PREFACE

The Industry Trade and Technology Review (ITTR) is a quarterly staff publication of the

Office of Industries, U.S. International Trade Commission. The opinions and conclusions

contained in this report are those of the authors and are not the views of the Commission as

a whole or of any individual Commissioner. The report is intended to provide analysis of

important issues and insights into the global position of U.S. industries, the technological

competitiveness of the United States, and implications of trade and policy developments.

The information and analysis in this series are for the purpose of this report only. Nothing

in this report should be construed to indicate how the Commission would find in an

investigation conducted under any statutory authority.

Inquiries or comments on items in this report may be made directly to the author, or to:

Director of Industries

Industry Trade and Technology Review

U. S. International Trade Commission

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Requests for copies of the ITTR, or to be added to the mailing list, should be addressed to the

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Quarterly Review Staff

Larry Brookhart

Karl Tsuji

assisted by

Zema Tucker

Sharon Greenfield

Contributing Authors

Michael J. Ferrantino

Judith-Anne Webster

Robert A. Rogowsky

Director of Operations

Vern Simpson

Director of Industries
12/01

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DECEMBER 2001

Industry Trade and Technology Review Index of Articles

i

Listing of Published Articles

(June 1998 - December 2001)

June 1998

China's evolving automotive industry and market

Canadian involvement in Mexico's Maquiladora industry

September 1998

Internet advertising

Progress in recognizing and regulating global professional service providers

Deregulation fosters globalization of the electric power industry

December 1998

Impediments to competitiveness in Russia’s minerals and metals sector

Nonstore retailing: Alternative retailers attracting customers

Apparel sourcing strategies for competing in the U.S. market

March 1999

Korea’s foreign exchange crisis and its implications for U.S.-Korean trade

Advanced structural ceramics: Vast potential has yet to be realized

June 1999

Energy services: Recent trends and future prospects

Market trends affecting the U.S. environmental services sector

Health care services: Strong fundamentals and innovations foreshadow growth 

in U.S. exports and foreign direct investment

October 1999

Outsourcing by the pharmaceutical industry provides opportunities for fine

chemical producers worldwide 

Thailand’s financial crisis and progress towards recovery—Implications for

U.S. trade

December 1999

Air transport services: International regulation and future prospects for

liberalization

Renewed services trade negotiations in the WTO

March 2000

Machine vision: Vital technology for manufacturing industries

Agriculture in the WTO: The Seattle Ministerial and beyond
DECEMBER 2001

Index of Articles Industry Trade and Technology Review

ii

Listing of Published Articles—Continued

July 2000

Express services: Issues for negotiation in the World Trade Organization

Production-sharing update: Developments in 1999

Apparel market: New U.S. legislation places CBERA countries on a more equal

competitive basis with Mexico

October 2000

WTO agricultural trade negotiations: An update

Steel sector explores E-Commerce although wary of quick transition

Mexico’s emergence as a global automotive production center drives 

trade and investment

January 2001

U.S. metal mining: Recent trends and uncertainty discourage domestic

exploration and investment

Factors affecting the competitive position of the Indian software industry

Manufacturing strategies of the North American major household

appliance industry

March 2001

Apparel: Andean countries seek parity with Caribbean Basin countries

to remain competitive in the U.S. market

Chemical trade by the Central European countries: Difficulties of sector

 transition

Commercialization of hybrid automobiles: Prospective demand for light metals

July 2001

Trends in China’s steel consumption

Production-sharing update: Developments in 2000

October 2001

E-commerce and nonferrous metals: Despite potential, adoption

has been slow

Foreign direct investment in infrastructure services in OECD countries

December 2001

Evidence of trade, income, and employment effects of NAFTA

U.S. primary aluminum: Power costs and market conditions could

cause long-term restructuring
DECEMBER 2001

Industry Trade and Technology Review Contents

iii

CONTENTS

Page

Evidence of trade, income, and employment effects

of NAFTA ............................................................ 1

Trade effects .......................................................... 2

Income effects ......................................................... 4

Employment effects -- Economywide estimates for NAFTA ....................... 4

Employment effects of trade liberalization -- An upper bound ...................... 6

Employment effects -- Estimates linked to the trade deficit. ....................... 7

Summary of findings .................................................... 8

U.S. primary aluminum: Power costs and market 

conditions could cause long-term restructuring ............ 9

The Bonneville Power Administration ....................................... 13

Implications for the U.S. aluminum industry .................................. 15

Outlook 19

Appendix A

Key performance indicators of selected industries

and regions........................................................... A-1

Steel:

Figure A-1 Minimill profitability improves slightly, but integrated and

specialty profitability decline during third quarter 2001 ..................... A-2

Table A-1 Imports decrease significantly in third quarter 2001 compared with

third quarter 2000 ................................................. A-2

Table A-2 Third quarter 2001 steel service center shipments decrease by 

 almost 13 percent from third quarter 2000 .............................. A-3

Figure A-2 Steel mill products, all grades: Import penetration increases despite

fewer imports during third quarter 2000 ................................ A-3
DECEMBER 2001

Contents Industry Trade and Technology Review

iv

CONTENTS—Continued

Page

Appendix A

Key performance indicators of selected industries

and regions—Continued .......................................... A-1

Automobiles:

Table A-3 U.S. sales of new automobiles, domestic and imported, and

share of U.S. market accounted for by sales of total imports and Japanese

imports, by specified periods, January 2000-September 2001 ................ A-4

Figure A-3 U.S. sales of new passenger automobiles fell in 3rd quarter

2001; 3rd quarter sales of domestic autos registered a larger percentage

decrease over 2nd quarter as compared with sales of imports, by

5 percentage-points ................................................ A-4

Unwrought aluminum:

Figure A-4 U.S. production cutbacks and slightly improved U.S. demand led 

to a 12 percent increase in unwrought aluminum imports, yet prices fell to

28 month lows due to uncertainty over future aluminum demand .............. A-5

Table A-4 Inventories in LME warehouses reached their highest levels in

18 months despite production cuts in the United States and Brazil ............. A-5

Flat glass:

Figure A-5 Japanese import decline continues ............................. A-6

Services:

Figure A-6 Balance on U.S. service trade accounts, by selected quarters,

2000-01 ....................................................... A-7

Figure A-7 Surpluses on cross-border U.S. services transactions with

selected trading partners, by quarter, 1999-2001 .......................... A-7

North American trade:

North American trade highlights ........................................ A-8

Table A-5 North American trade, 1996-2000, January-September 2000,

and January-September 2001 ........................................ A-9
DECEMBER 2001

Industry Trade and Technology Review Effects of NAFTA

 

1

 The views expressed in this article are the author’s, and are not the views of the U.S.

