Shifts in Major Trading Partners

The overwhelming majority of U.S. merchandise trade is with relatively few countries, although the United States trades with nearly 200 countries worldwide.¹² In 2001, over three-quarters (77 percent) of the value of U.S. merchandise trade was with 15 countries (table 3). Of these, just five countries-Canada, Mexico, Japan, China, and Germany-accounted for over half (54 percent) of the value of U.S. international trade in goods. Nearly one-third of U.S. merchandise trade was with Canada and Mexico, the U.S.-NAFTA trade partners. Canada, the top U.S. trading partner for decades, remained the leading country and accounted for over one-fifth ($381 billion) of U.S. merchandise trade in 2001. The relatively high concentration of U.S. trade with a few major trading partners, and the geographic spread of the remaining trade among the other countries, influences the modes of transportation used in moving international freight to and from the United States. The proximity of Canada and Mexico to the United States allows surface modes (trucks, rail, and pipeline) to be the primary modes of transportation for NAFTA trade. For all the other U.S. trading partners, maritime vessels and air transportation are, by necessity, the modes used.

The 2001 decline in trade levels affected U.S. trade partners differently. Trade with a number of the top 25 trading partners declined sharply in 2001 compared with 2000 (table 4). Among the top 10 trading partners, trade with Taiwan declined the most (21 percent), followed by South Korea (16 percent) and Japan (13 percent). Trade with the Asian countries was hit the hardest, in part because of sluggish demand in those countries and the global decline in the information technology industry.¹³

U.S. trade relationships have changed over the past three decades (table 5). By far the most pronounced changes have been the rising importance of Mexico and China. In 1970, Mexico was the fifth ranked U.S. trading partner with about $3 billion in merchandise trade with the United States. By 2001, Mexico had moved past Japan and was the second leading trading partner with about $233 billion trade. China, the 24th largest U.S. trading partner in 1980,¹⁴ rose to the 10th position in 1990, and in 2001 was the 4th ranked trading partner with over $121 billion in merchandise trade. If the current growth rate of U.S.-China trade continues, China may overtake Japan in the very near future. These striking shifts in the geography of U.S. trade relationships clearly underscore the growth of North American trade and the associated land trade routes, as well as the growth in Pacific Rim trade and the greater role of U.S. West Coast maritime ports.

Since 1970, as trade with Mexico and China mushroomed, trade with major European partners grew more slowly, thereby changing the relative importance of trans-Atlantic trade. During this period, U.S. trade with several other Pacific Rim nations also grew rapidly. In particular, trade with South Korea, Taiwan, Singapore, and Malaysia grew quickly as these nations became centers for global manufacturing. Most notably in 1970, Japan was the only Asian country among the top 10 U.S. trading partners. Today, 4 of our top 10 trading partners are from Asia-Japan, China, South Korea, and Taiwan (table 6, p. 22).

These shifts in the major U.S. trading partners affect the global pattern of U.S. merchandise trade and the transportation of these goods. Contemporary patterns of goods production and trade-in which manufacturing and assembly operations are often located in different countries-depend on extensive and reliable transportation and logistics networks worldwide. For example, the automobile industry brings together a large number of different components manufactured in various locations in several countries. As global automakers rely on factories in many parts of the world to make cars, the demand for transportation services will grow. General Motors builds automobiles in Thailand for markets in Japan and Europe; DaimlerChrysler and Volkswagen build vehicles in South African plants for European markets; and BMW manufactures vehicles in South Africa for the United States market (Wall Street Journal 2002). Also, when foreign companies produce vehicles (e.g., Volkswagen, Toyota, BMW, and Honda) in the United States for North American markets, demand is generated for freight and port services as components and parts are transported to the United States from multiple locations worldwide and the finished products are sold throughout North America.

Footnotes

¹² This discussion of trade with the major trading partners uses current dollar figures because detailed official trade data by country, commodity, and mode of transportation are unavailable in inflation-adjusted real dollars. While adjusting for inflation is important to reflect the correct size of changes in the value of trade, other factors, e.g., foreign currency exchange rates, business cycles, balance of payments, stock market news, and central bank policies, affect the prices of goods and services traded internationally. Due to the complexity of the factors that influence international trade, it is difficult to control for trading partners’ inflation rates as well as currency exchange fluctuations.

¹³ One area of the U.S. economy that was hit particularly hard by the economic downturn in 2001 was the information technology (IT) sector. As private sector demand for IT products sagged, U.S. international trade in these commodities fell by 16 percent from $145 billion in 2000 to $122 billion in 2001. This slump in IT-related goods accounted for about one-fifth of the 2001 U.S. trade decline. Among the top countries for IT-related trade with the United States, Japan, Taiwan, Singapore, and South Korea were especially hard hit in 2001 in this area. See appendix table C-22 (p. 140) for the source data.

¹⁴ In 1970, China was not listed separately in the official trade statistics. It was listed as part of the “Communist World.”