Trade for Texas: Strength in North America 

By Dr. Beverly Barrett –This spring, within two weeks, the United Kingdom has requested two extensions to determine the country’s way forward in relationship to the European Union (EU), regarding “Brexit.”  Since the British popular referendum nearly three years ago, these extended deliberations remind that trade is politically charged and important given the trade rules that govern international commerce.  In international commerce, the economic cross-border ties that exist because of agreements and institutions decades in the making, cannot be taken for granted.  Whether in the UK where the British exit from the EU, known as Brexit, continues to play out, or in North America, voices of diverging national interests confront the realities of economic interconnectedness in today’s globalization.  The Geneva-based World Trade Organization (WTO) reported in early April that headwinds for global trade continue to persist, given uncertainties including the ongoing UK negotiations with the EU and the United States trade war and negotiations with China.[1]

Despite the global trade uncertainty, the fact persists that the state of Texas has led the nation in exports since, 2002.[2] This leadership in trade over the past 17 years for Texas has been steadfast, even though Texas is the second largest state by population, following California.  In the recent decade, the boom in shale oil and gas discoveries has made the U.S. the global leader in energy, and it has secured its position as the top exporting state in the country.[3]

Texas: Top Exporting State in the Nation

Texas, as the state that exports the most in the United States, has the most to gain from open trade and the most to lose from narrower trade.  With open trade, there are additional markets – those beyond the home market – to which to sell.  Principles of economics explain that when countries identify their comparative advantage, specialize in that good or service and trade, both partners benefit from increased production and consumption.  Recognizing that there are stresses and a role for government support as labor markets shift and countries integrate, with the appropriate policies that support both national and international interests, trade overall can be a positive sum opportunity for partners.  The North American countries, Canada and Mexico, are our state’s top two export trading partners, and China is third, according to the U.S. Census Bureau.

The Permian Basin oil and gas production has climbed to generate more than 4 million barrels of oil per day, which has surpassed the prior market leader Saudi Arabia.[4]  The recent technologies that have enabled horizonal drilling, over the past decade, have transformed the Permian Basin to become the most productive field in the world, surpassing the Ghawar field in Saudi Arabia.[5]

Advancing the state and the country’s positions in exports, in December 2015, the U.S. Congress voted to allow the exports of oil, which had been restricted with a ban since the 1970s.  At that time, the country had suffered from an oil shortage given multiple oil embargos from Organization of Petroleum Exporting Countries (OPEC) during political turmoil in the Middle East.  The high prices and inflation that ensued in the 1970s in the U.S., is the symmetric economic profile than what the country has experienced over the last decade.  The lower price environment since the 2008-2009 global recession, and the oversupply from OPEC in the several years period from November 2014, dampened energy prices and has kept inflation subdued.

Texas Integrated with our Partners in North America

Texas, as the state that exports the most in the United States, has the most to gain from expanded trade and the most to lose from restricted trade.  Trade in North America is mostly in intermediate goods, which are component parts in the chain of production. These integrated supply chains represent the global value chains that are characteristic of North America since NAFTA was ratified in 1994.  The composition of exports from Texas is heavily in oil, gas, and petrochemical products. [6]   The Texas Railroad Commission, established in 1891 is the oldest state agency, continues to regulate commerce on rail which includes energy products.

Demonstrating the priorities for destinations in terms of exports, 34.8 percent of global trade from Texas is to Mexico.[7]  Furthermore, approximately 80 percent of trade from Mexico is to the United States.[8]  The relationship with our southern neighbor is important in economic terms, as well as in social terms given family and cultural ties.  The United States Mexico Canada Agreement (USMCA), which was negotiated on October 1, 2018 to update NAFTA, has not been ratified by any of the three countries’ legislatures.  Uncertainty about the future of trade continues to loom over the North American relationship, and the relationship between the U.S. and China.  When the next North American Leaders’ Summit takes place, among the three heads of government, there will be much to discuss, and trade related topics will be at the top of the agenda.[9]  Economic diplomacy will continue to play an important role in strengthening relations with our trade partners.

Beverly Barrett, Ph.D.

University of St.Thomas – CSB, Lecturer in Dept. of Economics

Email address: barretbf@stthom.edu

 

[1] WTO. 2019. “Global Trade Growth Loses Momentum as Trade Tensions Persist,” April 2, 2019. Available from: https://www.wto.org/english/news_e/pres19_e/pr837_e.htm

[2] Office of the Governor of Texas. 2019. Trade and Exports, Texas Economic Development. Available from:

https://gov.texas.gov/business/page/trade-and-export

[3] Blas, Javier. 2019. Houston Chronicle. “From Texas to the World:  The Flood of U.S. Exports is Coming,” Sunday, March 31, 2019.

[4] Energy Information Agency. March 2019 Permian field production 4 million bbls/day (over Ghawar 3.8 million bbls/day capacity). Available from: https://www.eia.gov/petroleum/drilling/pdf/permian.pdf

[5] Michael Lynch. 2019. Forbes “Declining Production at Saudi Arabia Largest Oil Field (Ghawar) Is Not Cause for Concern,” April 5, 2019. Available from: https://www.forbes.com/sites/michaellynch/2019/04/05/declining-production-at-saudi-arabias-largest-oil-field-is-not-cause-for-concern/#5a52505fa200

[6] U.S. Census Bureau. 2019. “Total U.S. Exports from Texas.” Available from: https://www.census.gov/foreign-trade/statistics/state/data/tx.html

[7] Ibid.

[8] World Bank. 2019. World Integrated Trade Solution. Data 2017. Available from: https://wits.worldbank.org/CountrySnapshot/en/MEX/textview

[9]  International Trade Administration. North American Leaders Summit. Available from: https://www.trade.gov/nacp/nals.asp

 

 

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