Effects of Trade on the U.S. Economy

2016 Data Overview

U.S. agricultural exports support output, employment, income, and purchasing power in both the farm and nonfarm sectors. ERS estimates that, in 2016, each dollar of agricultural exports stimulated another $1.28 in business activity. The $134.7 billion of agricultural exports in calendar year 2016 produced an additional $172.1 billion in economic activity for a total economic output of $306.8 billion. Every $1 billion of U.S. agricultural exports in 2016 required approximately 8,100 American jobs throughout the economy. Agricultural exports, in 2016, required 1,097,000 full-time civilian jobs, which included 764,000 jobs in the nonfarm sector. The agricultural export surplus helped to offset some of the nonagricultural trade deficit.

Despite an appreciation of the U.S. dollar in real terms relative to the currencies of its trading partners and slightly slower growth in world real-gross domestic product (GDP), U.S. agricultural exports rose 1.2 percent to $134.7 billion in 2016.  Employment supported by these exports increased more than proportionately.  Since the prices for most major commodities fell in 2016, some of the increase in the value of agricultural exports was a result of rising quantities, which contributed to growth in the number of jobs per $1 billion of exports.  With each billion dollars of exports supporting a larger number of jobs, the 1.2 percent increase in agricultural exports in 2016 supported 2.8 percent more jobs.

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. As the world’s economies become more integrated, global trade and the links between countries grow ever deeper. 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. Trade agreements that lower barriers to agricultural trade potentially create demand for U.S. agricultural commodities in foreign markets. This demand would be 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 were up slightly in 2016 from the previous year

At $134.7 billion in 2016, U.S. agricultural exports were 1.2 percent higher than the previous year but well below the record set in 2014 (about $150 billion). In 2016 the U.S. dollar appreciated in real terms relative to the currencies of its trading partners, though to a substantially smaller degree than in 2015.  The appreciating dollar and growing global supplies of many agricultural products depressed prices. Continued, albeit slower, growth in world real GDP contributed to foreign demand for U.S. agricultural exports. World real GDP growth is estimated at 2.27 percent in 2016, below the 2.8 percent expansion achieved in 2015. Economic growth in regions such as Asia, the Middle East, the European Union (EU-28), Mexico, and Canada was supportive of foreign demand for U.S. exports. In contrast, South America continued to experience a downturn—with an estimated growth rate of -2.3 percent, 2016 marked the second consecutive year of real GDP contraction for the region, due largely to negative growth in Brazil (-3.25 percent). 

The U.S. dollar strengthened against the world average of all its trading partners, making U.S. products somewhat less competitive, but not by enough to prevent agricultural exports from rising in 2016. Relative to the rest of the world,[1] the dollar appreciated in real terms by 2.84 percent in 2016. For the NAFTA countries, the dollar appreciated in real terms against Canada (2.87 percent) and Mexico (14.62 percent). The U.S. dollar depreciated 5.48 percent in real terms against the average of South American currencies. The dollar strengthened in real terms against China (5.89 percent), but weakened relative to Japan (-9.99 percent). Overall, the U.S. dollar was roughly unchanged against the average of the currencies of Asia and Oceania, depreciating by -0.05 percent in real terms. The U.S. dollar rose 0.75 percent relative to the average of Middle Eastern currencies and more substantially against the European Union (EU-28) at 3.76 percent.

In 2016, China imported $21.4 billion in U.S. agricultural goods, surpassing Canada’s total of $20.3 billion.  These nations, together with Mexico and Japan, 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 2016 were the highest ever at $114.5 billion. U.S. imports from Mexico totaled $22.9 billion in 2016 (up from $21 billion in 2015) and accounted for about one-fifth of all 2016 U.S. agricultural imports. Together, Canada, Mexico, and the EU-28 supplied roughly 57 percent of all 2016 U.S. agricultural imports.

In 2016, agricultural exports supported a total of $306.8 billion of economic output

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, are updated every year when annual estimates of the trade multipliers are developed. In contrast, information on the changing structure of the U.S. economy is not available on an annual basis and thus 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 was rebased to incorporate the most recently available set of interrelationships between the various sectors of the U.S. economy. This model has been used to estimate the trade multipliers for calendar years 2013 onward.

In calendar year 2016, the $134.7 billion of U.S. agricultural exports produced an additional $172.1 billion in economic activity for a total of $306.8 billion of economic output (see table: U.S. economic activity supported by agricultural trade, 2016). Agricultural exports also supported 1,097,000 full-time civilian jobs, including 764,000 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 Documentation.) Because the increase for agricultural exports was more than that for imports in 2016, the direct contribution of agricultural trade to the U.S. economy increased from $19.5 billion in 2015 to $20.2 billion in 2016.