International Trade Commission (USITC) as a whole or of any individual Commissioner.

 

2

 The full effects of tariff reductions under NAFTA are to be experienced in the future as tariff

elimination under the agreement is proceeding on a phased basis. Duties on goods accounting

for 54 percent of U.S. imports from Mexico in 1992 were eliminated immediately in 1994, and

another 14 percent of U.S. imports from Mexico were already permanently free of duty in 1992,

duties on goods accounting for 24 percent of U.S. imports from Mexico are scheduled for

elimination effective January 1, 2003, and January 1, 2008.

 

3

 This article focuses on the effects of increased U.S. trade with Mexico that may be attributed

to NAFTA. Since nearly all tariffs on products traded between the United States and Canada

were reduced to zero under the U.S.-Canada Free-Trade Agreement by the time of the entry into

force of NAFTA, increases in U.S.-Canada trade since 1994 cannot be attributed to NAFTA. 

1

Evidence of Trade, Income, and Employment

Effects of NAFTA

Michael J. Ferrantino1

Office of Economics

Research Division

mferrantino@usitc.gov

(202) 205-3241 

Although U.S.-Mexico trade has tripled in nominal terms since the

introduction of the North American Free Trade Agreement (NAFTA) in

1994, only a part of this growth can be attributed directly to the actual

provisions of the agreement, such as its tariff reductions. The effects of

NAFTA on U.S. gross domestic product (GDP) have likely been small, but

positive. For instance, the effect on employment shows that trade policy in

general, and NAFTA in particular, tends to move jobs between sectors

rather than to create or destroy jobs in the aggregate. The impact on

workers in some sectors has been relatively greater than on those in others,

but the experience of workers displaced due to NAFTA has likely been

similar to that of workers displaced for reasons unrelated to trade. This

article examines some factors affecting the increase in U.S.-Mexico trade,

provides perspectives on the income and employment effects of NAFTA on

the U.S. economy, and summarizes the principal findings of existing

evidence regarding the influence of NAFTA on U.S. economic activity.

On balance and to date, the effects of NAFTA on the U.S. economy have been relatively

small.2 These effects have included increases in overall U.S. income and increases in U.S.

trade with Mexico,3 but little impact on overall levels of unemployment although with some

displacement of workers from sector to sector. For particular industries or products with a

greater exposure to U.S.-Mexico trade, effects are likely to have been correspondingly greater,

including displacement effects on individual workers.

The reason for small effects in the aggregate is not hard to understand. Total U.S.

merchandise exports to, and imports from, Mexico amounted to 1.01 percent and 1.35 percent

of U.S. GDP, respectively, in 2000. NAFTA removed tariffs on this trade that averaged
DECEMBER 2001

Effects of NAFTA Industry Trade and Technology Review

 

4

 The reported average tariff on Mexico’s exports to the United States is the ratio of calculated

duties collected to the customs-value of U.S. imports from Mexico for 1993. This tariff rate was

already significantly lower than the then-prevailing most favored nation (MFN) tariff rate of

approximately 4.6 percent, because approximately three-quarters of U.S. imports from Mexico

received reduced or free duties under the Generalized System of Preferences program or

production-sharing provision 9802.00.80 of the Harmonized Tariff Schedule of the United States.

 

5

 The average rate on U.S. exports to Mexico is from USITC staff calculations for a 1993

investigation into potential NAFTA effects. It is also lower than the comparable MFN rate of 13

percent for Mexican imports due to the Maquiladora and PITEX programs which had already

been implemented prior to NAFTA.

 

6

 For example, if each percentage point cut in the tariff leads to as much as a 3-percent

increase in imports, then the total increase in U.S. imports from Mexico induced by NAFTA

tariff cuts would be on the order of (3)*(0.021)*(1.35) = approximately 0.09 percent of U.S.

GDP.

 

7

 See USITC, Economy-Wide Modeling of the Economic Implications of a FTA with Mexico

and a NAFTA with Canada and Mexico: Addendum to the Report on Investigation No. 332-217

Under Section 332 of the Tariff Act of 1930, USITC publication 2508, May 1992. This study was

an invited symposium of modelers from a variety of institutions and backgrounds.

 

8

 USITC, The Impact of the North American Free Trade Agreement on the U.S. Economy and

Industries: A Three-Year Review, USITC publication 3045, June 1997.

2

approximately 2.1 percent for U.S. imports from Mexico in 19934 and approximately 7

percent on Mexico’s imports from the United States.5 Duties for U.S.-Canada trade had

already been scheduled for elimination prior to NAFTA under the Canada-U.S. Free-Trade

Agreement of 1987. Even if a percentage-point reduction of 1 percent in the tariff rate leads

to an expansion of trade of several percent, the overall increase in exports and imports induced

by NAFTA cannot be large, relative to the size of the U.S. economy.6 Any effects of NAFTA

on U.S. incomes or employment are consequences of its effects on exports and imports. 

The analytical challenges confronting assessments of NAFTA effects done prior to the 1994

agreement implementation were different from those done after implementation. The most

rigorous quantitative analyses of NAFTA effects done prior to 1994 tended to focus solely on

tariff changes. Other provisions of NAFTA, such as rules of origin, investment rules, and

dispute settlement, are more difficult to quantify. These studies provided estimates of “longrun” effects of these tariff changes, i.e., the cumulative effect of NAFTA having worked its

way through the U.S. economy. They were not intended to provide forecasts of changes in the

U.S. or Mexican economies arising from other factors, such as currency fluctuations, business

cycles, productivity gains, or other policy changes.7 After NAFTA implementation, and as

a result of a Congressional mandate to the President for a comprehensive study of the

agreement, the U.S. International Trade Commission (USITC) attempted, in part, to assess

NAFTA effects based on statistical analysis of data from pre- and post-NAFTA periods.8

These analyses are affected by the inherent difficulty in separating the “signal” of NAFTA

effects from the “noise” of the other economic factors influencing the U.S. and Mexican

economies in the post-NAFTA period.

