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Effects of Trade on the U.S. Economy

2012 Data Overview

U.S. agricultural exports generated output, employment, income, and purchasing power in both the farm and nonfarm sectors. ERS estimates that, in 2012, each dollar of agricultural exports stimulated another $1.27 in business activity in 2012. The $141.3 billion of agricultural exports in 2012 produced an additional $179.5 billion in economic activity for a total economic output of $320.8 billion. Every $1 billion of U.S. agricultural exports in 2012 required 6,577 American jobs throughout the economy. Calendar year 2012 agricultural exports required 929,000 full-time civilian jobs, which included 622,000 jobs in the nonfarm sector. The agricultural export surplus helped to offset some of the nonagricultural trade deficit.

Introduction

Trade has always been important to U.S. farm and rural economies, from early colonial days when tobacco and cotton were the most important export commodities, to today’s massive exports of grain, oilseeds, and processed foods. Even though farming today accounts for a relatively small share of U.S. gross domestic product (GDP), U.S. agricultural trade still significantly contributes to the overall U.S. economy, with impacts felt worldwide. As the world’s economies become more integrated, global trade and the links between countries grow ever deeper. Trade agreements have expanded agricultural trade with developed and developing countries and, in turn, have created growth opportunities for U.S. agriculture. By lowering trade barriers, free trade agreements, such as the North America Free Trade Agreement, create demand for U.S. agricultural commodities in foreign markets. This demand is satisfied with purchasing power partly acquired by the ability of foreign nations to increase sales of other products to the U.S. market.

Agricultural exports continued their post-2009 upswing in 2012, surpassing the record set in 2011 by $4.9 billion (or 3.6 percent). Economic growth in such regions as Latin America, Asia, the Middle East, Mexico, and Canada spurred foreign demand for U.S. exports. Agricultural trade was strong even in the face of a strengthening dollar and slowed growth of world real GDP.  World GDP growth is estimated at 2.4 percent in 2012 versus 2.7 percent in 2011.  Relative to the rest of the world[1], the dollar appreciated in real terms by 0.5 percent in 2012.  For example, the dollar rose against the currencies of the NAFTA countries (Canada and Mexico) and especially against European Union (EU-27) currencies. The U.S. dollar strengthened against the average of Asian currencies, despite depreciating against China and Japan.  The U.S. dollar depreciated in real terms against the currencies of Latin America and the Middle East.  However, against the world average of all of its trading partners’ currencies, the U.S. dollar strengthened, making the prices of U.S. goods less competitive on global markets.



[1] World is U.S. trade weighted estimate (average).

In 2012, China imported $25.9 billion in U.S. agricultural goods, surpassing Canada’s total of $20.6 billion. Together with Mexico and Japan, these nations bought over 50 percent of U.S. agricultural exports.  U.S. consumers continued to demand a large variety of imported goods—

U.S. imports of agricultural goods in 2012 were the highest ever at $102.9 billion. U.S. imports from Canada totaled $20.2 billion in 2012 (up from $18.9 billion in 2011) and accounted for about 20 percent of all 2012 U.S. agricultural imports. Together, Canada, Mexico, and the EU-27 supplied 51.9 percent of all 2012 U.S. agricultural imports.

Impacts of Agricultural Trade in 2012

The impacts of agricultural trade on the U.S. economy change from year to year. Changes in the composition of the agricultural export “basket” lead to differing direct and indirect impacts on the economy. The structure of the U.S. economy also changes over time, influencing the domestic impacts of agricultural exports. The service sector now dominates the domestic economy, and the high level of supporting activity in service industries reflects their structure.

In calendar year 2012, the $141.3 billion of U.S. agricultural exports produced an additional $179.5 billion in economic activity for a total of $320.8 billion of economic output. (See U.S. economic activity triggered by agricultural trade, 2012.) Agricultural exports also generated 929,000 full-time civilian jobs, including 622,000 jobs in the nonfarm sector. Farmers’ purchases of fuel, fertilizer, and other inputs to produce commodities for export spurred economic activity in the manufacturing, trade, and transportation sectors. (For information on how the data are derived, see ERS Estimates.)  Because agricultural exports increased more than imports in 2012, the direct contribution of agricultural trade to the U.S. economy rose from $37.4 billion in 2011 to $38.4 billion in 2012.

