Global Commerce Logo

Spring 1997 - Volume 2, No. 4

Still Number 1: Canada's Share of State Trade Continues to Grow

Tennessee's most important trade partner may well be its least talked about. In spite of the attention lavished on newer markets around the globe, Canada remains by far the largest market for the state's exports and the largest source of its imports. One-third of all Tennessee exports go to Canada, and more state firms buy from or sell to Canada than to any other country. Let's look more closely at Tennessee's trade with our nation's northern neighbor.

A Soaring Market...
In 1997 Tennessee exports to Canada will break the $ 3 billion mark. This will exceed sales to the next seven biggest foreign markets combined. It will also be double the amount exported in 1991. In the 1990s exports to Canada have grown better than fifteen percent per year, a tremendous performance given the large base from which this growth began. Canada has also been among the most consistent of the state's markets. Even in 1996, when state export growth markedly slowed, the increase in exports to Canada exceeded that of Tennessee's other top ten markets (3.8 to 2.2 percent). The result is that while various experts are touting the EU, Japan, or the "emerging markets," Canada has been quietly expanding its share of total Tennessee exports by a half a percentage point a year.

Imports into our state from Canada are rising just as rapidly. Purchases from Canada have grown almost 75 percent over the past five years. With total sales well over two and a half billion dollars in 1996, Canadian exports average some $500 for every Tennessean. Yet we might note that, while the US runs a significant trade deficit with Canada (nearly $30 billion in 1996), Tennessee as been able to maintain a favorable state balance of trade throughout the 1990s.

Tennessee's Balance of Trade with Canada
in millions of US $

What accounts for this tremendous growth? One important factor is the implementation of the US-Canada free trade agreement (now expanded to NAFTA) on January 1, 1989. This is eliminating most bilateral trade restrictions of any kind. Though trade disputes between the two countries will not disappear, as the Canadian objections to CMT reminds us, transborder trade is becoming ever easier, and cheaper. A second factor is that Canada has been the ideal first foreign market for most state exporters or importers. As state businesses are increasingly drawn into the global economy, the proximity, long-standing cultural affinities, and similar business environment of Canada has made it the logical place to first dip one's toes into foreign trade. The third reason, discussed below, is Tennessee's growing role in the global automotive industry.

...And the Deepest Market
Trade between Canada and Tennessee is not only sizable, it is broadly based. Virtually every type of product made in Tennessee is sold to Canadian firms, and an equally wide range of Canadian goods find their way to the Volunteer State. In many respects trade with Canada more resembles trade with the other American states than with other foreign lands. Not only are many products both imported and exported, but the state's relatively strong industry sectors are the same vis-a-vis Canada as they are with the other states. Perhaps this should not surprise us, Nashville, after all, is closer to Toronto than it is to Philadelphia.

The leading imported products perhaps will not surprise anyone. Natural gas is the largest valued commodity purchased from Canada. In 1996 Tennessee bought slightly over $850 million of Canadian gas, one-third the value of all Canadian imports into the state. Wood and paper follow. Of the major importing industries, wood again (47 percent), along with textiles (67 percent), posted the highest growth rates this past year. Though the number of imported products is large, a relative handful make up the lion's share. Twenty-five commodities account for 70 percent of the imports. This concentration has been rising slightly over the 1990s. The accompanying chart shows the state's largest import industry sectors (by 2-digit Canadian SIC code). Among manufactured imports, paper products (mostly newsprint), electrical and electronic products (mostly telecommunications equipment), and transportation equipment (mostly auto parts) are the most important. The most dynamic import commodities by far are auto parts. These have more than doubled in the last five years, and many individual items have posted 300-400 percent growth rates.