Trade Effects

Since 1993 (the last pre-NAFTA year), U.S. trade with Mexico has approximately tripled in

nominal terms (not adjusted for inflation). U.S. exports to and imports from Mexico have

increased at 14.0 percent and 19.5 percent per year, respectively, substantially exceeding
DECEMBER 2001

Industry Trade and Technology Review Effects of NAFTA

 

9

 USITC, Economy-Wide Modeling of the Economic Implications of a FTA with Mexico and a

NAFTA with Canada and Mexico, chapters 1, 2, 8, 9 and 10.

 

10 USITC, The Impact of the North American Free Trade Agreement on the U.S. Economy

and Industries, pp. xviii and 4-14.

 

11 Testimony before the USITC by Richard J. Heckmann, President and CEO of U.S. Filter

Corporation, May 15, 1997 as reported in Ibid, p. xviii and Appendix D.

 

12 For additional information on the integration of manufacturing industries in North

America, see Deborah McNay and Laura Polly, “Mexico’s Emergence as a Global Automotive

Production Center,” Industry Trade and Technology Review (ITTR), USITC publication 3363,

Oct. 2000, pp. 19-33; Reuben Mata, “Manufacturing Strategies of the North American Major

Household Appliance Industry,” ITTR, USITC publication 3390, Jan. 2001, pp. 31-45; and Ralph

Watkins, “Production-Sharing Update: Developments in 2000,” ITTR, USITC publication 3443,

July 2001, pp. 11-23.

3

growth in U.S. trade with the world of 7.1 percent for exports and 11.2 percent for imports.

Thus, the share of U.S.-Mexico trade in overall U.S. trade has increased from 7.8 percent to

12.2 percent since implementation of NAFTA. Whereas a significant part of this increase in

trade is likely attributable to non-NAFTA factors, such as economic growth in the United

States and Mexico and the devaluation of the Mexican peso in 1995, some part is also

attributable to NAFTA. Prior to NAFTA ratification, economic models of the “pure NAFTA

effect” on trade estimated that in the long run, the cumulative increase in U.S. exports to

Mexico would be on the order of 1 to 32 percent in real (inflation adjusted) terms, with U.S.

imports from Mexico growing between 2 and 17 percent.9 In 1997, pursuant to a

Congressional mandate for a 3-year Presidential review of NAFTA, the USITC estimated that

during 1994-96, annual U.S.-Mexico imports and exports were from 1 to 7 percent higher

than in the absence of NAFTA, after taking into account changes in incomes, relative prices,

and exchange rates.10 These findings suggest that non-NAFTA factors have contributed to

the increase in U.S.-Mexico trade subsequent to the introduction of NAFTA, particularly

economic growth in the United States and Mexico. 

However, the NAFTA may have contributed to an improved general business climate in North

America. Publicity associated with NAFTA may have been an important, though difficult to

quantify, factor in expanding U.S.-Mexico trade. Numerous witnesses at the hearings for the

USITC 3-year review of NAFTA testified that the NAFTA agreement had resulted in U.S.

companies paying more attention to business opportunities within North America; for

instance, “New treaty partners and new trade partners tend to go out of their way to do

business with each other.”11 An example of the improvement in business climate is the way

anticipation of NAFTA led to increased inbound FDI in Mexico.

NAFTA was negotiated as U.S. manufacturers were intensifying efforts to become more

globally competitive, especially in response to increased import competition from Asia. To

reduce their costs and maintain market share, U.S. producers rationalized their production

facilities throughout North America. Reduction in trade barriers in both goods and services

was essential to make effective this strategy of improved efficiencies through cross-border

integration.12 Mexico needed to attract foreign direct investment (FDI) and to eliminate

protection of inefficient industries in order to modernize its manufacturing sector and promote

economic development.

A series of trade and investment reforms undertaken by the de la Madrid and Salinas de

Gortari administrations in the 1980's to reassure foreigners that future investments in Mexico
DECEMBER 2001

Effects of NAFTA Industry Trade and Technology Review

 

13 See USITC, Review of Trade and Investment Liberalization Measures by Mexico and

Prospects for Future United States Mexico Relations–Phase I: Recent Trade and Investment

Reforms Undertaken by Mexico and Implications for the United States, Investigation No. 332-

282, USITC publication 2275, Apr. 1990.

 

14 USITC, Economy-Wide Modeling of the Economic Implications of a FTA with Mexico and

a NAFTA with Canada and Mexico, pp. vi and 6-15.

 

15 USITC, The Impact of the North American Free Trade Agreement on the U.S. Economy

and Industries, p. xxi and app. C.

 

16 This estimate will be discussed in more detail in the section on Employment Effects --

Estimates Linked to Trade Deficits.

 

17 As of August 30, 2001, NAFTA has been in existence for about 400 weeks, and the estimate

of 766,000 jobs lost amounts to 2 weeks’ worth of new unemployment insurance claims. Thus,

2/400 = 0.5 percent of layoffs corresponding to the highest available claims regarding NAFTA 

(continued...)

4

laid the ground work for bilateral negotiations with the United States that would eventually

lead to NAFTA.13 Anticipation that NAFTA would become a reality led companies based in

Asia and Europe, as well as in the United States, to establish or expand manufacturing

facilities in Mexico. As a result, the pre-NAFTA years exhibited a sharp rise in FDI in

Mexico, leading to the rising value of the peso relative to the U.S. dollar and increasing

Mexican labor costs.

Income Effects

Estimates of the effects of NAFTA on aggregate incomes, or GDP, have generally suggested

small but positive effects. Modeling exercises prior to NAFTA suggested that the long-run

gain in GDP attributable to NAFTA for the United States would be from negligible to 0.5

percent of GDP, with potential gains for Mexico from 0.1 to 11.4 percent of GDP.14 Since

U.S. GDP currently exceeds $10 trillion, this implies that NAFTA income gains may be

sizable but are simply small relative to the U.S. economy because of the relative size of U.S.-

Mexico trade. Post-NAFTA attempts by the USITC to identify an impact of NAFTA on U.S.

