As President Trump’s administration takes more of a hard line on trade, it may be time for an evaluation of the effects changes in policy may have, and in detail. In a recent report, Fitch Ratings assesses the impact of changes to or withdrawal from the North American Free Trade Agreement (NAFTA) on individual states and the role they play in trade with Canada and Mexico. Though it seems the administration is willing to renegotiate the trade pact rather than withdraw from it altogether, the ratings agency looked at data in light of minor changes to NAFTA that could result in prolonged negotiations as well as major disruptions in trade that could occur from a complete withdrawal.
North Dakota is at the top of the list among states in terms of its export exposure to Canada, according to a ranking of U.S. states’ 2016 import and export trade volume with Canada and Mexico from the U.S. Census Bureau. A total of 82% of North Dakota’s exports were sent to Canada in 2016. New Mexico is No. 1 by volume of exported goods shipped to Mexico, with the Mexican domestic market the destination for 43% of that state’s exports, Fitch said.
The states with the largest export exposures to Canada, after New Mexico, are Maine, Montana, Michigan, Vermont, Ohio, Missouri, South Dakota and Indiana. Major export industries include farm products, energy (i.e., oil and natural gas), machine parts and automotive products.
Eleven U.S. states send 30% or more of their exports to Canada, including those above, and 24 others depend on Canada for at least 20% of their exports. Imports of industrial and consumer goods in these states are heavily weighted toward Canada. A withdrawal from NAFTA would greatly increase import tariffs, imposing substantial costs to U.S. importers and consumers, Fitch said.
Mexico took in 40% of Texas’ exports by product value in 2016, and the Mexican domestic market was the recipient of 38% of Arizona’s and 15% of California’s exports. Due to the complex supply chain in the automotive industry that started in 1993, when NAFTA was signed, Michigan is a big component in U.S./Mexico trade. Twenty-two percent of Michigan’s exports by value, mostly automotive and heavy machine components, were destined for Mexico in 2016. Other states with important exporting relationships with Mexico include South Dakota, Nebraska, Iowa, Kansas and Missouri.
Michigan is in a unique position if NAFTA’s terms change drastically, due to its proximity to Canada and prominent role in the automotive industry. Sixty-five percent of the state’s exports went to Canada and Mexico, resulting in 7.4% of its Gross State Product in 2016.
– Adam Fusco, associate editor