Global Growth, Macroeconomic Change, and U.S. Agricultural Trade
by Mark Gehlhar, Erik Dohlman
, Nora Brooks, Alberto Jerardo
, and Thomas Vollrath
Economic Research Report No. (ERR-46) 44 pp, September 2007
Historically, U.S. agricultural exports have been highly
erratic, with brief periods of strong growth to individual markets
often followed by interludes of reduced demand. The growth of U.S.
agricultural imports has been comparatively steady and, in recent
years, increasingly strong. After peaking at a record $27 billion
in 1996, the U.S. agricultural trade surplus dropped below $5
billion a decade later, due to a temporary downturn in export
growth and fast-rising imports. More recently, however, rising
exports to a broader spectrum of countries and strong but
moderating demand for imports appear to signal a reversal of past
trends. Many different factors, particularly differences in foreign
economic growth rates in key markets and macroeconomic forces, are
altering the course of U.S. agricultural trade.
What Is the Issue?
In previous decades, U.S. agricultural export growth relied
heavily on demand from key highincome markets, such as Japan and
the European Union. In the absence of significant new openings in
market access, limited economic growth and stagnant food demand in
these markets contributed to a decline in their importance as a
destination for U.S. exports-placing a drag on overall U.S. export
growth. Currently, however, increased demand from fast-growing
emerging markets is offsetting weaker growth elsewhere, leading to
upward revisions in USDA's long-term export projections. Also, the
unprecedented recent growth of U.S. agricultural imports is far
more rapid than what would have been expected based on domestic
income and population growth rates. Is the simultaneous growth of
exports and imports a temporary trend, or one that will be
sustained? Previous periods of strong growth have rarely been
sustained for more than a few years at a time. Clarifying the
influence of foreign economic growth and macroeconomic forces on
export and import growth may enable stakeholders to gauge the
future direction of U.S. agricultural trade.
What Did the Study Find?
Income levels and the rate of economic growth are key
determinants of foreign demand for U.S. agricultural exports, and
differences between developed-country and emerging-market growth
have played a strong role in shaping U.S. export patterns. Slow
income and population growth in traditionally important high-income
markets, and a low propensity for consumers in these countries to
spend additional income on food, have curtailed U.S. exports to
these areas since the mid-1990s. New demand from emerging markets,
however, is more than offsetting weakened demand elsewhere. These
markets provide a foundation for sustained growth of U.S. exports,
which in FY 2008 are on track for a fifth consecutive year of
Rising incomes in emerging markets, in conjunction with a high
tendency for consumers in these areas to spend their additional
income on food, helped spur a 50-percent increase in global
agricultural trade in just 5 years (2001- 05). The impact on U.S.
agricultural exports is becoming more appreciable as emerging
markets continue to raise their share of world trade. In the early
1990s, emerging markets accounted for just 30 percent of U.S.
exports, but steady economic growth and continued population gains
have raised their share to 43 percent. In 2006, China and Mexico
combined accounted for 25 percent of total U.S. agricultural
exports-nearly triple their share in 1990.
The shift in the direction of trade from mature economies to
emerging markets potentially signals continued strong foreign
demand for U.S. exports in the future. Based on analysis of global
economic growth and population changes, these factors accounted for
U.S. export growth of 2.6 percent annually during 1990-2001 but are
anticipated to contribute to a projected 3.7-percent annual growth
during 2006-16. Accordingly, emerging markets would account for
nearly 60 percent of U.S. agricultural exports within a decade.
In contrast to exports, domestic population growth and economic
growth do not appear to have been the primary drivers of U.S.
import demand during the past decade. U.S. agricultural imports
have doubled since 1996, with average import growth surpassing 10
percent annually since 2001. Two independent factors have helped to
contribute to U.S. import growth: consumer preferences for product
variety; and, equally important, broad macroeconomic conditions
that fostered the growth of the U.S. current account deficit. The
current account measures the balance of trade in goods and services
and net investment earnings to and from the rest of the world.
Supported by increased wealth, declining domestic savings, and a
relatively resilient dollar, the U.S. current account deficit has
been rising steadily, reaching a record $880 billion (6.3 percent
of GDP) in 2006.
Because current account deficits represent the level of foreign
lending to the United States, foreign investment and savings
decisions increasingly influence economic variables that determine
export and import demand. Reduced foreign demand for U.S. financial
assets, for example, can cause higher interest rates, a weaker
dollar, subdued domestic consumption growth, and higher net
agricultural exports. Although there is no consensus, many analysts
consider such an adjustment likely. Alternatively, U.S. consumption
and the value of the dollar could remain steady, supporting
continued robust growth of agricultural imports.
How Was the Study Conducted?
To distinguish between the impacts of global growth factors and
other macroeconomic influences on agricultural trade, two separate
economic models were employed. Global economic growth and
population impacts on world and U.S. trade were evaluated with
growth simulations using a static global modeling framework (GTAP).
This model generates growth-related effects on past and future U.S.
and world trade and illustrates how they contributed to the
previous slowdown and current expansion of U.S. agricultural export
growth. This framework does not address macroeconomic factors
affecting exchange rates or international financial flows. A
separate dynamic model of the U.S. economy (USAGE) was used to
examine alternative macroeconomic conditions related to exchange
rates and changes in foreign demand for U.S. financial assets. The
main scenario centers on the implications of changing demand for
U.S. financial assets by foreigners. The model was used to trace
the effects of resulting exchange rate and other macroeconomic
changes on domestic consumption and agricultural trade.