Exports Generated New Business, Added Jobs

Of the $141.3 billion in direct U.S. agricultural exports in 2012, the value of exported raw products[2], excluding the supporting activity provided by the farm sector, was $50.0 billion, compared with $59.8 billion of processed commodities and $31.5 billion for manufacturing, transport and trade, and other services. The $179.5 billion of supporting or indirect activity generated by agricultural exports in 2012 included activities required to facilitate the movement of exports to their final destination (e.g., computer and financial services, warehousing and distribution, packaging, and additional processing).  Additionally, the service sector generated $68.8 billion of the total $179.5 billion in indirect activity.  All nonfarm sectors of the economy received about 74 percent of this additional economic activity.

Price changes (which affect the estimates of workers per $1 billion dollars of exports), as well as the export commodity mix, influence the extent to which agricultural exports create employment. Accordingly, the number of jobs required to facilitate total exports of agricultural commodities has been volatile (fig. 1).  After falling for several years, employment generated by total agricultural exports began to trend upward in 1999.  However, at 929,000 in 2012, employment required to produce, transport, and service agricultural exports was approximately the same as in 2011 (923,000) and only about 3.8 percent higher than in 1995.



[2] Raw product exports exclude supporting activity provided by the farm sector.

 

Chart data


Of the 929,000 full-time civilian jobs related to agricultural exports in 2012, more than 307,000 were U.S. farm workers. In 2012, 622,000 jobs in the nonfarm sector were involved in assembling, processing, distributing, and servicing agricultural products for export, a decrease of 15,000 from 2011. About 113,000 of those 622,000 jobs were in food processing; 199,000 in trade and transportation; 66,000 in other manufacturing sectors; and 245,000 in other services.

Bulk exports[3] have a smaller proportional effect on the nonfarm economy than nonbulk (processed or high-value) exports (fig. 2). Bulk exports valued at $50.7 billion produced an additional $39.4 billion of business activity (i.e., each dollar of bulk exports generated $0.78 of additional output). Nonbulk exports of $90.6 billion stimulated an additional $140.1 billion of business activity (i.e., each dollar of nonbulk exports generated $1.55 of additional output). For total agricultural exports (bulk and nonbulk), each dollar of exports produced an additional $1.27 of business activity.



[3] Bulk exports are defined as soybeans and other oilseeds, wheat, rice, corn and other feed grains, tobacco, and cotton.

 

Chart data


For bulk exports, $22.2 billion (or about 56 percent) of the additional business activity took place in the service sector, while only 0.5 percent occurred in food processing. In contrast, the additional business activity for nonbulk exports was 11.8 percent in food processing and 33 percent in services. Of the 929,000 jobs related to U.S. agricultural exports, 655,000 (70.4 percent) supported nonbulk exports.  Nonbulk commodities account for the majority of U.S. agricultural exports and indeed nonbulk commodities have generated the majority of jobs from agricultural exports.  As shown in Figure 1, starting in 2004, the job numbers created by nonbulk exports (trending up) and those created by bulk exports (trending down) begin to diverge.  Although exports of both bulk and nonbulk commodities have grown over the years, jobs per billion dollars of exports have decreased faster for bulk than nonbulk commodities (fig. 3).

Chart data

Accounting for the Impacts of Agricultural Imports

Bulk exports (defined as soybeans and other oilseeds, wheat, rice, corn and other feed grains, tobacco, and cotton) have a smaller proportional effect on the nonfarm economy than nonbulk (processed or high-value) exports.

Data limitations prevent us from assessing the impact of imports the same way we assess exports. It is not currently possible to measure the total economic activity associated with imports because there are no end-use data on imports available. When imports enter the United States, their value is recorded. After that, they are no longer tracked as imports but instead enter the general domestic economy to be used in the same fashion as domestically produced goods.

The end-use of a product is what determines its multiplier effects. Imports can be put into inventory (an almost negligible multiplier) or used in a highly processed product (a very large multiplier). Thus, without end-use data, the indirect or supporting impacts of actual agricultural imports cannot be measured in terms of output, employment, value-added, or as a multiplier. Only the value of imports as measured upon entry into the United States can be discerned (direct effects).