GDP through statistical analysis of data through 1996 estimated negligible effects, due in part

to the difficulty of sorting out the NAFTA effect from other events occurring in the postNAFTA years.15 Given the above-noted difficulties of identifying small NAFTA effects in

historical data subject to a variety of shocks, the finding of negligible effects on U.S. GDP in

such data is broadly consistent with the pre-NAFTA estimates of relatively small GDP effects.

Employment Effects -- Economywide Estimates for NAFTA

Several studies have generated estimates of U.S. job “gains” and “losses” due to NAFTA,

either for the United States as a whole, by State, or by industry. The most extreme estimates

of job gains or losses due to NAFTA are on the order of hundreds of thousands of jobs. One

recent report estimates actual and potential job losses due to NAFTA as 766,000 since 1994.16

A useful benchmark for comparison is the number of new unemployment insurance claims in

the United States, which run from 300,000 to 400,000 per week. Thus, the highest available

estimates of NAFTA job loss attribute no more than 0.5 percent of U.S. layoffs to NAFTA.17
DECEMBER 2001

Industry Trade and Technology Review Effects of NAFTA

 

17 (...continued)

job loss. This is an upper bound, as it assumes that “actual and potential” job losses are actual,

and that all laid-off workers file for unemployment insurance.

 

18 USITC, The Impact of the North American Free Trade Agreement on the U.S. Economy

and Industries, pp. 4-14 to 4-20.

5

On an economywide basis, job “creation” or “destruction” of this magnitude is relatively small

compared to the amount of fluctuation in employment levels over the business cycle. The box

illustrates this situation in a metaphor by one noted economist.

USITC statistical analysis of 120 disaggregated industries18 identified positive or negative

NAFTA effects on either employment (as measured by hours worked) or wages for 20 of these

industries, accounting for approximately 3 percent of the total labor force and 17 percent of

An Illustration of the Likely Effect of NAFTA on the Average Level of Employment

Over the Next Decade (Krugman)1

“Think of the U.S. economy over the next decade as an automobile driving from Boston to New York. 

Let the average speed of the automobile over the route represent the average level of employment over

the decade. And let the dispute over the direct employment effects of NAFTA be represented as an

argument over whether there will be a head wind or a tail wind as the car makes its way along the

interstate. Then assessing NAFTA’s overall job impact is like predicting how the extra wind will affect

the car’s speed. Job-counting exercises do this by assuming that nothing else changes--in effect, they

assume that the engine in our car will receive exactly the same flow of gas that it would have been given

in the absence of any wind.”

“Nobody would think that this was a sensible procedure for predicting automobile speed. After all, cars

have drivers, and drivers are not passive...A five-mile-per-hour head wind or tail wind will not change

(my) average speed; I will simply offset the wind by changing the pressure on my gas pedal.”

“The U.S. economy also has a driver: the Federal Reserve..(Its) choice(s) ha(ve) a far more powerful

impact on the unemployment rate than any trade policy. The Fed often miscalculates and ends up with

more inflation or less employment than it wanted, but right or wrong the Fed’s actions are the most

powerful determinant of job growth in America.”

“Suppose that NAFTA really does..reduce U.S. employment by 500,000 over the next ten years. Will

other things actually be the same? Of course not. The Fed, faced with the prospect of a weaker

economy, will set interest rates lower than it otherwise would have. Conversely..if NAFTA would add

half a million jobs, interest rates would be higher. The Fed will, without doubt, miss the target - but it is

as likely to overshoot as to undershoot, and over the course of a decade there is no reason to suppose

that the average level of employment will be any different with NAFTA than without.”

 

1

 The views expressed in this illustration summarize those of Paul Krugman, Economist, Princeton

University, and are not the views of the U.S. International Trade Commission as a whole or of any individual

Commissioner.

Source: Paul Krugman, “The Uncomfortable Truth About NAFTA,” Foreign Affairs, November/December

1993, pp. 13-19, reprinted in Paul Krugman, Pop Internationalism (Cambridge, MA: MIT Press, 1996), pp.

155-165.
DECEMBER 2001

Effects of NAFTA Industry Trade and Technology Review

 

19 USITC, The Economic Effects of Significant U.S. Import Restraints: Second Update,

Investigation No. 332-325, USITC publication 3201, May 1999, table ES-2 (p. xix) and USITC

staff calculation of worker movements.

 

20 This estimate of labor displacement is equal to about 3 or 4 days’ worth of new

unemployment insurance claims, or about 0.1 percent of total job displacement since the

beginning of NAFTA. 

 

21 Alfred J. Field and Edward M. Graham, “Is There a Special Case for Import Protection for

the Textile and Apparel Sectors Based on Labour Adjustment?,” The World Economy, Mar.

1997, pp. 137-157. 

 

22 It should be noted that during the years covered by the study (1986-92), national

unemployment rates were 7.0 percent in 1986, fell to 5.3 percent in 1989, and rose to 7.5 percent

in 1992 as a consequence of the 1990-91 recession. During the post-NAFTA period,

unemployment fell from an average of 6.1 percent in 1994 to 4.5 percent at the time of writing in

(continued...)

6

the manufacturing labor force. These effects operated in both positive and negative directions,

and were generally on the order of negligible to 15 percent in absolute magnitude.

Employment Effects of Trade Liberalization -- An Upper

Bound

Another USITC study19 takes into account the fact that unemployed workers eventually are

re-employed in other sectors, and accounts for pro-employment effects of cheaper imports.

As an example of such effects, lower prices of imported inputs into domestically produced

goods increase demand for these goods, as well as for U.S. labor to produce those goods. This

study showed that a unilateral repeal of all U.S. import restraints (a more radical policy

measure than NAFTA; effectively, free trade) shows approximately 135,000 U.S. workers

moving from one sector to another in the long run, primarily out of the textile and apparel

sectors and into other manufacturing sectors, wholesale and retail trade, and other services

sectors.20 Since NAFTA represents a smaller trade liberalization than the one modeled above,

the implied effects on labor markets would be correspondingly smaller.

