Effects of Trade on the U.S. Economy - 2015

Agriculture Trade Multipliers 2015, Summary of Findings

U.S. agricultural exports support output, employment, income, and purchasing power in both the farm and nonfarm sectors. ERS estimates that, in 2015, each dollar of agricultural exports stimulated another $1.27 in business activity. The $133.1 billion of agricultural exports in calendar year 2015 produced an additional $169.4 billion in economic activity for a total economic output of $302.5 billion. Every $1 billion of U.S. agricultural exports in 2015 required approximately 8,000 American jobs throughout the economy. Agricultural exports in 2015 required 1,067,000 full-time civilian jobs, which included 751,000 jobs in the nonfarm sector.

The agricultural export surplus helped to offset some of the nonagricultural trade deficit. Despite slightly faster growth in world real gross domestic product (GDP), in 2015 U.S. agricultural exports were below the record set in 2014, as the U.S. dollar appreciated significantly (8.6 percent) in real terms relative to the currencies of its trading partners and as prices for farm products declined. Although exports fell about 11 percent in 2015, employment supported by these exports fell less than proportionately (about 6 percent), as each billion dollars of exports supported a larger number of jobs in 2015.

See interactive charts and highlights of the 2015 Agricultural Trade Multipliers 

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. GDP, U.S. agricultural trade still significantly contributes to the overall U.S. economy, with impacts felt worldwide. Trade agreements, in tandem with increased productivity and higher incomes, 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 (NAFTA), 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.

U.S. Agricultural Exports Fell by 11 Percent in 2015 due to Strong Dollar and Lower Prices

At $133.1 billion in 2015, U.S. agricultural exports ended their post-2009 upswing, falling below the record set in 2014 by $17 billion (or about 11 percent). Despite continued growth in world real GDP, U.S. agricultural exports fell as the U.S. dollar appreciated in real terms relative to the currencies of their trading partners. Growing global supplies of many agricultural products also depressed prices.

World real GDP growth is estimated at 2.8 percent in 2015, slightly higher than the 2.7 percent expansion achieved in 2014. Economic growth in such regions as Asia, the Middle East, the European Union (EU-28), Mexico, and Canada supported  foreign demand for U.S. exports. In contrast, Latin America stands out as a region that experienced a downturn, with real GDP contracting 0.5 percent, due largely to negative growth in Brazil (-3.7 percent). Agricultural trade weakened in the face of a strengthening dollar. Relative to the rest of the world [1], the dollar appreciated in real terms by a substantial 8.6 percent in 2015. For example, the dollar rose 6.5 percent relative to the average of the currencies of Asia and Oceania (including China at 0.7 percent but especially Japan (13.4 percent), South Korea (6.8 percent), Australia (18.4 percent) and Malaysia (17 percent). For the NAFTA countries, the dollar appreciated in real terms against Canada (14.7 percent) and Mexico (16.2 percent). The U.S. dollar strengthened 11.2 percent in real terms against the average of Latin American currencies, especially Brazil (30 percent). The U.S. dollar rose 5.2 percent relative to the average of Middle Eastern currencies and more substantially against the European Union (EU-28) at 19.8 percent. Against the world average of all of its trading partners’ currencies, the U.S. dollar appreciated, making the prices of U.S. goods less competitive on global markets.

In 2015, Canada edged out China as the number-one destination for U.S. agricultural exports. China’s imports of U.S. agricultural goods decreased from $24.2 billion in 2014 to $20.3 billion in 2015, falling slightly below Canada’s total of $21.0 billion in 2015. Together with Mexico and Japan, these four nations have accounted for at least 50 percent of U.S. agricultural exports since 2002 (fig. 1). U.S. consumers continued to demand a large variety of imported goods—U.S. imports of agricultural goods in 2015 were the highest ever at $113.6 billion. U.S. imports from Canada totaled $21.8 billion in 2015 (down from $23.2 billion in 2014) and accounted for about 19 percent of all 2015 U.S. agricultural imports. Together, Canada, Mexico, and the EU-28 supplied about 55 percent of all 2015 U.S. agricultural imports.

