U.S. Trade with Canada and Mexico
From 1990 to 2000, the value of U.S. international trade worldwide more than doubled in inflation-adjusted terms, rising from $891 billion to $2.2 trillion. In 2000, nearly one-third of U.S. merchandise trade was with Canada and Mexico, a slight increase from 29 percent in 1994 (table 2). Most of this rise can be attributed to U.S. trade with Mexico, which grew from 8.5 percent to 12.4 percent of total U.S. international merchandise trade during this period. Trade with Canada remained, on average, about one-fifth of total U.S. trade.
Between 1994 and 2000, the value of U.S. merchandise trade with Canada and Mexico grew at an average annual rate of 11 percent,2 while growth in U.S. trade with the rest of the world averaged 8 percent per year3 (table 2). U.S. trade with Canada, our number one trading partner for decades, increased (in current U.S. dollars) from $243 billion to $406 billion in 2000, an average annual rate of 8.9 percent.4 Trade with Mexico grew by 16 percent per year, from about $100 billion in 1994 to $248 billion in 2000. (Mexico became our second largest trading partner, surpassing Japan in 1999.) The growth in trade with Mexico occurred despite the decline in exports to Mexico in 1995 due to the peso crisis and the related economic recession. U.S. exports to Mexico recovered quickly after the Mexican economy began to stabilize and grow5 (figure 1).
Between 1994 and 2000, the U.S. merchandise trade deficit with NAFTA partners increased from $13 billion to $77 billion in current dollars (figure 2). The sustained growth of the U.S. economy, shifting exchange rates, and the exceptional market opportunities here spurred the flow of imports and increased the U.S. trade deficit. During this period, NAFTA-partner imports into the United States rose at an average annual rate of 12.7 percent compared with 9.7 percent for exports. U.S. imports from Canada grew by 10 percent annually and imports from Mexico rose by 18 percent. Exports to Canada grew by 7.5 percent while exports to Mexico grew by 14.1 percent annually. Since 1998, the U.S. trade deficit with Canada has increased at a faster rate than that with Mexico.
Modal Shares of NAFTA Trade
Modal shares of NAFTA trade differ depending on whether the value of the trade or its weight is examined (box 1). In terms of value, trucks transported about two-thirds of the goods in U.S.-NAFTA-partner trade in 2000 (figure 3). Trucks carried $429 billion ($212 billion of exports and $217 billion of imports) of NAFTA.-partner trade, up from $323 billion in 1997 (in current U.S. dollars). Trucking was followed by rail, air, water, and pipeline. Between 1997 and 2000, trucks transported about 75 percent of the U.S.-NAFTA-partner exports and about 63 percent of the imports by value. Trucks were more dominant in U.S. trade with Mexico, averaging about 72 percent, than in U.S. trade with Canada, averaging about 66 percent. Between 1997 and 2000, while the share of NAFTA-partner trade transported by truck and rail remained fairly stable, air transportation and pipeline increased the fastest and their shares of the value of trade rose slightly (table 3).
A different picture of modal shares emerges when U.S. NAFTA-partner trade is measured by the weight6 of the traded goods (figure 4). In 2000, trucks moved an estimated 190 million tons of traded goods with Canada and Mexico, accounting for about 35 percent of the weight of U.S.-NAFTA-partner trade. An estimated 175 million tons traveled over water, accounting for just under one-third of the weight. Water transportation was followed by rail, pipeline, and air. Modal shares by weight vary by imports and exports. In 2000, trucks transported 26 percent of import tonnage compared with an estimated 56 percent of exports (table 4).
Modal shares by weight also vary for U.S.-Canada and U.S.-Mexico trade. For U.S. trade with Canada, trucks moved 41 percent of the tonnage, followed by rail (24 percent), pipeline (22 percent), water (13 percent), and air (0.2 percent). For U.S. trade with Mexico, water transportation dominated with 69 percent of the weight, followed by trucks (24 percent), rail (6 percent), pipeline (2 percent), and air (0.1 percent).7 It is possible that under full liberalization of access for trucking in the United States and Mexico, the truck share of import tonnage could increase.8
Geography of North American Trade
Many factors affect the magnitude and distribution of NAFTA trade among U.S. states, including proximity to the Canadian and Mexican borders, location of dominant border ports, size of the states population and economy, and its manufacturing base. Not surprisingly, 9 of the top 10 origins and destinations by value are border states with large manufacturing bases, such as Michigan, Texas, California, New York, and Ohio (figure 5).
