Arizona’s Trade in 2020: How Deep Was the Dip in the (First) COVID-19 Pandemic Year?

With monthly data available through December 2020 [1], we can now assess the shock experienced in April through June followed by a wobbly and uneven recovery in exporting and importing activities. Has Arizona’s foreign trade been affected by the pandemic in the same way the nation was affected, and more importantly, has the recovery from initial shocks been smoother and faster? How has Arizona’s trade with the three major partners – Mexico, Canada, and China – been affected? Which commodities took a major blow? And in the end, what can be learned about sensitivity of Arizona’s economy to disruptions on a global scale?

Trading with the world: deeper cuts and slower recovery than U.S.

In 2020, from January through December, Arizona’s trade with the world amounted to $45.4 billion, a decline of 11.4% compared to trade in 2019. This decline was more than two percent deeper than what was experienced by the entire U.S. foreign trade.  Figure 1 further illustrates differences in foreign trade activities between Arizona and the U.S. on a monthly basis. In the first three months of 2020, Arizona’s foreign trade was rising above 2019 levels. At the same time, U.S. foreign trade was on the declining trend resulting mostly from changing tariff policies, including trade wars with China.  The next three months from April through June show drastic impacts of major disturbance caused by the pandemic. However, while Arizona’s decline in trading activity during those three months was less severe than the national average, Arizona experienced significantly deeper decline in the second half of the year all through December. 

Figure 1. Trade with the World 2020 (% change from year ago)

Dissimilar impacts on trade with major trading partners

In 2019, trade with Mexico, Canada, and China accounted for 51.9% of Arizona’s total world trade.  In 2020, Arizona’s trade with these three major partners amounted to $24.0 billion, a decline of 10.0 % from a year ago. As shown in Table 1, trade with Canada declined most, by 14.6%, followed by 10.1% decline in trade with China. While a decline of 8.7% in trade with Mexico was the lowest among the three, because of the sheer volume of trade, the dollar loss in trade with Mexico was the highest. Trade with Mexico has shrunk by $1.5 billion in comparison with $706.1 million lost in trade with Canada, and $435.3 million lost in trade with China.

Table 1. Arizona Trade with Major Partners and the World, 2019 and 2020 (exports + imports, $)

As shown in Figure 2, Arizona’s trade with Mexico was severely affected by the pandemic causing deep drop in trading activity during April, May and part of June, although relatively less than U.S. average. In the second half of 2020, Arizona figures indicated relatively faster recovery than the U.S. – Mexico trade. September and October even experienced a slight increase compared to a year ago, but then declined again at the year’s end.

Figure 2. Trade with Mexico 2020 (% change from year ago)

Arizona’s trade with Canada, as shown in Figure 3, was also affected by the pandemic causing dents during the April-June period, although less severe than the U.S. – Canada trade. However, in both the beginning and ending months, Arizona’s trade pattern has substantially differed from the U.S.  While at the beginning of the year, Arizona’s trade with Canada exceeded the levels from a year ago, during the last three months the trade dipped significantly below U.S. average, but even more so below the pandemic-caused decline earlier in April and June.

Figure 3. Trade with Canada 2020 (% change from year ago)

Unlike trading with Mexico or Canada, the oscillations in trade with China more closely resemble the impact of forces other than the pandemic. As shown in Figure 4, trade with China had declined sharply at the very beginning of 2020, mainly as fallout of trade wars instigated by the Trump administration.  The contraction of trading activity was much deeper compared to what followed during the April-June period. Moreover, during the critical period of April through June, the U.S. – China trade experienced very small decline, followed by a substantial increase in trade since September with levels surpassing those of a year ago. While Arizona’s trade resembles U.S. trend at the beginning and the end of 2020, the pandemic had impacted Arizona’s trade more severely than the U.S. as a whole.

Figure 4. Trade with China 2020 (% change from year ago)

Exports were more impacted than imports

Trade, as we know, is not anymore just a simple exchange of goods. Rather, today’s trading across international borders incorporates a complex supply chain system in which components are manufactured in multiple locations and frequently cross international borders several times, first as single products and subsequently returning as composites of multifaceted final goods.  Economists point out that imports could be a sign of thriving industries and not necessarily a cause for job loss due to substitution for domestic products. The available foreign trade statistics, however, records movements of goods across borders in a traditional way as “exports” when they leave the country and as “imports” when they enter the country, as a single finite crossing.