In 2015, Agricultural Exports Supported Over One Million Full-time Civilian Jobs

The impacts of agricultural trade on the U.S. economy change from year to year. Factors beyond just the total value of exports affect ERS estimates of the trade multipliers. Changes in the composition of the agricultural export “basket” lead to differing direct and indirect impacts on the economy. Productivity growth tends to reduce the size of the trade multipliers—increases in labor productivity imply that the same output can be produced with a smaller workforce or that more output can be produced with the same size workforce. The structure of the U.S. economy also changes over time, influencing the domestic impacts of agricultural exports. Productivity, as well as the value and commodity composition of agricultural exports, is updated every year when developing annual estimates of the trade multipliers. In contrast, information on the changing structure of the U.S. economy is not available on an annual basis and, hence, is updated every several years. With the release of the Bureau of Economic Analysis’s 2007 Benchmark Input Output (I/O) accounts, the ERS agricultural trade multiplier (ATM) model has been rebased to incorporate the most recently available set of interrelationships between the various sectors of the U.S. economy. This rebased model was used to estimate the trade multipliers for calendar years 2013 onward.

In calendar year 2015, the $133.1 billion of U.S. agricultural exports produced an additional $169.4 billion in economic activity for a total of $302.5 billion of economic output (see table: U.S. economic activity supported by agricultural trade, 2015). Agricultural exports also supported 1,067,000 full-time civilian jobs, including 751,000 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 imports increased while exports fell in 2015, the direct contribution of agricultural trade to the U.S. economy decreased to $19.5 billion in 2015 from $38.3 billion in 2014.

Of the $133.1 billion in direct U.S. agricultural exports in 2015, the value of exported raw products [2], excluding the supporting activity provided by the farm sector, was $42.7 billion, compared with $29.3 billion for processed commodities and $61.0 billion for manufacturing, transport and trade, and other services. The $169.4 billion of supporting or indirect activity generated by agricultural exports in 2015 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). The 2015 results reflect the significant role of the services, transportation, and trade sectors, which generated $78.4 billion of the total $169.4 billion in indirect activity. At $21.4 billion in 2015, supporting activity in the farm sector is below the prior year ($26.2 billion). The farm sector’s $64.1 billion of output associated with agricultural exports is the sum of the value of exported raw products plus supporting activity in the farm sector.

Price movements (which affect the estimates of workers per $1 billion of exports), as well as changes in productivity, the export commodity mix, and the structure of the U.S. economy (captured by rebasing the model), influence the degree to which agricultural exports support employment. Accordingly, the number of jobs required to facilitate total exports of agricultural commodities has been volatile (fig. 2). After falling for several years, employment supported by total agricultural exports began to trend upward in 1999, with some fluctuations around that trend. In 2015, employment required to produce, transport, and service agricultural exports totaled an estimated 1,067,000 full-time civilian jobs, of which approximately 315,000 were U.S. farm workers. The  751,000 jobs in the nonfarm sector were involved in assembling, processing, distributing, and servicing agricultural products for export, a decrease of approximately 57,000 from the 2014 figure (numbers may not add up exactly due to rounding errors). About 66,000 of those 751,000 nonfarm jobs were in food processing; 301,000 were in other manufacturing sectors; and 384,000 were in services, trade, and transportation.

Nonbulk Exports Had  Larger Impacts on the Economy Than Bulk Exports

Bulk exports (defined as soybeans and other oilseeds, wheat, rice, corn and other feed grains, tobacco, and cotton) [3] have a smaller proportional effect on the nonfarm economy than nonbulk (processed or high-value) exports (fig. 3). U.S. nonbulk agricultural exports of $90.7 billion stimulated an additional $122.0 billion of business activity in 2015. By comparison, the $42.4 billion of bulk exports produced an additional $47.4 billion of business activity during the same year. Put differently, each dollar of nonbulk exports generated $1.35 of additional economic output, compared to $1.12 for bulk exports. For total agricultural exports (bulk and nonbulk), each dollar of exports produced an additional $1.27 of business activity.

For bulk exports, $28.2 billion (or about 59 percent) of the additional business activity took place in the services, trade, and transportation sectors, while only 0.5 percent occurred in food processing. In comparison, the shares of additional business activity generated by nonbulk exports were 6 percent in food processing and 41 percent in services, trade, and transportation.

