Tennessee and FTAs
"The Early Returns"
by Steven G. Livingston
The United States recently announced a free trade agreement with South Korea, the largest such agreement since the NAFTA. The administration estimates that the U.S. will gain an extra $1.8 billion in annual exports because of this deal. (Tennessee is the 19th largest exporter to Korea among the American states. If these estimates are correct, it should expect an increase of exports in the neighborhood of $160 million.) In conjunction with the Obama administration's efforts to double U.S. exports, the agreement suggests that we may expect further free trade agreements in coming years. Colombia and Panama appear next in line. Below we look at the "early returns" on the impact of these FTAs on Tennessee's trade.
The U.S. currently has FTAs with 17 nations. Beyond NAFTA, the most significant agreements are with Australia and Singapore. These countries are the state's eighth and ninth largest markets for 2010. If the South Korean agreement is ratified, five of Tennessee's 10 largest markets will be under FTAs. Forty-eight percent of the state's 2010 exports have gone to an FTA-partner country. (These numbers exclude the FTA with the very small market of Jordan. The U.S. has had an FTA with that country since late 2001, but many of its trade barriers were not lifted until the end of 2009.)
But can we yet see any impact of these agreements on the state's trade? We have only a few years of data, but it might be worth taking a look. Outside of the NAFTA, America's oldest free trade agreement is with Israel (1995). Most of the other FTAs have only come on line in the past three or four years. Given the disastrous trade picture of 2008 and 2009, it might be better to look at their impact by comparing them to non-FTA markets over the same period rather than by just looking at their export numbers alone.
If we look at the export performance to the individual FTA markets over the past several years, we don't yet see a clear pattern. There is a lot of volatility, as the chart of all the FTA export growth lines shows, but we can see that almost all the various FTA countries are above that of the non-FTA markets taken as a whole. If we break out the major agreements, we see the same picture. The U.S. signed two major FTAs in 2004, with Chile and Singapore. If we graph Tennessee's relative export performance to these two nations, we find that the state's exports have indeed grown more rapidly to Chile since before the inauguration of its FTA. Since that time exports to Chile have also grown more rapidly than they have to the rest of the world.1 The effect of the FTA on Tennessee exports appears to be clear. Singapore is a closer call, and we have to conclude that in this case the FTA doesn't yet appear to be a significant factor in exports to that country. The U.S. then signed a second set of agreements in 2005, this time with Australia and the Central American nations (CAFTA). Australia has been a better market than most after its FTA, but then it was a better market before as well. It's difficult to see that the FTA has significantly changed its relative performance. Central America is a similar story. There has not yet been much change after CAFTA came into force. On a country by country basis, then, the evidence is mixed.
1 Relative export performance is determined by subtracting Tennessee's global export growth from the growth of its exports to the nation in question. A positive number indicates that exports to that nation are growing more rapidly than to the rest of the world. We have excluded the NAFTA market in making these calculations.