The methods used in the above-referenced study did not generate estimates of the time it would

take for 135,000 workers displaced by trade liberalization to find new jobs, or of the quality

of the jobs they would obtain upon re-employment. A study of longitudinal data collected by

the Employment Security Commission of North Carolina found that workers laid off by textile

and apparel firms were rehired approximately as quickly as workers in other industries, and

were generally paid higher wages in their new jobs.21 The data used in this study covered the

experiences of approximately 35,000 workers, including 7,500 textile and apparel workers,

who lost their jobs as a result of mass lay-off or plant closings between the third quarter of

1986 and the fourth quarter of 1991 and, if re-employed, found new jobs by the first quarter

of 1992. The average duration of unemployment for apparel workers was 2.3 quarters; for

textile workers, 2.1 quarters; for workers in other manufacturing sectors, 1.9 quarters; and

for non-manufacturing workers, 2.5 quarters. Apparel workers who were re-employed

experienced an average 5-percent wage increase if re-employed by the same industry and 34-

percent wage increase if employed by other industries. Whereas the data analyzed were

collected just prior to NAFTA and the Uruguay Round, they may provide a useful indicator

of post-NAFTA labor transition experiences.22
DECEMBER 2001

Industry Trade and Technology Review Effects of NAFTA

 

22 (...continued)

2001. Consequently, spells of unemployment for workers laid off post-NAFTA, regardless of

industry, may have been shorter than those found in the above study.

 

23 Robert E. Scott, NAFTA’s Hidden Costs, in Economic Policy Institute, NAFTA at Seven,

Washington, DC, 2001, p. 3. Scott argues that an increase in the U.S. bilateral trade deficits

with Canada and Mexico of $46.2 billion induced 766,030 actual and potential lost jobs, or

approximately 18,000 jobs per $1 billion increase in the deficit. USITC staff calculation based

on Scott.

7

Employment Effects -- Estimates Linked to the Trade Deficit

The statement that U.S. job creation or destruction is proportional to decreases or increases

in the trade balance recurs frequently in the public policy debate. Estimates that $1 billion

in exports supports 10,000 to 20,000 jobs, or that an increase in the trade deficit destroys a

similar number of jobs, are frequently cited. The above-cited estimate of 766,000 jobs lost

due to NAFTA is generated by a more elaborate version of such reasoning, with detailed

breakdowns presented by state and industry.23

However, such calculations contradict the historical experience of the U.S. economy. In fact,

times of high trade deficits have been associated with low unemployment and vice versa

(figure 1). The inverse relationship between trade deficits and unemployment is easy to

understand. During periods of strong economic growth, the demand for all goods, including

imported goods increases, as well as the demand for labor, which reduces unemployment. In

contrast, during recessions, such as in 1990-91, import demand falls, the trade deficit declines,

and workers are laid off.
DECEMBER 2001

Effects of NAFTA Industry Trade and Technology Review

8

In addition, “job-counting” exercises which derive estimates of employment effects from

changes in the trade deficit do not take into account potential employment-generating effects

of trade liberalization, such as increased consumer demand for all goods (domestic and

foreign) due to lower import prices and increased demand for labor by firms which can afford

cheaper imported materials, and thus experience greater demand for their product output.

These effects are taken into account by many of the above-referenced studies.

Summary of Findings

• Although U.S.-Mexico trade has tripled in nominal terms since the introduction of

NAFTA in 1994, only a part of this growth can be attributed to the actual provisions

of the NAFTA, such as tariff reduction. Much of the growth in such trade is due to

factors such as growth in the U.S. and Mexican economies. Although hard to

quantify, the effect of the NAFTA in promoting U.S.-Mexican business ties may have

played a significant role.

• Pre-NAFTA estimates indicated that U.S. GDP gains due to NAFTA would be no

more than 0.5 percent. Although these gains represent a significant volume of

economic activity, they are small relative to the U.S. economy because U.S.-Mexico

trade represents only a small share of U.S. economic activity. The difficulty of

finding NAFTA effects in GDP in post-NAFTA data is broadly consistent with the

pre-NAFTA estimates.

• The most extreme estimates of job losses due to NAFTA attribute no more than 0.5

percent of U.S. layoffs to NAFTA, and rely on a mechanical and unrealistic linkage

between jobs and trade deficits. Trade policy has a relatively smaller impact on

overall job gains or losses compared with such factors as monetary and fiscal policy

and labor market policies and institutions. 

• The effects of trade liberalization in general, and NAFTA in particular, are greater

for specific industries and sectors than for the economy as a whole, with changes in

employment levels being correspondingly greater. Available evidence indicates that

experiences of workers laid off due to trade liberalization may be similar to those of

other workers. In the immediate pre-NAFTA period, textile and apparel workers

experienced spells of unemployment of approximately equal length as for other

workers, as well as wage increases upon re-employment, particularly when reemployment took place in a different industry.#
DECEMBER 2001

Industry Trade and Technology Review U.S. Primary Aluminum

1

 The views expressed in this article are the author’s, and are not the views of the U.S.

International Trade Commission (USITC) as a whole or of any individual Commissioner.

2

 Primary refers to aluminum smelted from alumina (refined aluminum ore). Secondary

refers to aluminum recovered from recycled metal such as aluminum beverage cans, for example.

3

 Summary of the Aluminum Industry Studies, Bonneville Power Administration, Feb.

23, 2001, p. 8.

4

 For example, studies estimated that 15 to 20 percent of employment in Klickitat,

Washington, is generated by the Goldendale aluminum smelter in the county. Ibid.

9

U.S. Primary Aluminum: Power Costs

and Market Conditions Could Cause

Long-Term Restructuring

Judith-Anne Webster1

(202) 205-3489

webster@usitc.gov

U.S. primary aluminum production2 underwent a sharp decline in the past

year, as it was affected by a substantial increase in the cost of electric

power in the Pacific Northwest. Although power prices have recently

declined, production in the region is unlikely to rebound in the near term

given relatively low aluminum prices and declining downstream demand

for fabricated aluminum products. Further, the decline in production may

portend a longer-term contraction of the U.S. primary aluminum industry.

This prospect stems from changes in the contractual agreements between

Pacific Northwest aluminum producers and their main electrical provider,

the Bonneville Power Administration, and increasing production of

foreign primary aluminum, as well as U.S. secondary production. This

article examines the current state of the Pacific Northwest aluminum

industry, market conditions affecting U.S. production, and the outlook for

the U.S. primary aluminum industry.