As shown in fig. 2, starting in 2004, the job numbers supported by nonbulk exports (trending up) and those supported by bulk exports (trending down) begin to diverge. This divergence narrowed in 2014 and decreased further in 2015. Of the 1,067,000 jobs related to U.S. agricultural exports, 681,400 (64 percent) supported nonbulk exports in 2015 (down from 731,200 or 65 percent in 2014). The number of jobs related to bulk exports fell to 385,300 in 2015, an approximately 4-percent decrease over the prior year. The number of jobs related to nonbulk exports fell about 7 percent to 681,400 in 2015. Nonbulk commodities account for the majority of U.S. agricultural exports and continue to support the majority of jobs supported by agricultural exports. 

Accounting for the Impacts of Agricultural Imports

Data limitations prevent us from assessing the impact of imports the same way we assess that of 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 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, or 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 economy-wide 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 (2007) to 2015, the average output-weighted domestic business multiplier in 2015 for all U.S. business can be estimated as 2.153. To illustrate this point, consider that almost all fish products consumed in the United States 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 intertwined with domestic production. Finally, to fully measure outputs from fish imports, 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 about $113.6 billion in 2015, and if these imported items had been produced domestically, the domestic output effect would have been $244.6 billion, computed by multiplying imports ($113.6 billion) by the domestic business multiplier (2.153). Just as with exports, moving imported products to consumers supports jobs in the data processing, financial, legal, management, administrative, marketing, and transportation sectors. Each dollar spent on agricultural imports in 2015 would have required another $1.15 in supporting goods and services if those imported items had been produced domestically.

Overall, Agricultural Trade Had a Net Positive Effect on The U.S. Economy in 2015

U.S. agricultural trade had a positive effect on all sectors of the economy in 2015. The farm sector’s $64.1 billion of output associated with agricultural exports more than offset the $38.7 billion of farm output implicitly lost because of agricultural imports. The U.S. economy gained a net $57.9 billion in output (after the theoretical loss to agricultural imports is considered). Outside of farming and food processing, the United States gained $28.9 billion in total output in 2015 from trade in agricultural goods not classified as farm or processed food products (pharmaceuticals and adhesives, for example). The United States had a net loss of -$2.1 billion from direct agricultural trade (exports minus imports) in these nonfarm, nonprocessed categories.

Total Jobs Required Per Billion Dollars of Agricultural Exports Increased Last Year Compared to 2014

In 2015, approximately 8,000 workers were needed to deliver $1 billion worth of agricultural exports, an increase from the 7,550 per billion required in 2014. Still, overall, the number of jobs per $billion of agricultural exports has been trending downward since the early 2000s.

Most high-value and processed products require more total labor than do bulk farm products. This means that in years when nonbulk commodities, composed of high-value products and other types of products that require special handling, are the major share of the export basket, jobs supported by exports are higher. Per billion dollars of exports, nonbulk commodities typically support more jobs than bulk commodities. However, in some years, the opposite is true (fig. 4). 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 supported 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 support more jobs per billion dollars of exports than nonbulk commodities. This was the case from 1998-2006, and more recently as well. In 2015, 9,090 workers were needed to deliver $1 billion worth of bulk agricultural exports, versus 7,520 workers for nonbulk exports.

According to USDA’s National Agricultural Statistics Service, prices received by farmers for most major commodities posted decreased in 2015—approximately 23 percent for oilseeds, 10 percent for food grains, and 9 percent for feed grains. In contrast, prices for the fruit and nut category were almost unchanged, with a decrease of only about 1 percent. With prices for most major commodities falling in 2015, some of the decreases in the value of agricultural exports were driven by falling prices rather than quantities.

Although the total employment supporting U.S. agricultural exports decreased from 1,132,000 in 2014 to 1,067,000 in 2015, jobs per $1 billion of exports rose in 2015. Nevertheless, the overall pattern is that the number of jobs per billion dollars has trended downward over time. While the number of jobs supported in 2015 is nearly identical to that in 1983, the export value required to sustain this number of jobs has increased. ERS estimates for 1983 indicate that $38 billion of agricultural exports supported 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). In 2015, over $133.1 billion of exports were required to support the 1,067,000 jobs. 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 approximately 8,000 workers in 2015.

