Why Texas Is America's Export King

In the 1990s, California was America's export leader. Then, in 2002, Texas took the lead and never looked back. Since 1998, the state has increased its total exports by 217 percent, compared to 139 percent for the country as a whole. California's have risen by a comparatively paltry 66 percent.


Partly, the change was the result of state-level planning: Texas is a low-cost place to do business. But it also had to do with the rise of free trade, the decline of domestic manufacturing, and our transformation into the world's oil refiner.

There have been two great trade developments for the U.S. in the last two decades. First came NAFTA, which opened up commerce with Canada and Mexico. Second was China's entrance in the WTO, which gave it new access to global markets. Texas benefited enormously from the former. California took a giant hit from the latter.

As the Milken report notes, Texas is responsible for about 44 percent of U.S. exports to Mexico. A large portion of those shipments are destined for maquiladoras, factories along the border that use cheap Mexican labor to assemble components manufactured stateside into final products before sending them back over the border to be sold. In short, the migration of low-skill manufacturing away from America and into Mexico has had some collateral benefits for Texas.


The changing trade landscape hasn't been as kind to California. In 1998, nearly half of the state's exports were computers and electronics (shown in purple on the graph below) compared to about 20 percent for the country as a whole. Then the tech bubble burst, and in the years since, the center of high-tech manufacturing has relocated to China, where, much like Mexico, companies could find inexpensive labor to pack pricey components into final products. Computers and electronics still make up the largest portion of what California sells to the world, but it's fallen. Measured in actual dollars and cents, it's computer shipments are "just now returning to their 2001 levels," the Milken center writes.


While U.S. computer manufacturing has been in relative decline, our oil and gas industry has been surging. Texas has been an enormous beneficiary of that trend. In 1998, petroleum products were less than 5 percent of its exports (shown in dark blue above). Now they're more than 20 percent. How'd this come to pass? Thanks in part to a set of forward looking EPA regulations, refineries in the Gulf of Mexico spent the early part of the decade investing billions into advanced technology capable of creating petroleum products, such as low sulfur diesel, that were suitable for the world market. That, combined with declining fuel use in the United States, has helped us quadruple our exports of petroleum products.  


Texas has benefited from the migration of low-skill jobs overseas, as well as our ability to ship out more fuel. That bodes well for it in the coming years. The United States and Canada are the midst of an unprecedented boom, and much of that oil will be processed, and sold, from the gulf. While manufacturing may be on an upswing, we're still best at producing things like chemicals and petroleum products that require lots of expensive equipment and cheap energy to produce, but not many hands. Texas may or may not be the future of our whole economy. But it's probably the future of our trade sector.