U.S. Trade and Industry: A Glimpse Under the Hood Michael Sposi May 12, 217 Dallas, TX The views expressed here are those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System. Any secondary distribution of this material is strictly prohibited. May be quoted with appropriate attribution to the author.
Outline Breaking down U.S. trade By partner By types of goods Value-added measures of trade Re-examine the trade linkages A historical perspective of industry in the U.S. Composition of U.S. employment Driving forces
Top U.S. Export Partners and Patterns Shares, percent 1 9 8 7 6 5 3 2 1 199 1995 2 25 21 215 Source: Haver Analytics Other India Brazil Korea Taiwan U.K. China Mexico Japan Canada Euro area
Top U.S. Import Partners and Patterns Shares, percent 1 9 8 7 6 5 3 2 1 199 1995 2 25 21 215 Source: Haver Analytics Other India Brazil Korea Taiwan U.K. China Mexico Japan Canada Euro area
Composition of U.S. Goods Imports Food, feeds & beverages Industrial supplies & materials Capital goods ex automotives Automotive vehicles, parts & engines Nonfood consumer goods ex automotives Other Shares, percent 1 9 8 7 6 5 3 2 1 199 1995 2 25 21 215 Source: Haver Analytics
Composition of U.S. Goods Exports Food, feeds & beverages Industrial supplies & materials Capital goods ex automotives Automotive vehicles, parts & engines Nonfood consumer goods ex automotives Other Shares, percent 1 9 8 7 6 5 3 2 1 199 1995 2 25 21 215 Source: Haver Analytics
Composition of U.S. Trade Deficit Trade deficit shares, percent Trade balance, percent of GDP 1. Non-petroleum products 9-1. 8 7-2. 6 5 Trade balance -3. -4. 3-5. 2 1 Petroleum products -6. -7. 199 1995 2 25 21 215 Source: Haver Analytics
What is value-added trade? Classic example: the iphone. China assembles iphones and exports them to the U.S. China imports components from various sources: Japan, Korea, Germany, the U.S., etc. Gross value of export is accredited to China. But China does not create all of the value. Repatriate the contribution of each source in the global supply chain to the final value. Similar for much of the trade between the U.S. and Mexico, specifically in autos and parts.
Measuring trade flows in global supply chains: value-added approach A U.S. consumer purchases an iphone for $5: How is the value-added distributed? Recording the transaction in gross terms. ROW Sale to consumer $5 USA Memory and audio $11 $18 Assembled product $162 CHN Processor, camera, etc. Implied gross trade deficit b/w U.S. and China: $169. Implied gross trade deficit b/w U.S. and ROW: $.
Measuring trade flows in global supply chains: value-added approach A U.S. consumer purchases an iphone for $5: How is the value-added distributed? Recording the transaction in gross terms. Trade in intermediate goods gets repatriated to original source. ROW ROW $162 USA Memory and audio $11 $162 CHN Processor, camera, etc. USA Processor, camera, etc. Memory and audio $11 CHN
Measuring trade flows in global supply chains: value-added approach A U.S. consumer purchases an iphone for $5: How is the value-added distributed? Recording the transaction in gross terms. Trade in intermediate goods gets repatriated to original source. ROW ROW $162 USA Memory and audio $11 $18 Assembled product $162 CHN Processor, camera, etc. USA Processor, camera, etc. Memory and audio $11 $7 Assembly CHN
Measuring trade flows in global supply chains: value-added approach A U.S. consumer purchases an iphone for $5: How is the value-added distributed? Recording the transaction in gross terms. Sale to consumer $5 USA Memory and audio $11 $18 Assembled product $162 ROW CHN Processor, camera, etc. Remaining value of the iphone sale covers distribution, R&D, and other value-added by Apple. Distribution, R&D, etc. $32 USA $162 Memory and audio $11 $7 Assembly ROW Processor, camera, etc. CHN
Measuring trade flows in global supply chains: value-added approach A U.S. consumer purchases an iphone for $5: How is the value-added distributed? Recording the transaction in gross terms. Recording the transaction in value-added terms. Sale to consumer $5 USA Memory and audio $11 $18 Assembled product $162 ROW CHN Processor, camera, etc. Distribution, R&D, etc. $32 USA ROW $162 Memory and audio $11 $7 Assembly Processor, camera, etc. CHN Implied gross trade deficit b/w U.S. and China: $169 Implied gross trade deficit b/w U.S. and ROW: $. Implied value-added trade deficit b/w U.S. and China: $7 Implied value-added trade deficit b/w U.S. and ROW: $162.
Value-added trade figures restate U.S. bilateral trade linkages U.S. tends to concentrate more on upstream production in the global supply chain. China and Mexico specialize more on downstream production. The U.S. bilateral trade deficits with China and Mexico are smaller when measured in terms of value added. Paints a new picture when thinking about currency wars. A devaluation makes imports more expensive. A country with small value added will gain very little from devaluing.