U.S. primary aluminum production reached a monthly low of 206,000 metric tons (mt) in

September 2001, 37 percent below its 5-year high of 329,000 mt in January 2000 (figure 1),

and the lowest level in 33 years. Production of primary aluminum in the United States fell to

2.0 million mt by the third quarter of 2001 compared with 2.8 million mt in the same period

of 1999.

Much of the reduction in primary aluminum production has been a result of the cutbacks at

smelting facilities in the Pacific Northwest where 10 smelters account for 42 percent of U.S.

primary aluminum capacity (table 1). The smelters account for significant employment in

the region which, according to one recent study, represents 39,550 jobs or 0.65 percent of

regional employment.3 Although overall employment of these smelters in the Pacific

Northwest is small as a percentage of regional employment, smelters are typically located in

rural areas and are a significant component of employment.4 Collectively, these smelters
DECEMBER 2001

U.S. Primary Aluminum Industry Trade and Technology Review

5

 “Northwest Aluminum Smelters Create New Power Ventures to Fight Energy Crunch,”

Business Wire, June 28, 2001.

6

 Marianne Lavelle, “The Power Hungry Get Powered Down,” U.S. New and World

Report, Apr. 30, 2001.

10

Year

Jan 96 Jan 97 Jan 98 Jan 99 Jan 00 Jan 01

150

200

250

300

350

Figure 1

Monthly primary aluminum production in the United States

Source: Official statistics of the U.S. Geological Survey.

Table 1

Structure of U.S. primary aluminum industry

Region

Number of

smelters Employment Capacity

Percentage of

capacity

1,000

1,000

metric tons

Pacific Northwest1............... 10 7.1 1,632 42

Rest of United States2............ 13 9.9 2,266 58

 Total ....................... 23 17.0 3,898 100

 

1

 Located in Washington, Oregon, and Montana.

 

2 Primarily located in Tennessee, West Virginia, and New York.

Source: Official statistics of the Aluminum Association and the Bonneville Power Administration.

can consume up to 3,145 megawatts (MW) of electricity,5 enough to power nearly all of the

3.2 million homes in Washington and Oregon.6 Capacity had been idled in this region as a

result of a substantial increase in the cost of electricity, which is a major share of the cost of

producing primary aluminum (box 1).
DECEMBER 2001

Industry Trade and Technology Review U.S. Primary Aluminum

7

 Electric power prices rose from $30 per megawatt-hour (MWh) to $400 per MWh in

less than 7 days during June 2000. Julia Anderson, “Marketplace: Vanalco Closure: 1 Year

Later,” The Columbian, June 24, 2001, p. e1.

8

 SF Gate, “Energy Crisis Overview: How We Got Here,” May 8, 2001, found at

Internet address

http://www.sfgate.com/cgi-bin/article.cgi?file=/gate/archive/2001/05/08/lookhow.DTL, retrieved

Dec. 2, 2001.

9

 Ibid.

11

Electricity costs spiked suddenly in 2000 as a result of deregulation of California utilities.7

Until 1996, investor-owned utilities controlled both power production and distribution. A

1996 law designed to increase competition and to reduce power rates required the utilities (1)

to sell their generating and transmission facilities (while retaining rights as distributors), (2)

to freeze rates to consumers until they completed the sale of their assets, and (3) to purchase

power on the open market.8 From the period 1996- 2000, demand for power in California

grew rapidly, but supply did not meet demand. As a result, open market prices began to rise.

The utilities were prohibited from passing those rising costs on to customers because of the

rate freeze. However, once the utilities divested the necessary power facilities, the rate freeze

was lifted. A heat wave in the summer of 2000 sparked even higher demand so the price

skyrocketed.9 The California power crisis affected the Pacific Northwest because the power

grids in these regions are interconnected.

The U.S. aluminum industry has also been affected by a worldwide economic slowdown and

the September 11 aftermath, both of which have led to a drop in demand from major end-use

sectors. This development has been especially evident in the transportation sector, which

historically comprised 33 percent of U.S. aluminum consumption. Prior to September 11,

aluminum demand was declining because of reduced vehicle purchases attributable to the

economic contraction. Although vehicle purchases have rebounded because of aggressive

marketing by automobile manufacturers, the September 11 terrorist attacks have reduced

Box 1

Primary Aluminum Production Process

Primary aluminum is produced at smelters using the Hall-Heroult process to convert alumina (aluminum

oxide) into aluminum metal by separating aluminum from oxygen through electrolysis.1 During

electrolysis, an electrical current passes from negatively to positively charged electrodes inside large cells

known as “pots.” The negative electrode consists of blocks of carbon lining the bottom of the pot; the

positive electrode is made up of blocks of carbon lowered down into the pot on long steel rods. Alumina is

introduced into the pots, which contain molten cryolyte as an electrolyte. The liquid bath is heated to 1,760

degrees F through 140,000 amperes of electricity delivered to each pot.2 In this molten state, the oxygen

in the alumina reacts with the carbon in the positive electrode to form carbon dioxide, which escapes as

bubbles. The heavier aluminum sinks to the bottom of the pot and is siphoned off. According to industry

sources, electricity costs comprise approximately 30 percent of the cost of producing primary aluminum.3

 

1 Most U.S. primary aluminum smelters import alumina, which is processed from bauxite in foreign

countries. The primary sources for alumina include Suriname, Jamaica, Australia and Brazil.

 

2 Alcoa Primary Metals, Eastalco Works, Welcome to Alcoa, Frederick, MD, 2000.

 

3 Aluminum company representative, interview by USITC staff, July 26, 2001.
DECEMBER 2001

U.S. Primary Aluminum Industry Trade and Technology Review

10 Tom Stundza, “Aftermath of September 11: Recovery is Postponed,” Purchasing

Magazine, Nov. 11, 2001, p. 24b17 and Gillian O’Conner, “Putting Makers on Their Mettle,”

Financial Times, Oct. 31, 2001.

11 “American Metal Market News– Aluminum to Revive Next Year, says Garran,”

American Metal Market (AMM), Oct. 22, 2001, found at Internet address

http://www.amm.com/subscrib/2001/oct/inside4/1022al01.htm, retrieved Oct. 30, 2001.

