Factors of Change and Continuity

Factors of Change and Continuity

Changes in trade patterns as well as direct investment between nations have deepened trading relationships with several countries and the United States. Alterations in trade patterns, in turn, affect the choices of transportation modes used in this country. For the exports of several countries, the United States is a leading destination. This is also the case, to a lesser extent, for imports (table 31). In 2000, 64 percent of all Canadian imports originated in the United States, up slightly from 62 percent in 1991. The United States was the destination for 87 percent of all Canadian exports, up from 76 percent in 1991. Much of the trade between the United States and Canada is due to the integration of North American automotive production. The remainder of the trade is either raw or semi-processed materials (e.g., lumber and petroleum products) from Canada and the exchange of other manufactured products facilitated by strong bilateral relations and the proximity of the two countries.

During the same period, Mexico received 74 percent of its imports from the United States. In 2000, 89 percent of all Mexican merchandise exports were destined for the United States, up from 80 percent in 1991. Today, a notable share of the trade with Mexico is in automotive products and electronics that are exported to Mexico for assembly in maquiladora factories50 and re-imported into the United States as finished products.

Between 1997 and 2000, U.S. trade with Asian Pacific countries grew, although, those countries imports from and exports to the United States represent a smaller share of their total trade than our North American neighbors. For example, although China ranked fourth as a major U.S. trading partner in 2000, its imports from the United States accounted for only 9 percent of total Chinese imports, down from 13 percent in 1991. However, the United States was the destination for 21 percent of all Chinese exports, up from 9 percent in 1991. As U.S. exports to Asian countries grow, containerized cargo transiting West Coast ports is likely to increase, creating more demands for efficient intermodal services.

A major factor influencing U.S. trading relations with our partners is the outflow of U.S. direct investment abroad (USDIA) to businesses around the world and the inflow of foreign direct investment in the United States (FDIUS) from businesses located abroad.51 Trends in both USDIA and FDIUS are important because investment by businesses could complement the flow of merchandise trade and affect transportation services carriers, such as shipping lines and airlines. Growth in USDIA and FDIUS also can result in increased intra-industry and intra-firm trade, as branch plants or supply chains are established by multinational companies.

In 2000, USDIA and FDIUS with all trading partners were nearly equal at $ 1.2 trillion, with a relatively small balance of $6 billion (table 32). Although almost identical in total value, the outflow and inflow of investments grew at different rates. Between 1997 and 2000, outgoing total USDIA grew by an average rate of 13 percent per year, while incoming investments rose at 22 percent per year. The top two partners for USDIA and FDIUS have not changed in many years. The United Kingdom remained the top country for both inflows and outflows of investments, accounting for about 19 percent in each case. Canada was the second leading destination for USDIA while Mexico ranked 10th.

In 2000, USDIA was slightly greater than FDIUS. In general, the United States invested relatively more in Latin American countries than they invested in the United States, resulting in a positive balance of investment with these countries. By contrast, European countries invested more in the United States than did the United States in Europe, resulting in a negative balance of investment with Europe (table 33). Since 1997, while the positive balance with the United Kingdom declined, the negative balance with Japan grew as Japanese businesses invested more in the United States.

Underlying Forces

Growth and changes in the U.S. population and economy. Two fundamental forces affecting U.S. international trade are growth and other demographic changes in the U.S. population, as well as structural changes in industrial manufacturing and distribution patterns. Over the past few decades, as the nations population and income grew, merchandise trade and freight movements rose greatly. Shifts in age and geographic distribution, immigration, and participation in the workforce have combined to affect consumer tastes for foreign products, thus increasing the demand for traded goods and transportation services. If the U.S. population continues to grow at past rates and some of the observed shifts in geographic concentration persist, demand for transportation services can be expected to increase, affecting both local freight movements as well as longer distance flows.

Similarly as the U.S. economy expanded, public and private investments in the development of the nations transportation infrastructure (roads, rails, waterways, and airports) helped facilitate U.S. merchandise trade. Increases in GDP made greater investment in transportation infrastructure possible and enabled industries to locate in more places while still specializing in goods for which they have a comparative advantage.52 Public investment in the development of the nations freight transportation system allowed regions within the United States the flexibility to engage in a diverse range of economic activities. While the U.S. transportation system expanded, the structural composition of U.S. GDP shifted toward more services and the nations reliance on imports for manufactured goods increased. It is possible that these changes could continue to influence the volume of U.S. international trade and affect goods movement within the United States for many years to come.

Internationalization of the U.S. and world economies. Although societies have traded with each other for millennia, the pace and scale of integration of the worlds economy during the past five decades may well be unparalleled in history (Dicken 1998). Today, the world economy continues to change in dramatic ways. Due in part to lower transportation costs, geographic distance no longer protects industries from international competition as much as it once may have. The global nature of much of manufacturing makes it difficult to determine if a computer is American, a car Japanese, or a television Mexican. When component parts of manufactured goods are produced in multiple countries and brought together for assembly, determining the country of origin for trade purposes is a complex matter and this affects trade balances. Many expect globalization to continue to shape world economic activities, influence where and how goods are produced and distributed, and ultimately affect the transportation of goods into and out of the United States. Even if growth in the volume of freight moved were to taper off, ongoing changes in business logistics, outsourcing, and just-in-time inventory systems that characterize global production could increase the demand for more frequent and smaller shipments.