Imports can be assigned the generally held view of an economywide domestic business multiplier of between 2.00 and 2.50, because activities associated with “absorbed” imports are the same as those associated with any other domestic commodity. After adjusting for inflation from the benchmark year (2002) to 2012, the average output-weighted domestic business multiplier in 2012 for all U.S. business can be calculated as 2.22.

To illustrate this point, consider that almost all fish products are imported. If reliable statistics on consumers’ demand for and consumption of fish were available, the supporting activity required to deliver imported fish could be measured. But this would be only part of the contribution of fish imports to the economy because fish are also turned into meal and feeds, processed products, pet foods, and other uses not related to direct human consumption. These uses become completely intertwined with domestic production. Finally, to fully measure all fish outputs, researchers would also have to separate the movement of imported fish products from the small but growing amount of products from domestic farm-raised fish.

Because of these data limitations, the economic impact of imports described here is the value of imported products as if they were produced in the United States and then assigned the value of that activity as a theoretical loss of economic activity to the United States. The only actual “loss” to the U.S. economy that can be measured is the actual value of agricultural imports.

When valuing output associated with imports on the U.S. economy, we calculate a theoretical loss of economic activity from imports equal to the value of the product if it were to be produced here. Many imports, such as coffee, bananas, and cocoa, have few (if any) counterparts in U.S. agricultural production. While the purchase of these imports does represent a loss in income to the U.S. economy equivalent to their value at the border, it does not a represent a loss in production or supporting activities.

Impacts of Agricultural Imports on U.S. Output

U.S. imports of agricultural commodities were $102.9 billion in 2012, and if these imported items had been produced domestically, the domestic output effect would have been $237.6 billion. Just as with exports, moving imported products to consumers generates jobs in the data processing, financial, legal, management, administrative, marketing, and transportation sectors. Each dollar spent on agricultural imports in 2012 would have required another $1.31 in supporting goods and services if those imported items had been produced domestically, indicating an output multiplier of 2.31.

Overall Impacts of Agricultural Trade

U.S. agricultural trade had a positive effect on all sectors of the economy in 2012. The farm sector’s $97.3 billion of output associated with agricultural exports more than offset the $53.4 billion of farm output implicitly lost because of agricultural imports. The U.S. economy gained a net $83.2 billion in output (after the theoretical loss to agricultural imports is considered). Outside of farming and food processing, the United States gained $24.4 billion in total output in 2012 from trade in agricultural goods not classified as farm or processed food products (pharmaceuticals and adhesives, for example). The United States achieved a net gain of $2.8 billion from direct agricultural trade (exports minus imports) in these nonfarm, nonprocessed categories.

Total Jobs Required Per Billion Dollars of Agricultural Exports Drop in 2012

In 2012, 6,577 workers were required to deliver $1 billion worth of agricultural exports to the final consumers, a decline from the 6,766 per billion required in 2011.   

Most high-value and processed products require more total labor than do raw farm products. This means that in years when nonbulk commodities, composed of high-value products (HVPs) and other types of products that require special handling, are the major share of the export basket, jobs generated by exports are higher.  Per billion dollars of exports, nonbulk commodities typically generate more jobs than bulk.  However, in some years the opposite is true (fig. 3).  The volume (quantity) of exports largely determines overall labor requirements. The farm sector is the single largest generator of jobs related to agricultural exports. When farm prices are low, customers buy larger amounts of bulk grains and oilseeds. Jobs are created on the farm and in the supporting transportation and distribution industries, but job growth bypasses the processing and manufacturing sectors. In situations where the prices and value of bulk commodity exports are low and the volume exported is high, bulk commodities may create more jobs per billion dollars of exports than nonbulk, as shown in figure 3.  However, for bulk we also observe a stronger deterioration in jobs per billion dollars of exports, and this downturn became particularly rapid starting around 2005.  By 2007, nonbulk commodities were once again creating more jobs per billion of exports than bulk, as was the case in the mid-1990s.   

According to USDA’s National Agricultural Statistics Service, prices received by farmers for most major commodities posted increases in 2012—approximately 10 percent for oilseeds, 3 percent for food grains, 12 percent for feed grains, and 15 percent for the fruit and nut category.  The price of cotton was an exception, falling approximately 10 percent in 2012.  Because some of the increase in agricultural export value in 2012 was driven by increasing prices rather than quantities—and labor productivity continued to grow—there was a decrease in the number of jobs required per billion dollars of exports.