Table 1: U.S. economic activity supported by agricultural trade, 2015
Item 2013 / Total ($billion) 2014 / Total ($billion) 2015 / Total ($billion) 2015 / Bulk ($billion) 2015 / Nonbulk ($billion)
Economic activity generated by agricultural exports 320.3 340.6 302.5 89.8 212.7
Farm 73.4 76.7 64.1 37.4 26.6
Food processing 39.8 41.2 36.7 0.3 36.4
Other manufacturing 106.6 113.2 105.5 14.4 91.1
Services, trade and transportation 100.5 109.5 96.2 37.7 58.5
Exports 144.4 150.0 133.1 42.4 90.7
Agricultural imports 104.2 111.7 113.6 4.0 109.6
Agricultural trade balance 40.2 38.3 19.5 38.4 -18.9
Supporting activities 176.0 190.6 169.4 47.4 122.0
Farm 25.6 26.2 21.4 4.6 16.8
Food processing 8.5 8.7 7.4 0.3 7.1
Other manufacturing 61.3 66.3 62.2 14.4 47.9
Services, trade and transportation 80.5 89.4 78.4 28.2 50.2
Source: U.S. Department of Agriculture, Economic Research Service, Agricultural Trade Multipliers.
Updated November 2016.
Table 2: U.S. economic activity supported by agricultural trade, 2015
Item 2013 / Total (Percent) 2014 / Total (Percent) 2015 / Total (Percent) 2015 / Bulk (Percent) 2015 / Nonbulk (Percent)
Nonfarm share of supporting economic activity 85 86 87 90 86
Export multiplier (additional business activity generated by $1 of exports) 1.22 1.27 1.27 1.12 1.35
Source: U.S. Department of Agriculture, Economic Research Service, Agricultural Trade Multipliers.
Updated November 2016.
Table 3: U.S. economic activity supported by agricultural trade, 2015
Item 2013 / Total (1,000 jobs) 2014 / Total (1,000 jobs) 2015 / Total (1,000 jobs) 2015 / Bulk (1,000 jobs) 2015 / Nonbulk (1,000 jobs)
Employment generated by agricultural exports 1094 1132 1067 385.3 681.4
Farm 301 324 315 175.6 139.6
Nonfarm 794 808 751 209.6 541.8
Food processing 80 72 66 0.3 66.1
Other manufacturing 331 322 301 33.6 267.1
Services, trade and transportation 383 413 384 175.7 208.6
Employment per billion dollars of agricultural exports 7.580 7.546 8.016 9.087 7.516
Source: U.S. Department of Agriculture, Economic Research Service, Agricultural Trade Multipliers.
Updated November 2016.
Table 4: U.S. economic activity supported by agricultural trade, 2015
Item 2013 / Total ($billion) 2014 / Total ($billion) 2015 / Total ($billion) 2015 / Bulk ($billion) 2015 / Nonbulk ($billion)
Domestic equivalent of economic activity generated by agricultural imports 227.2 245.8 244.6 9.0 235.6
Farm 36.0 39.8 38.7 3.4 35.3
Food processing 27.4 30.6 31.1 0.0 31.0
Other manufacturing 90.7 97.7 99.9 1.5 98.3
Services, trade and transportation 73.2 77.7 75.0 4.0 71.0
Net domestic equivalent of total output gain or loss to agricultural imports 93.1 94.8 57.9 80.8 -22.9
Farm 37.5 36.9 25.4 34.0 -8.7
Food processing 12.5 10.6 5.6 0.2 5.4
Other manufacturing 15.8 15.5 5.6 12.8 -7.2
Services, trade and transportation 27.3 31.8 21.2 33.7 -12.5
Nonfarm, nonfood processing sectors:          
Net direct benefit from exports 6.3 5.4 -2.1 8.5 -10.6
Net increased output from exports 36.8 41.9 28.9 38.0 -9.1
Source: U.S. Department of Agriculture, Economic Research Service, Agricultural Trade Multipliers.
Updated November 2016.
Table 5: U.S. economic activity supported by agricultural trade, 2015
Item 2013 / Total (Percent) 2014 / Total (Percent) 2015 / Total (Percent) 2015 / Bulk (Percent) 2015 / Nonbulk (Percent)
Farm share of total income from exports 21 20 19 29 15
Trade and transportation share of total income from exports 4 5 5 3 6
Source: U.S. Department of Agriculture, Economic Research Service, Agricultural Trade Multipliers.
Updated November 2016.

Historical Analysis


Footnotes

[1] World is the U.S. agricultural trade-weighted index.

[2] Raw product exports exclude supporting activity provided by the farm sector. Raw products include both bulk and higher-value products.

[3] This definition of bulk excludes pulses, in contrast to the Global Agricultural Trade System which lists pulses among the bulk commodities.