Growing Exports – Major Opportunity for Arizona

Arizona has the opportunity to substantially increase our export performance.  This is the conclusion of a study just completed by ASMI.

While U.S. exports have experienced a decline in the 2008-2009 period associated with the recession, overall U.S. export performance actually saw very strong growth in the 2000′s prior to 2008.  What we need to consider is why Arizona’s export performance, both in growth and in absolute size, is not higher.  We think it can be.

For example, let’s look at the period of 2005-2008.  During this period Arizona’s manufacturing exports grew by about 25% — not bad.  But, when we look at the performance of other states with similar state Gross Domestic Products (GDP) and exports to Arizona, we see that some had much higher levels of growth.  For example, Maryland, with a GDP slightly larger than Arizona, increased exports 63% during this same period.  Connecticut  increased exports by 55.5%.  South Carolina saw exports grow 42%.  When you compare the growth in exports as a percentage of GDP, traditional manufacturing states like Indiana, that had slower GDP growth than Arizona during this period, nonetheless grew exports as percentage of GDP by 44%. 

Our greatest opportunity for exports is with Mexico.  When it comes to trade, there is an advantage in being on the border with another country.  Arizona’s largest trading partner, Mexico, is the destination for 32% of Arizona’s exports, representing $5 billion in 2008.  Sounds like alot – doesn’t it?  But, consider that the total manufacturing exports to Mexico from the United States in 2008 were $134  billion — only 3.7% came via Arizona.

Another border state, Texas, stands out for its export performance.  With total exports of over 12% of state GDP, Texas also dominates the export trade with Mexico — supplying 44% of all U.S. manufacturing exports in 2008 – totalling almost $59 billion.  The Texas economy is five times that of Arizona, but it supplies 12 times more exports to Mexico — Doesn’t it seem reasonable that Arizona could supply more?

Why is this important to Arizona?  Exports are a main driver of high quality, sustainable jobs.  The average manufacturing job in Arizona in 2009 had compensation of $79,313 – vs. an average of $53,864 in the rest of the workforce.  The National Association of Manufacturers estimates that in 2008 there were 85,000 Arizona jobs associated with manufacturing exports. Exports were 7.9% of Arizona’s GDP in 2008 – 12% below the nationwide average of 9.0%.   If Arizona were able to raise our level of exports by only a few percentage points – just slightly above the nationwide average - this would translate into tens of thousands of jobs.

Exports don’t come just from large companies.  According to the National Association of Manufacturers, in 2008 small businesses were 89% of Arizona’s 5,404 exporting firms, accounting for 19% of the total exports, representing an average of $639,000 in exports per small business exporter.

86% of Arizona’s exports are manufactured goods, with the top 5 categories being 1) computer and electronic products,2)  transportation equipment, 3) machinery (except electrical), 4) fabricated metal products, NESOI, 5) electrical equipment, appliances & components.  These five together represented 65% of Arizona exports in 2009, totalling over $9 billion.  These industries represent the backbone of Arizona’s manufacturing sector.  By strengthening Arizona’s competitiveness in these industries, we strengthen our export potential.  This is a double win for Arizona.

In order to focus our attention on what is needed, the first thing we need to do is make a mindset shift that the growth of our manufacturing sector in Arizona is critical to our current and future prosperity, and to growing the high-wage jobs that will be viable for the long term in Arizona.  Then, we need to ensure that we have an educational system that is adequately preparing this workforce, and that our business climate is competitive with other states who are setting the pace. 

Almost twenty years ago Arizona published its first state economic development strategy.  Retaining and growing these manufacturing businesses – which at that time were a substantially larger part of the Arizona economy than today (15.1% in 1997 vs. 7.8% in 2008) - was a cornerstone of that plan.  Unfortunately, many of the steps outlined in that plan, were not implemented, and many others were short-lived.  Marshall Vest, forecasting project director at the University of Arizona Economic & Business Research Center summed up our situation very well in an article entitled “A Lost Decade?” in the July 2010 issue of “Arizona’s Economy:“ 

• “During the aughts, money flowed into housing, which is a consumption good rather than investment in a productive asset.  During this period, money to support productivity-enhancing investment dried up.  References to the “false economy” of homebuilding often heard nowadays reflect this.  It’s the absence of growth in prosperity and the productivity-enhancing portions of the economy that bring the sense of a lost decade.”

Export-producing manufacturers are key to the turnaround we need in Arizona’s economy, and are an essential element of the productivity-enhancing portion of the economy.  Let’s focus our energy on these opportunities and bring Arizona into the top tier of export producing states.

Wendy Vittori appeared on KAET’s Horizon on August 9th to discuss this topic.  Click here to see video of Wendy’s appearance.