Advances in transportation and telecommunications technology. Transportation and telecommunications technologies have contributed to the rapid growth of international trade and helped to overcome the resistance of space and time. They have allowed the unparalleled mobility of goods and people.

Although air and containerized cargo improved merchandise trade dramatically, earlier transportation innovations in physical infrastructure, such as suspension bridges, tunnels, railroads, the U.S. Interstate Highway System, modern airports, and marine terminals, were also critical (figure 25). Advances in both vehicles and infrastructure increased speed, reliability, and safety while reducing transportation costs and the time it takes to travel from one place to another.

For telecommunications, improvements in voice, text, and data technologies have allowed fundamental changes in services trade, including transportation services. Component parts of cars or aircraft might be designed in the United States; then the designs could be emailed to Japan, Taiwan, and Brazil for production; and the finished goods transported to the United States. Improvements in information technologies make it easier to seamlessly coordinate transportation operations across physically distributed transportation networks, facilitate intermodal and multimodal movements of international trade, enhance transportation solutions for freight shippers, and allow significant gains in transmitting preclearance cargo and crew information for security operations.

Changes in the international transportation market. During the past three decades, the U.S. government took several initiatives to reduce economic regulation of domestic transportation services. The deregulation legislation included the Airline Deregulation Act of 1978 for commercial aviation, the Motor Carrier Act of 1980 for interstate trucking, the Staggers Rail Act of 1980 for railroads, and the Shipping Act of 1984 and Ocean Shipping Reform Act of 1998 for ocean carriers. In most cases, the legislation spurred industry restructuring, increased productivity, and allowed U.S. transportation services providers to better compete in international freight markets (USDOT BTS 2000). In addition, changes in international regulatory structures, such as for trucking under the NAFTA motor carrier access provisions and for aviation under the Open Skies agreements, will continue to affect U.S. international freight movements (see box 3).

In the aviation industry, two forces influenced the changes in international regulatory structures: the reality of globalized markets and the need to better incorporate issues such as safety and environmental concerns in bilateral agreements (Lyle 1995). One effect of the internationalization of economies and markets is that air transportation services, whether passenger or cargo, can no longer be isolated within national borders. Alliances between airlines are key to maintaining international competitiveness. At the same time, nations have sought to expand the focus on safety. The existing regulatory system has evolved from one with tight national restrictions to one that allows for bilateral Open Skies or the ability of air carriers to provide passenger and cargo services to and from other countries without restrictions.53 As of October 2002, the United States had concluded Open Skies agreements with 59 countries,54 but had yet to enter into one with the top three U.S. transportation services trade partners: Japan, Canada, and the United Kingdom.55

Reduction of trade barriers and liberalization of national economies. Since 1970, U.S. international trade more than quadrupled and expanded globally, in part because of substantial reductions in trade barriers resulting from changes in policy. Reduction in trade barriers was accompanied by the formation of regional economic groupings such as NAFTA, the European Union, and the MERCOSUR56 in Latin America. As trade barriers were reduced, the relationships between national governments and businesses changed, creating economic conditions that enhanced access to global markets and resources. Significant changes that could affect the economic deregulation of international transportation services, multilateral Open Skies agreements, privatization of infrastructure, and general agreements among World Trade Organization member nations could further facilitate trade interactions.


50 Maquiladoras are manufacturing plants primarily concentrated on the northern Mexican border that specialize in assembling goods from imported components for re-export to the United States. In 2000, there were about 3,600 maquiladora manufacturing plants operating in Mexico.

51 BEA defines USDIA as the ownership or control, directly or indirectly, by one U.S. person of 10 percent or more of the voting securities of an incorporated foreign business enterprise or the equivalent interest in an unincorporated foreign business enterprise. FDIUS is the reverse. The annual investment position data for USDIA represents the value of U.S. parent companies equity in and net outstanding loans to their foreign affiliates, while that for FDIUS represents the value of foreign parent companies equity in and net outstanding loans to their U.S. affiliates. The major direct investment items include capital flows (equity, intercompany debt, and reinvested earnings), income, royalties and license fees, and other services transactions.

52 Comparative advantage in trade among regions arises as trading partners seek to take advantage of differences in the costs of producing different goods and services (Krugman 1991).

53 The United States signed the first Open Skies agreement with the Netherlands in 1992 and more recently, with Jamaica in October 2002. The agreements facilitate scheduling of connecting flights, greater capacity in specific markets, and potentially lower prices and rates due to increased flight options.

54 The United States and Uganda initialed the 57th agreement that, when formally concluded, will eliminate all restrictions on air services between the two nations (USDOT OST 2002a).

55 The United States and Japan agreed on all-cargo liberalization in 1996. The United States and Canada renewed their air bilateral agreement (not an Open Skies agreement) in 1995.

56 The MERCOSUR customs union was formed in 1995 between Argentina, Brazil, Paraguay, and Uruguay.