12

Mar 96 Mar 97 Mar 98 Mar 99 Mar 00 Mar 01

0

200

400

600

800

1000

0

10

20

30

40

50

60

70

80

Inventories (Y1) Price (Y2)

Figure 2

Quarterly average aluminum prices and inventories, March 1996-September 2001

Source: Official statistics of the U.S. Geological Survey and World Metal Statistics.

aluminum demand by airplane manufacturers due to the effect on the airline industry. The

aerospace market is one of the most profitable for the aluminum industry due to the prevalent

use of such high-value-added products as plate and sheet. Since September 11, airlines have

cut expenditures to counter reduced air travel and dwindling profits, leading to a decrease in

planned airplane construction. For example, Boeing recently announced a reduction of 30,000

jobs and cut its delivery forecast for 2002 to 350-400 aircraft compared to the 510-520

previously forecast.10 According to market analysts, civil aerospace build rates are likely to

be one-half of build rates in 2001.11

As a result of declining demand, and despite U.S. production cutbacks, aluminum prices

continued to decline through third quarter 2001 and inventories held in exchange warehouses

have grown. The average monthly aluminum price in September had fallen to 64.9 cents per

pound, 15 percent off its 5-year high of 80.3 cents per pound in February 2000 (figure 2).

Current prices are near 2-year lows. The third quarter 2001 closed with exchange-warehouse

inventories reaching 18-month highs (double the inventory levels of September 2000), a

reflection of the weakness of the market.
DECEMBER 2001

Industry Trade and Technology Review U.S. Primary Aluminum

12 “BPA Sees 150% Power Rate Increase at Current Load,” Platts Metals Week, June

11, 2001, p. 9.

13 Gary Sampson and Christine Cave, “Smelter Shutdown in the Northwest,” Utility

Business, Mar. 2001, pp. 34-37.

14 These resales helped Kaiser cover its operating losses. However, BPA advocated that

Kaiser use the resale-proceeds to focus on alternative energy sources and compensation to

employees. Nicholas Geranios, “Lone Aluminum Smelter Holdout Demanding More Money,”

The Associated Press, June 27, 2001; and Bob Regan, “Kaiser Aluminum, BPA Settle on Energy

Terms,” AMM, Oct. 11, 2001, found at Internet address

www.amm.com/subscrib/2001/oct/top/1011tp01.htm, retrieved Oct. 12, 2001.

13

The Bonneville Power Administration

Much of the electricity consumed by the Pacific Northwest producers is provided by the

Bonneville Power Administration (BPA). BPA sells power in the Pacific Northwest to both

industrial and residential consumers (box 2). In 1996, the aluminum companies renegotiated

their 5-year contracts with BPA, setting up the current crisis. Under the contract, the

aluminum companies agreed to take about 70 percent of their power from BPA at a fixed

price of $22.60 per megawatt-hour (MWh).12 The remaining 30 percent of aluminum smelter

power needs would be sought from the wholesale market, at a price that would fluctuate at the

market rate.13 Further, the aluminum companies were given “remarketing rights” that would

allow them to resell any excess BPA-contracted power at market rates.

When the power crisis hit the Northwest in June 2000, the market-rate for power skyrocketed,

reaching as high as $1,000 per MWh. In response, the aluminum companies cut production

to save on high power costs generated from the 30-percent share of power purchased by the

companies on the open market. Under their remarketing rights, aluminum companies began

to buy contract-priced power from BPA and to sell it back on the open market. Despite their

shutdown in production, aluminum companies profited from the situation. For example, as

of June 2001, Kaiser had reportedly made $460 million through its resale of electricity.14

Box 2

Electric Power Generated by Bonneville Power Administration for

Aluminum Smelters

The Bonneville Power Administration (BPA) markets electric power in the Pacific Northwest from 29

federal dams and 1 nuclear power plant.1 Dam projects were constructed in the Pacific Northwest in

order to provide employment during the Depression. Since World War II, BPA has sold power to the

aluminum smelters in the Northwest through 5-year fixed-price contracts. The relationship began when

access to low-cost hydroelectric power attracted the aluminum companies to the region. BPA was

guaranteed a reliable consumer of energy, and the aluminum companies received a reliable source of

low-cost power. Until the production cuts in June of 2000, the Northwest aluminum companies

consumed about 20 percent of available BPA power.2

 

1 Gail Kinsey Hill, “Golden Northwest Will Keep Plants Shut,” The Oregonian, June 26, 2001, p. c1.

 

 2 Gary Sampson and Christine Cave, “Smelter Shutdown in the Northwest,” Utility Business, Mar. 2001.
DECEMBER 2001

U.S. Primary Aluminum Industry Trade and Technology Review

15 Under BPA’s pricing structure, prices for power for aluminum companies will be

determined every 6 months over the 5-year contract period. The formula, based on a traditional

cost-based structure, will vary depending on market prices and aluminum companies’ prospective

needs. See Sampson and Cave, “Smelter Shutdown in the Northwest.”

16 Aluminum News, “BPA Reallocation Chill Wind for Aluminum,” AMM, Oct. 17,

2001, found at Internet address www.amm.com/subscrib/2000/Oct/inside3/1017al03.htm,

retrieved Nov. 9, 2001.

17 Lynda Mapes, “Rebate? Rates up? Power Picture for Northwest is unclear,” Seattle

Times, June 28, 2001.

18 Ibid.

19 “BPA Has Set Contract Rate to Al Smelters at $34/ Mwh,” Platts Metals Week, July

2, 2001, pp.1 and 11.

20 “Northwest Smelter Restarts Are Seen Unlikely,” The Aluminum Association, found

at Internet address www.aluminum.org/dailya.cfm?docid=643, Sep 14, 2001, retrieved Oct. 1,

2001. 

21 Ken Olsen, “The Energy Crunch: Utility Loses Bid for a Big Refund on Power

Prices,” The Columbian, Sept. 26, 2001.

22 According to analysts, forward power prices for Mid-Columbia electricity are $40 per

MWh for 2002 and $42 per MWh for 2003. “Early U.S. Smelter Restarts Doubtful,” AMM, Aug.

22, 2001, found at Internet address www.amm.com/subscrib/2001/aug/inside4/0822al05.htm,

retrieved Sept. 19, 2001.