Of the $134.7 billion in direct U.S. agricultural exports in 2016, the value of exported raw products,[2] excluding the supporting activity provided by the farm sector, was $46.9 billion, compared with $28.2 billion for processed commodities and $59.6 billion for manufacturing, transport and trade, and other services. The $172.1 billion of supporting or indirect activity generated by agricultural exports in 2016 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 2016 results reflect the significant role of the services, transportation, and trade sectors, which generated $82.0 billion of the total $172.1 billion in indirect activity. At $20.1 billion in 2016, supporting activity in the farm sector is below the prior year ($21.4 billion). The farm sector’s $67.1 billion of output associated with agricultural exports is the sum of the value of exported raw products plus supporting activity in the farm sector.

The number of jobs required to facilitate total exports of agricultural commodities has been volatile (fig. 2), reflecting short-term price changes and the shifting composition of exports as well as longer term changes in productivity and economic structure.  After falling for several years, employment supported by total agricultural exports began to trend upward in 1999, with some fluctuations around that trend. In 2016, employment required to produce, transport, and service agricultural exports totaled an estimated 1,097,000 jobs.

Of the 1,097,000 full-time civilian jobs related to agricultural exports in 2016, approximately 333,000 were for farmworkers. In 2016, 764,000 jobs in the nonfarm sector involved assembling, processing, distributing, and servicing agricultural products for export, an increase of approximately 13,000 over the prior year (numbers may not add up exactly due to rounding errors). About 70,000 of those 764,000 nonfarm jobs were in food processing; 301,000 were in other manufacturing sectors; and 394,000 were in services, trade, and transportation.

Nonbulk Exports Had  Larger Impacts on the Economy Compared With Bulk Exports

Bulk exports (defined as soybeans and other oilseeds, wheat, rice, corn and other feed grains, tobacco, and cotton) have a proportionally smaller effect on the nonfarm economy than nonbulk (processed or high-value) exports (fig. 3). Bulk exports valued at $45.9 billion produced an additional $53.1 billion of business activity (i.e., each dollar of bulk exports generated $1.16 of additional output). Nonbulk exports of $88.8 billion stimulated an additional $119.0 billion of business activity (i.e., each dollar of nonbulk exports generated $1.34 of additional output). For total agricultural exports (bulk and nonbulk), each dollar of exports produced an additional $1.28 of business activity.

For bulk exports, $31.9 billion (or about 60 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 6.1 percent in food processing and 42.1 percent in services, trade, and transportation.

As shown in figure 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 began to narrow in 2014 and decreased further in 2015 and 2016. Of the 1,097,000 jobs related to U.S. agricultural exports, 679,000 (61.9 percent) supported nonbulk exports in 2016 (down from 681,000 or 63.9 percent in 2015). The number of jobs related to bulk exports rose to 418,000 in 2016, an 8.5-percent increase over the prior year. The number of jobs related to nonbulk exports fell less than 1 percent to 679,000 in 2016. Nonbulk commodities account for the majority of U.S. agricultural exports and continue to support the majority of jobs dependent on agricultural exports. 

In terms of employment growth, sectors outside of farming have been the major beneficiaries of agricultural exports in the past dozen years.  Starting around 2004, a divergence appears between the estimated numbers of farm and nonfarm jobs (fig. 4), with the latter accounting for a rising share of total employment supported by agricultural exports.  Although the number of farm jobs then stabilized with a slight upward trend, nonfarm jobs were roughly double the number of farm jobs from 2007-16.  This growing importance of nonfarm jobs is consistent with the upward trend in the job numbers supported by nonbulk exports noted in figure 2.  Thus, the composition of agricultural exports (bulk versus nonbulk) influences not only the total number of jobs but also distribution of employment between farm and nonfarm sectors of the economy.

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 2016, the average output-weighted domestic business multiplier in 2016 for all U.S. business can be estimated as 2.151

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 represent a loss in production or supporting activities.

Impacts of Agricultural Imports on U.S. Output

U.S. imports of agricultural commodities were about $114.5 billion in 2016, and if these imported items had been produced domestically, the domestic output effect would have been $246.3 billion, computed by multiplying imports ($114.5 billion) by the domestic business multiplier (2.151).  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 2016 would have required another $1.151 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 2016

U.S. agricultural trade had a positive effect on all sectors of the economy in 2016. The farm sector’s $67.1 billion of output associated with agricultural exports more than offset the $38.5 billion of farm output implicitly lost because of agricultural imports. The U.S. economy gained a net $60.5 billion in output (after the theoretical loss to agricultural imports is considered). Outside of farming and food processing, the United States gained $30.8 billion in total output in 2016 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 -$3.6 billion from direct agricultural trade (exports minus imports) in these nonfarm, nonprocessed categories.

Total jobs required per billion dollars of agricultural exports increase in 2016 compared with 2015

In 2016, approximately 8,100 workers were needed to deliver $1 billion worth of agricultural exports, an increase from the 8,000 per billion required in 2015

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. 5).  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 2016, 9,100 workers were needed to deliver $1 billion worth of bulk agricultural exports, versus 7,640 workers for nonbulk exports.

