value of regional exports of transportation equipment rose at an annual average of 8.4 percent between 1997 and 2003. Transportation equipment made up at least one-fifth of all Southeastern shipments to Germany, the United Kingdom, Brazil, and Mexico in recent years.

Regional ports, transportation companies, and trade support services have all benefited from the growth of auto-related exports. During the early 1990s, auto imports dominated incoming shipments at the ports of Jacksonville, Fla., and Brunswick, Ga. While autos continue to make up an important part of imports, auto exports are now adding to port revenues. Port officials estimate that exports currently account for about one-fourth of all autos processed at Brunswick and one-third at Jacksonville. The leading export vehicles from district ports are Mercedes M-class SUVs (assembled in Alabama and headed to Europe) and Fords (assembled in Georgia and other states and shipped to Australia, New Zealand, and Southeast Asia, among other destinations).

Exports may help the region retain some factory jobs in the face of the long-running decline in manufacturing employment.

Exports are driving the $600 million expansion of the Mercedes U.S.A. plant in Tuscaloosa, Ala., which plans to double its production and workforce by the end of this year. According to industry analysts, demand is growing worldwide for the M-class SUV and the Vision Grand Sports Tourer, a hybrid all-wheel-drive vehicle recently added to the production lineup for late 2004.

Chart 3
Shares of Major Countries in
Southeastern Exports, 2003

Source: Calculations by the Federal Reserve Bank of Atlanta based on data from Haver Analytics

Good prospects for continued export growth
If recent trends continue, the Southeast’s exports will remain a positive factor in the region’s economic growth. The region’s exports are still relatively concentrated in primary goods, such as agricultural products, and intermediate products. But exports from advanced manufacturing industries—particularly the transportation equipment sector—have increased considerably in recent years. This rapid growth in high value-added shipments benefits regional manufacturers and support services, such as ports, the transportation sector, and distribution companies.

One key concern in assessing exports’ contribution to regional economic growth is the high volatility of export demand and prices in many sectors. Agricultural exports depend on global market conditions and weather, and exports from advanced manufacturing industries have traditionally been tied to business cycles. The dollar’s value relative to other currencies also plays a key role in export growth; its sharp fall in value in recent months has boosted exports, but a sustained rise could ultimately put a damper on continued export growth.

New trade policies, such as the U.S.-Central American Free Trade Agreement (CAFTA) and the Trade Promotion Authority (TPA) Act, are positive recent developments for regional exports. CAFTA will gradually reduce trade barriers in four Central American countries and potentially boost exports from the Southeast to those nations. The TPA Act, which allows the president to negotiate regional trade agreements with other countries, should boost regional exports by reducing tariffs overseas. In addition, trade barriers with Canada and Mexico continue to fall under the terms of NAFTA. This year, tariffs will be eliminated on nearly $1 billion of traded goods, encouraging additional growth in the Southeast’s exports.

This article was written by Gustavo A. Uceda, an economic analyst in the Atlanta Fed's research department. The exports data used here are from “Origin of Movement of Export Shipments,” produced by the U.S. Department of Commerce and adjusted by MISER. The data are subject to error because of difficulty ascertaining where exports originated. For a discussion of the methodology and data limitations, see www1.miser.umass.edu/trade/miserdesc.pdf.

 

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