Michigan is in a slump. Between its personal income growth (the worst in the nation), its unemployment rate (by far the highest in the nation), decreasing home values and the highest outbound migration of any state, there’s not a whole lot to be optimistic about. But taking a look at Michigan’s role in global trade is encouraging to the state’s future prospects.
Yes, global trade. Even through the national recession of 2001, the value of Michigan’s exports grew and are expected to continue that growth. Since 2001, Michigan exports increased by almost 9.7 percent after an inflation adjustment and now stand at a $40.4 billion annually, according to Census Bureau figures. A key area of growth is in Michigan exports to China.
So it’s a little surprising that global trade has been cited as the root cause of Michigan’s economic malaise. Indeed, the governor has stated that, "No state has been ravaged more than Michigan by unfair trade policies."
What products are driving our expanded trade? Despite news about the dying domestic auto industry, vehicles are a big part of the growth of Michigan exports. Vehicles and part exports increased 26.3 percent since 2001. Auto exports have grown proportionally with the rest of exports and occupy roughly the same percent of total exports as in 2001.
And while the auto industry is important, it accounts for only half of the growth. An increase in Michigan fuel exports (the largest being natural gas) accounts for a large amount of overall growth as well, expanding 651 percent from $242 million in 2001 to $1.8 billion in 2006.
Michigan manufactured metals are also doing very well. Since 2001 iron, steel, copper, lead, zinc and tin have each gone up by more than 100 percent — tin by a whopping 2,258 percent. These products now account for $1.5 billion in exports.
Exports of other products also grew — Michigan boats increased 552 percent since 2001; trees and plants by 180 percent; vegetables by 106 percent. Plastics, another major industry in Michigan, increased by 40.8 percent.
Of course, a lot of these products have volatile growth patterns. Michigan has many furniture manufacturers, but furniture exports have varied between $689 million to $1.3 billion over the last decade. Michigan furniture exports were $923 million for 2006. Nationally, furniture and home goods increased slightly in 2007.
Michigan’s total exports have not increased as much in recent years as the rest of the states — the state’s export growth from 2005 to 2006 was ranked 42nd — but Michigan is still above average in per-capita exports. Michigan residents produce 17 percent higher exports per capita than the national average.
The largest markets for Michigan products are fellow NAFTA countries Canada and Mexico. Indeed, these two countries account for 70.5 percent of Michigan’s exports, increasing 19.6 percent since 2003.
But perhaps the most important market for Michigan products is China. In 1996, Michigan exports to China were $215 million. They are now more than $1 billion, making China the 5th largest market for Michigan goods. If growth rates were sustained in 2007, China will have passed Germany and Japan to become the No. 3 market for Michigan goods.
The Chinese demand for Michigan vehicles and auto parts grew exponentially, from $41.6 million in 2001 to $446 million in 2006. Other important growing markets in China for Michigan products include inorganic chemicals, machinery, medical instruments and soap.
The typical story is that vehicles continue to be produced with parts made increasingly from low-wage countries. And while it is true that the importation of auto part imports from China has grown in recent years, Michigan exports to China grew by a far greater amount.
Also, the Chinese market purchases large amounts of some Michigan products. Chinese purchases of Michigan zinc represent 41.4 percent of Michigan total zinc production. Chinese markets buy 15.9 percent of Michigan hides and skins, and 10.9 percent of Michigan inorganic chemicals.
China, like most Asian countries, experiences growth due to capital accumulation — that is, they receive machines that help labor improve output. Michigan’s machinery sales to China have more than doubled since 2001, even though global sales of Michigan machinery have been stagnant over the past decade.
Despite all of the bad news about Michigan’s economy, its exports have shown strength across its industries. In addition to having access to products from across the world, the market for Michigan products continues to grow. Free trade allows not only access to the best goods from around the world, but allows people around to world to realize that Michigan offers some of those best products as well.
Michigan certainly has its share of problems: its tax and regulatory environment needs improvement, its labor policies are prohibitive and it has spent far too long playing favorites in the market place. But globalization has not been a problem. In fact, it’s one of the economy’s few strengths. Global trade should be celebrated and welcomed instead of being the whipping boy for the problems facing Michigan’s economy.
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James M. Hohman is a fiscal policy research assistant at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.
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