Value-added trade shares restate U.S. bilateral trade linkages Percent 6 Gross import shares 5 Value-added import shares Gross export shares Value-added export shares 3 2 1 CAN CHN EA18 JPN MEX ROW Source: OECD Trade in Value Added database
Value-added trade figures restate U.S. bilateral trade deficits Percent of U.S. GDP. -.2 -.4 -.6 -.8-1. -1.2-1.4-1.6-1.8-2. CAN CHN EA18 JPN MEX ROW Gross net export shares Value-added net export shares Source: OECD Trade in Value Added database
Value-added trade figures restate U.S. bilateral manufacturing trade deficits Percent of U.S. GDP.5 CAN CHN EA18 JPN MEX ROW. -.5-1. -1.5 Gross manufacturing net export shares Value-added manufacturing net export shares -2. Source: OECD Trade in Value Added database
De-industrialization: A historical perspective The decline in manufacturing, or industrial production, is part of a process known as structural transformation. The share of employment in industrial sectors has been declining since the 196s: Why? Technology: advanced in productivity in manufacturing processes. Demand: Increased demand for services (health care, education, etc.) Trade: Increased specialization in global supply chains.
Historical growth and structural transformation in the U.S. Percent of labor force 9 8 Services share in employment Industry s share in employment 7 Agriculture s share in employment 6 5 3 2 1 Thousands, 199 US$ 64 GDP per capita 185 187 189 191 193 195 197 199 21 Sources: Penn World Tables. International Handbook of Statistics, North America. Groningen Growth & Development Centre. 32 16 8 4 2 1
Changes in private consumption expenditures in the U.S. Percent of expenditures 8 7 6 Services 5 3 Industry 2 1 Agriculture 1947 1956 1965 1974 1983 1992 21 21 Source: Bureau of Economic Analysis
Prices of services in the U.S. grew faster than both agricultural and industrial prices Index, 1947=1 12 1 Services 8 6 Industry 4 2 Agriculture 1947 1956 1965 1974 1983 1992 21 21 Source: Bureau of Economic Analysis
Sectoral linkages: Changes in U.S. firms intermediate expenditures Percent of expenditures 7 6 5 Industrial productivity growth pre-198: 2.% post-198: 3.1% Services 3 Industry 2 1 Agriculture 1947 1956 1965 1974 1983 1992 21 21 Source: Bureau of Economic Analysis
De-industrialization: the U.S. is not alone Percent of labor force 45 35 3 25 2 U.S. 15 Japan 1 5 185 187 189 191 193 195 197 199 21 Source: International Historical Statistics: North America, Asia.
Japan s industrialization process linked to trade Percent of labor force Percent of imports 42 25. Industrial employment share in Japan 38 2. 36 34 15. 32 1. 3 28 Japan s share in U.S. imports 5. 26 24. 1948 1961 1974 1987 2 213 Source: International Historical Statistics: North America, Asia.
Industrial employment percentages Percent of labor force 45 35 3 25 2 U.S. 15 Japan Asian Tigers 1 5 185 187 189 191 193 195 197 199 21 Source: International Historical Statistics: North America, Asia.
Asian Tigers industrialization and de-industrialization Percent of labor force Industrial employment share in Tigers 35 3 25 2 15 1 5 Tigers share in Japan s imports Tigers share in U.S. imports Percent of imports 1 196 1973 1986 1999 212 Source: International Historical Statistics: North America, Asia. 9 8 7 6 5 4 3 2 1
Industrial employment percentages Percent of labor force 45 35 3 25 2 U.S. 15 Japan 1 Asian Tigers China 5 185 187 189 191 193 195 197 199 21 Source: International Historical Statistics: North America, Asia.
China s industrialization Percent of labor force 32 Industrial employment share in China 3 28 26 24 22 2 18 16 Percent of imports 28 1978 1983 1988 1993 1998 23 28 213 Source: International Historical Statistics: North America, Asia. China s share in Tigers imports China s share in Japan s imports China s share in U.S. imports 24 2 16 12 8 4
Employment composition tied to GDP per capita Percent of labor force in agriculture 1 U.S. 8 Japan 6 Tigers Percent of labor force in industry Percent of labor force in services 1 8 6 China 2 2 2 1 4 16 64 GDP per capita, thousands 199 US$ 1 4 16 64 GDP per capita, thousands 199 US$ 1 4 16 64 GDP per capita, thousands 199 US$ Sources: Penn World Tables. International Handbook of Statistics, North America and Asia. Groningen Growth & Development Centre.
The decline in industrial activity Part of the economic growth process. Improved technology reduces the resources needed for production. Higher income and longer life-expectancy increases the demand for services. Globalization allows for specialization in the global supply chain. The U.S. specializes more in service-intensive, upstream activities.