Imports into Tennessee by Canadian Industry Sector

Automobile trade is also the major story on the export side of the ledger. Nowhere is the transformation of Tennessee into a major global automotive center more apparent than in its trade with Canada. Forty percent of Tennessee exports to Canada are either automobiles or automobile parts. In 1996 car exports were valued at $ 330 million, and auto parts sales at $ 709 million. Automotive exports have grown 148 percent in the last five years. The transportation equipment sector's share of exports has increased by a full third since 1992. It now surpasses the second largest of the state's export sectors by some $ 700 million. (Note that using U.S. SIC codes slightly alters our numbers - according to the U.S. classification, these figures are "only" $500 million.) To round off the picture, six of Tennessee's ten top specific export products to Canada will eventually be attached to a car!

Tennessee Exports by Canadian Industry Sectors

The automotive trade may overshadow Tennessee's other exports, but this should not hide the fact that exports are growing rapidly from virtually all of the state's industries. The state's non-automotive sales to Canada still dwarf total exports to any other part of the world. Tennessee's other giant export industries include electrical and electronic products (primarily TVs and major appliances), chemicals (largely polyethylenes), machinery industries (led by refrigeration and air conditioning units and parts), and rubber (tires). Each of these industries sold more than $ 100 million of products to Canada in 1996, and each has compiled double-digit export growth rates over the last five years. Indeed, using the Canadian SIC classification, only four of the 22 major manufacturing sectors (tobacco products, leather goods, furniture, and primary metals) suffered declines in sales during this time. We might especially note the success of Tennessee's food product industry; its Canadian sales have more than doubled since 1992, making its export growth rate among manufactures second only to the automotive industry. Exports of nonmanufactures have fared similarly well. In fact neither of the two fastest growing Tennessee exports is a manufactured good: agricultural crop exports increased 156 percent in the last five years, and, in what may be a harbinger of the future, Tennessee's audio/video industry reached sales of $3.5 million in 1996, an expansion of 295 percent over this same period. This made it the state's fastest growing exporter of them all.

All the Way From the Atlantic to the Pacific and to the Arctic too
Tennessee's trade reaches all corners of Canada. State firms buy products from all twelve of Canada's provinces and territories, and sell to all but the two territories (the Yukon and Northwest Territories). Not surprisingly, the bulk of trade is with the two largest provinces, Ontario and Quebec, though British Columbia and the prairie provinces are considerable trade partners as well. If counted on its own, Ontario would be Tennessee's largest market, exceeding that of all other countries, while Quebec, British Columbia, and Manitoba would all rank among the state's top twenty export destinations. However Tennessee's exports are quite a bit more geographically concentrated than its imports. Eighty-four percent of all its exports go to Ontario. That is because it is the center of Canada's automotive industry. Meanwhile the province accounts for only a little over a third of Canada's sales to Tennessee. The size of its sales is actually exceeded, though barely, by Alberta, the source of the natural gas that is Tennessee's biggest Canadian import.

Tennessee Trade by Provinces
millions US $

Tennessee's Trade in Perspective
Even this brief survey should convince one that Canada is far and away this state's most important foreign trading partner now, and for the forseeable future. And in fact our state's trade with Canada is actually growing faster than the nation's. While U.S. imports from Canada have increased nearly 59 percent since 1992, Tennessee's imports have, as noted above, grown 75 percent. Tennessee ranks fifteenth among American states in the value of goods purchased from Canada. Tennessee has been an unusually successful exporter too. Over the past five years the growth of Tennessee's exports has come close to doubling that of the nation (83 to 45 percent). The state recently rose to being the thirteenth largest exporting state to Canada, and now sells more than three percent of all American goods exported there. This may be compared to Tennessee's position as the twenty-first largest state in total global exports, indicating it is relatively even more reliant upon the Canadian market than many other states.

Whether measured by absolute volume, relative share, range of products, or simply in comparison to the US or to the other American states, Canada is a uniquely important trading partner for Tennessee. Though it doesn't gain the publicity of other markets, it remains the core of Tennessee's involvement in the larger world economy. It will remain, too, the initial point of entry for the bulk of Tennessee firms wishing to take advantage of the opportunities provided by that economy.

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