From January through December 2020, Arizona exported to the world $19.7 billion worth of goods and took a dip of 20.1% from the same period a year ago. This was more severe than 12.9% decline in the total U.S. world exports.  Arizona’s importing activity in the same period shrunk only 3.3% compared to a deeper decline of 6.4% in the U.S. imports from the world.

Figure 5 illustrates monthly changes in Arizona’s exports and imports during 2020. Exporting activity experienced a deeper impact overall. As lockdowns were imposed in major manufacturing industries in the U.S. and worldwide to contain spreading of the dangerous COVID-19 virus, the cross-border supply chain was severely disrupted.

Figure 5. Arizona Exports and Imports 2020 (% change from year ago)

Exports to Mexico suffered the most

Mexico is Arizona’s largest single export market, accounting for about a third of total world exports. In 2020, Arizona exports to Mexico declined 14.6% from a year ago, but comparatively less than the national average of -17.1%. 

Figure 6 compares Arizona’s exports to three major trading partners, Mexico, Canada, and China. The pandemic affected exports to all three countries most severely from April through June, with exports to Mexico taking the deepest losses. Exports to Canada were recovering at a slower pace than either those to Mexico or China. In case of China, monthly data clearly indicate that at the beginning of 2020 Arizona exports were impacted by trade wars. At the end of the year, however, exports to China improved suddenly and even exceeded by far the 2019 December level.

Percentage-wise, the 2020 exports to China took the deepest dip by declining 18.9%, but the dollar amount lost ($205.2 million) was smaller than the loss in exports to Canada ($298.3 million, or 13.6% decline), or Mexico ($1.2 billion, or 14.6% decline).

Figure 6. Arizona Exports to Major Trading Partners 2020 (% change from year ago)

All major manufacturing exports experienced decline

Arizona’s exports to the world are dominated by two major groups of manufacturing products: computers and electronic components (NAICS 334), and transportation equipment (NAICS 336). In 2019, exports of these two groups of products were worth more than $10 billion, accounting for 43.6% of all Arizona’s exports. In comparison, exports of electrical equipment (NAICS 335), and minerals and ores (NAICS 212) were worth between $2.1 and 2.3 billion each, while exports of fabricated metal products (NAICS 332), machinery (NAICS 333), and chemicals (NAICS 325) ranged between one and two billion in dollar terms. In each and every one of the top exporting group of products exports in 2020 were below 2019 levels. As shown in Figure 7, the largest dollar losses were recorded in exports of transportation equipment (more than $1.6 billion) and computer and electronic components (more than $1.0 billion).

Figure 7. Arizona’s Top 10 Manufacturing Exports to the World ($)

Exports of transportation products most severely impacted

Of the three Arizona’s top manufacturing exports, transportation products (NAICS 336) experienced the most severe impacts during April and May, and kept declining through the end of the year, as clearly depicted in Figure 8.  The majority of transportation products are exported to Mexico, and as Mexico’s auto industry went into lockdown, the cross-border flows of parts and equipment was drastically reduced. Exports of transportation equipment to Canada and China were also affected, but due to smaller dollar worth of exports, the overall impact was less severe. Among the three top exports, computer and electronic products (NAICS 334) weathered the crisis with relatively smallest scars.

Figure 8. Arizona’s Top Manufacturing Exports to the World (% change from year ago)

Conclusion: The dip was deeper than ever imagined

In comparison with the national trend, Arizona’s trade has shown a much slower recovery although at first, the negative impact of the pandemic was somewhat less severe than the U.S. average.  Arizona’s trade in 2020 with major partners – Mexico, Canada, and China – fell below 2019 levels, but the extent of loss and the recovery pattern had differed among them. Losses in trade with Canada and China, although substantial, were overshadowed by negative impacts on trade with Mexico. Especially, the manufacturing of transportation equipment (NAICS 336), one of Arizona’s rising industries, had experienced deep declines in exporting activity that lasted through the end of 2020. 

While the extent of actual and potential job losses due to contractions in trade activity is not yet fully assessed, a recent study of a related topic may provide a hint.  In answering “How important is trade in Arizona’s economy, Jeffrey Kucik cited suggestions that over 700,000 people work in trade-dependent industries, which makes one fifth of total employment.[2]