While the jobs per $1 billion of exports declined in 2012, the total employment supporting U.S. agricultural exports increased from 923,000 in 2011 to 929,000 in 2012. In the early 1980s, $35 to $45 billion (in nominal dollars) of exports generated an estimated 1 to 1.2 million jobs. In 2012, over $100 billion of exports were required to create the 929,000 jobs. ERS estimates for 1983 indicate that $38 billion of agricultural exports created 1.1 million jobs that year, a multiplier of 29,000 jobs per billion dollars of exports (Foreign Agricultural Trade of the United States, 1984). Because of price changes, increased productivity, and structural and technological advances in the intervening years, the number of jobs per billion dollars of exports declined to 6,577 workers in 2012.

Historical Analysis

 

 

U.S. economic activity triggered by agricultural trade, 2012

           
Item 2010 2011 2012 2012 2012
  Total Total Total Bulk Nonbulk
           
      Billion dollars  
Economic activity generated by agricultural exports 270.7 312.3 320.8 90.1 230.7
  Farm 76.2 93.3 97.3 44.0 53.3
  Food processing 60.3 70.6 76.5 0.2 76.3
  Other manufacturing 29.2 31.3 31.7 7.9 23.8
  Trade and transportation 36.4 43.5 42.4 15.8 26.6
  Other services 68.5 73.6 72.9 22.2 50.7
           
Exports 115.8 136.4 141.3 50.7 90.6
           
Agricultural imports 81.9 98.9 102.9 3.8 99.1
Agricultural trade balance 33.9 37.4 38.4 46.8 -8.5
           
Supporting activities 154.9 176.0 179.5 39.4 140.1
  Farm 33.7 43.7 47.3 4.9 42.3
  Food processing 12.7 15.6 16.7 0.2 16.5
  Other manufacturing 26.3 29.0 29.2 7.9 21.3
  Trade and transportation 15.1 17.4 17.6 4.2 13.4
  Other services 67.0 70.2 68.8 22.2 46.7
           
                                                    Percent    
Nonfarm share of supporting economic activity 78 75 74 87 70
           
           
Export multiplier (additional business activity generated by $1 of exports) 1.34 1.29 1.27 0.78 1.55
           
      1,000 jobs  
Employment generated by agricultural exports 907 923 929 275 655
  Farm 298 286 307 118 189
  Nonfarm 609 637 622 156 465
  Food processing 108 114 113 0 112
    Other manufacturing 66 67 66 15 51
    Trade and transportation 196 208 199 71 128
    Other services 238 248 245 70 174
           
Employment per billion dollars of agricultural exports 7.832 6.766 6.577 5.419 7.225
           
           
      Billion dollars  
Domestic equivalent of economic activity generated by agricultural imports 195.0 216.3 237.6 7.4 230.1
  Farm 38.5 44.5 53.4 3.1 50.2
  Food processing 51.2 60.3 64.3 0.0 64.3
  Other manufacturing 26.1 28.3 30.4 0.7 29.7
  Trade and transportation 27.4 27.6 30.7 1.5 29.2
  Other services 51.8 55.7 58.8 2.1 56.7
           
           
Net domestic equivalent of total output gain or loss to agricultural imports 75.7 96.0 83.2 82.6 0.6
Farm 37.7 48.8 43.9 40.8 3.1
  Food processing 9.1 10.3 12.2 0.2 12.0
  Other manufacturing 3.1 3.0 1.3 7.2 -5.8
  Trade and transportation 9.0 16.0 11.7 14.4 -2.6
  Other services 16.7 17.9 14.1 20.1 -6.0
           
Nonfarm, nonfood processing sectors:          
  Net direct benefit from exports   2.5 -3.3 2.8 10.5 -7.8
  Net increased output from exports   26.2 40.2 24.4 31.1 -6.7
           
                                                     Percent    
Farm share of total income from exports 23 24 26 36 21
Trade and transportation share of total income from exports   20 21 20 23 19
Source: USDA, ERS, Agricultural Trade Multipliers.          
Updated November 2013.          

 

 

Last updated: Thursday, February 13, 2014

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