According to USDA's National Agricultural Statistics Service, prices received by farmers for most major commodities decreased in 2016—approximately 1.5 percent for oilseeds, 23 percent for food grains, 6.5 percent for feed grains, and 5.7 percent for cotton. In contrast, prices for the fruit and nut category increased 4.8 percent. With prices for most major commodities falling in 2016, some of the increases in the value of agricultural exports were driven by rising quantities rather than prices.

The jobs per $1 billion of exports grew in 2016, and the total employment supporting U.S. agricultural exports also increased from 1,067,000 in 2015 to 1,097,000 in 2016.  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 2016 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 2016, over $134.7 billion of exports were required to support the 1,097,000jobs. 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 8,100 workers in 2016.

Table 1: U.S. economic activity supported by agricultural trade, 2016
Item 2014 / Total ($billion) 2015 / Total ($billion) 2016 / Total ($billion) 2016 / Bulk ($billion) 2016 / Nonbulk ($billion)
Economic activity generated by agricultural exports 340.6 302.5 306.8 99.0 207.8
Farm 76.7 64.1 67.1 40.9 26.2
Food processing 41.2 36.7 35.7 0.3 35.5
Other manufacturing 113.2 105.5 105.0 15.9 89.2
Services, trade and transportation 109.5 96.2 98.9 41.9 57.0
Exports 150.0 133.1 134.7 45.9 88.8
Agricultural imports 111.7 113.6 114.5 3.6 110.9
Agricultural trade balance 38.3 19.5 20.2 42.3 -22.0
Supporting activities 190.6 169.4 172.1 53.1 119.0
Farm 26.2 21.4 20.1 5.0 15.2
Food processing 8.7 7.4 7.5 0.3 7.3
Other manufacturing 66.3 62.2 62.3 15.9 46.5
Services, trade and transportation 89.4 78.4 82.0 31.9 50.1
Source: U.S. Department of Agriculture, Economic Research Service, Agricultural Trade Multipliers.
Updated November 2017.
Table 2: U.S. economic activity supported by agricultural trade, 2016
Item 2014 / Total (Percent) 2015 / Total (Percent) 2016 / Total (Percent) 2016 / Bulk (Percent) 2016 / Nonbulk (Percent)
Nonfarm share of supporting economic activity 86 87 88 91 87
Export multiplier (additional business activity generated by $1 of exports) 1.27 1.27 1.28 1.16 1.34
Source: U.S. Department of Agriculture, Economic Research Service, Agricultural Trade Multipliers.
Updated November 2017.
Table 3: U.S. economic activity supported by agricultural trade, 2016
Item 2014 / Total (1,000 jobs) 2015 / Total (1,000 jobs) 2016 / Total (1,000 jobs) 2016 / Bulk (1,000 jobs) 2016 / Nonbulk (1,000 jobs)
Employment generated by agricultural exports 1132 1067 1097 418 679
Farm 324 315 333 188 145
Nonfarm 808 751 764 230 534
Food processing 72 66 70 0.3 69
Other manufacturing 322 301 301 38 263
Services, trade and transportation 413 384 394 192 202
Employment per billion dollars of agricultural exports 7.546 8.016 8.141 9.105 7.643
Source: U.S. Department of Agriculture, Economic Research Service, Agricultural Trade Multipliers.
Updated November 2017.
Table 4: U.S. economic activity supported by agricultural trade, 2016
Item 2014 / Total ($billion) 2015 / Total ($billion) 2016 / Total ($billion) 2016 / Bulk ($billion) 2016 / Nonbulk ($billion)
Domestic equivalent of economic activity generated by agricultural imports 245.8 244.6 246.3 8.7 237.6
Farm 39.8 38.7 38.5 3.1 35.4
Food processing 30.6 31.1 31.0 0.0 31.0
Other manufacturing 97.7 99.9 101.4 1.6 99.8
Services, trade and transportation 77.7 75.0 75.4 4.0 71.4
Net domestic equivalent of total output gain or loss to agricultural imports 94.8 57.9 60.5 90.2 -29.8
Farm 36.9 25.4 28.6 37.9 -9.3
Food processing 10.6 5.6 4.7 0.3 4.5
Other manufacturing 15.5 5.6 3.7 14.3 -10.6
Services, trade and transportation 31.8 21.2 23.5 37.8 -14.4
Nonfarm, nonfood processing sectors:          
Net direct benefit from exports 5.4 -2.1 -3.6 9.0 -12.6
Net increased output from exports 41.9 28.9 30.8 43.1 -12.3
Source: U.S. Department of Agriculture, Economic Research Service, Agricultural Trade Multipliers.
Updated November 2017.
Table 5: U.S. economic activity supported by agricultural trade, 2016
Item 2014 / Total (Percent) 2015 / Total (Percent) 2016 / Total (Percent) 2016 / Bulk (Percent) 2016 / Nonbulk (Percent)
Farm share of total income from exports 20 19 20 30 15
Trade and transportation share of total income from exports 5 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.