U.S.-NAFTA-partner land trade9 is highly concentrated among the U.S. states, with the 10 largest states accounting for about 67 percent of the value of total land trade in 2000, up from 64 percent in 1995. During this period, North Carolina and Arizona replaced Washington State and Wisconsin in the top 10 NAFTA-partner trade states by land modes. Land trade to and from Washington declined slightly and grew at a faster rate in North Carolina and Arizona than in Wisconsin. Trade with North Carolina, a nonborder state, rose in part because of in-state growth in automobile manufacturing and increased shipments to and from the maquiladora factories10 in Mexico. By 2000, there were about 3,600 maquiladora manufacturing plants operating in Mexico. About 80 percent of these are located in the six northern border states of Mexico, close to the U.S. border.11
The growth of NAFTA land trade in U.S. states reflects the concentration of manufacturing activities and large population centers in the northeast, midwest, California, and Texas (see map showing Growth in U.S. NAFTA Merchandise Trade by State: 1995-2000). Nearly one-third of all NAFTA surface trade is with Michigan, California, and Texas.
Land Ports and Border Crossings
There are over 75 land ports along the U.S.-Canada border and over 25 along the U.S.-Mexico border.12 Nevertheless, U.S.-NAFTA-partner trade is heavily concentrated at a few border crossings. In 2000, 10 ports accounted for 73 percent of all North American trade by land, with Detroit, Michigan, and Laredo, Texas, handling the majority of land trade on each U.S. border (figure 6). Border crossings at Detroit handled $94 billion worth of NAFTA trade in 2000, accounting for 16 percent of the U.S. land trade, down from 22 percent in 1995. Laredos share increased from 8 percent to 15 percent, handling $84 billion worth of NAFTA trade in 2000. Among the top 20 ports, trade passing through Laredo, Texas, grew the fastest and trade passing through Highgate Springs, Vermont, declined slightly.
The concentration of origins and destinations of U.S.-NAFTA-partner land trade in large population and manufacturing centers and the flow of trade through dominant ports of entry have major impacts on the U.S. transportation network, particularly on major border entry points and north-south highway corridors. In 2000, there were over 11.5 million commercial truck crossings13 into the United States from Canada and Mexico, up 26 percent from 9 million in 1997 (table 5). Commercial trucks entering the United States at the busiest crossing pointsDetroit, Michigan (15 percent) and Laredo, Texas (13 percent)create a dominant north-south truck corridor (from Detroit through Memphis, Tennessee, and San Antonio, Texas, to Laredo). Among the top 20 border crossings, truck traffic at Hidalgo, Texas, increased the fastest between 1997 and 2000, followed by Jackman, Maine, and Pembina, North Dakota.
If U.S. trade with Canada and Mexico continues at its current growth rate and keeps pace with trends in the U.S. economy, truckings large share of NAFTA freight may well continue, creating new challenges for highway capacity and border crossing infrastructure.
Changes in Commodity Mix
Manufactured goods have been key to the expansion in U.S. trade with Canada and Mexico. Motor vehicles, parts, and accessories have dominated NAFTA trade by value as North American automobile manufacturing is increasingly integrated across the three countries. Table 6 shows rankings of the top 10 commodity groups by value of U.S.-NAFTA-partner land trade. In 2000, trade in motor vehicles, parts, and accessories was valued at $125 billion, accounting for 22 percent of land trade with NAFTA partners, a proportion that has remained stable since 1995. The 10 leading commodity groups in 2000 accounted for 73 percent of the land trade compared with 70 percent in 1995. Over this period, furniture and furnishing products almost doubled in value, advancing from 11th in rank to 9th, and replacing aircraft equipment and parts in the top 10 commodity groups. Aircraft equipment and parts declined from $12 billion in 1995 to $5 billion in 2000. Exports of aircraft equipment and parts to Canada by land modes dropped from $10 billion to $1 billion while imports from Mexico dropped from $145 million to $62 million.
Among the top 10 industry groups, the fastest growing commodities transported by land modes were mineral fuels and related goods (including petroleum products), furniture and furnishing products, and electrical and electronics, which were up by 123 percent, 97 percent, and 84 percent, respectively. Overall, the fastest growing goods moving over land were textile products (knitted or crocheted fabrics) followed by apparel and clothing accessories, and cotton.
Factors of Change
Several factors account for the growth in U.S. trade with Canada and Mexico, including greater U.S. direct investment abroad (USDIA), fluctuations in exchange rates, changes in industry manufacturing and distribution patterns, and the rising gross domestic product (GDP) in all three countries. As shown in table 1, U.S. GDP grew at an average annual rate of 5.7 percent to $10 trillion (current U.S. dollars) between 1990 and 2000.14 In comparison, Canadian GDP grew by 2.6 percent annually and Mexican GDP grew by 9.1 percent annually (both in current U.S. dollars).
Trade with NAFTA partners has increased in part because Canada and Mexico are important areas for USDIA. Intrafirm trade across national borders often increases when companies invest in branch plants, subsidiaries, or alliances in other countries. Also, direct investment often offers cross-border opportunities for engineering and construction firms, which in turn may rely on home country suppliers.
In 2000, USDIA to Canada and Mexico totaled $162 billion, accounting for 13 percent of total USDIA to all countries (table 7). U.S. investment in Canada is larger than in Mexico, but rapid increases in trade with Mexico are reflected by a faster annual growth rate in Mexican investments. From 1994 to 2000, USDIA in NAFTA partners grew at a combined average annual rate of 10 percent, slower than the growth rate of total U.S. investments to all countries, which was 12.5 percent. Investments in Canada grew more slowly than those in Mexico over this period. However, the investments in Mexico declined slightly in 1995, the year following the peso crisis, as peso-denominated assets became less valuable relative to U.S. dollars.15 Investments in Mexico rebounded in 1996 and have increased at a slightly faster rate than U.S. investments in Latin America and Western Hemisphere countries, at 12.8 percent.
2 In comparison to the 11 percent annual growth rate between 1994 and 2000 in current dollars, in inflation-adjusted terms, U.S.-NAFTA-partner merchandise trade averaged 12 percent per year in real (chained 1996) dollars. Although growth rates for the entire economy that have been adjusted for inflation are often lower than those based on current dollars, this is not always the case if a countrys merchandise trade is growing faster than gross domestic product (GDP). Therefore, U.S.-NAFTA trade grew at a slightly faster rate in real (chained dollar) terms, in part because of the lower inflation rate in the United States and the growth of U.S. GDP.
4 Detailed indices are unavailable to deflate the trade data for imports and exports at the country level and for mode of transportation and commodity groupings. Adjusting for inflation is important to reflect the correct size of the change in the value of trade. Without adjusting for inflation, it is difficult to determine how changes in the value of merchandise affect the volume of goods transported.
6 Total weight data are Bureau of Transportation Statistics (BTS) estimates, based on U.S. Census Bureau tonnage data for imports into the United States and BTS estimates of tonnage for U.S. exports using value-to-weight ratios from the import data.
8 NAFTA set a timetable for truck carrier access to the United States by Mexican carriers. The agreement called for access to Mexican border states for U.S. and Canadian carriers and for Mexican carrier access to U.S. border states to begin in December 1995. Under the treaty, all access limits on commercial trucking between the United States and Mexico were to be phased out by January 1, 2000. Currently, however, Mexican trucks have access only to designated commercial zones extending 20 miles from U.S. border cities. Canadian trucks can travel anywhere in the United States provided they comply with U.S. regulations; however, Canadian firms cannot provide point-to-point service within the United States.
13 This number is crossings, not the number of unique individual vehicles and includes both loaded and unloaded trucks. For example, one truck may cross the border multiple times in one day. Each crossing would be counted. For U.S.-Mexico trade, Mexican commercial carriers currently enter the 20-mile border zone where the cargo is offloaded into warehouses or onto other carriers vehicles (e.g., trucks or trains) for transport to the final U.S. destination.