14

The situation deteriorated as contract negotiations for the next 5-year period (2001-06) got

underway in second half 2000. According to industry sources, not only was BPA unable to

provide the aluminum companies long-term contracts guaranteeing electricity at fixed prices,15

but the allocation to them was cut from 2,000 MW to 1,500 MW to accommodate other

customers with prior legal claim to BPA’s power.16 Even then, BPA was 3,000 MW short of

power to meet anticipated demand for the 5-year contract period (beginning October 1, 2001)

and began seeking commitments from the aluminum industry to reduce demand.17 BPA

requested that the Northwest aluminum industry shut down its smelters for 2 years until

September 2003 so that the agency could sell the saved power on the open market to meet

demand from other customers. In exchange, the BPA reportedly agreed to pay the smelters

$20 per MWh saved.18 Most companies complied and BPA reached 95 percent of its loadreduction target for the first 6-month term (October 2001 through March 2002) and 85

percent of its load-reduction goals for the April 2002 through September 2002 period.19

As a result of meeting its load reduction goals, largely through the temporary exclusion of

aluminum customers, BPA raised prices by only 46 percent (to $34 per MWh) for the initial

6-month term. In late January 2002, BPA will reconsider current power rates and power

demand to determine where to set rates for the next 6-month period starting in April 2002.20

This does not bode well for aluminum companies such as Kaiser that did not agree to keep

their smelters shut for 2 years (table 2), in considering the economic feasibility of restarting

idled capacity, particularly when aluminum prices are relatively low. Analysts cite a $1,500

per mt price (about 70 cents per pound) for aluminum as the break-even level for the industry

in an environment of $30 per MWh power costs. Although wholesale electricity prices that

would meet 50 percent of smelter power needs have dropped to less than $20 per MWh as of

September 25,21 BPA prices remain at $34 dollars per MWh, which is still above the breakeven levels for many aluminum smelters. Meanwhile, forward electricity prices on the

wholesale market are also high,22 reducing the likelihood that the aluminum smelters will be

able to attain power at a cost that will enable them to restart from prices on the wholesale
DECEMBER 2001

Industry Trade and Technology Review U.S. Primary Aluminum

23 “US aluminum restarts less likely in 2002 amid LME drop,” Platts Metals Week, Oct.

1, 2001, p 1.

24 “Alcoa to Curtail Production at Troutdale Aluminum Smelter,” Alcoa Press Release,

found at Internet address 

http://www.alcoa.com/site/news/news_release/2000/JUN/17526-2001_03_20.asp, June 28, 2000,

retrieved November 29, 2001. 

25 Lindsay Audin, “Load Curtailment Options: Sparking Savings Without Getting

Burned,” Energy User News, Dec. 8, 2000.

15

market in the longer-term. Because temporary exclusion of the aluminum companies as

customers enabled BPA to reduce rates, in-part, due to an increase in available power, demand

by aluminum companies to purchase power from BPA will likely increase power prices unless

the agency expands capacity. A related concern expressed by the companies such as Kaiser

that are considering restarts is that power prices from BPA are not guaranteed outside of the

initial six-month term. These variables will likely deter aluminum smelters from reopening,

as the longer-term economics of the restart are not guaranteed. Moreover, restart costs

estimated at $1 million per potline discourage the aluminum companies from restarts when

both future power prices and aluminum prices are uncertain.23 Finally, BPA is encouraging

the aluminum companies to remove themselves from the BPA grid by 2006. 

Implications for the U.S. Aluminum Industry

A majority of the Pacific Northwest smelters agreed to close capacity until September 2003

(table 2). Kaiser, which did not agree to a 2-year load reduction, will keep its smelters closed

until at least April 2002, when the company will reportedly reevaluate both the aluminum

prices and BPA’s next 6-month power prices. Both Alcoa and Vanalco have shutdown

smelters permanently. Alcoa announced closure of its Troutdale, Oregon facility because it

required extensive capital improvements to keep it operating, even under normal business

conditions.24 Vanalco, which declared bankruptcy because of the power problems, has

reportedly filed suit against BPA, claiming that BPA’s pricing policy put it out of business.25

Table 2

Load reductions at key U.S. Pacific Northwest primary aluminum smelters

Company Smelter location Capacity Load reduction

Alcoa ................... Troutdale, OR 120,000 Permanently closed

Alcoa ................... Wenatchee, WA 220,000 Closed for 2 years

Columbia Falls Aluminum ... Columbia Falls, MT 185,000 Closed for 2 years

Golden Northwest ......... Goldendale, WA 160,000 Closed for 1 year

Golden Northwest ......... The Dalles, OR 90,000 Closed for 2 years

Intalco .................. Ferndale, WA 270,000 Closed for 2 years

Kaiser .................. Tacoma, WA 73,000 Closed until aluminum prices rise

Kaiser .................. Mead, WA 200,000 Closed until aluminum prices rise

McCook Metals Group ...... Longview, WA 204,000 Closed until April 2002

Vanalco ................. Vancouver, WA 110,000 Permanently closed

Source: The Spokesman-Review, Economist Intelligence Unit.
DECEMBER 2001

U.S. Primary Aluminum Industry Trade and Technology Review

26 Aluminum company representative, interview by USITC staff, Nov. 30, 2001.

27 “Aluminum demand trends,” Economist Intelligence Unit, Oct. 22, 2001, EIU

Viewswire, retrieved Nov. 7, 2001.

16

The Pacific Northwest smelters are high-cost producers, as compared with other world

producers because they do not have direct access to inexpensive power sources. The ability

of Pacific Northwest aluminum smelters to obtain power at reasonable costs in the future, as

well as the level of aluminum prices, will determine whether these smelters are economically

viable. However, future power costs in the Pacific Northwest are uncertain. Without the

aluminum smelters taking power from BPA, electrical energy costs have been set at $34

dollars per MWh. However, according to industry sources, when BPA considered its power

rates with the smelters taking power from BPA, prices were anticipated to be 150 percent

higher than previous levels (about $55 per MWh). Beyond 2006, the aluminum companies

have not negotiated new contracts with BPA that limits their access to less-expensive

hydropower. Industry officials indicate that without access to BPA power, the aluminum

smelters will be pushed to using higher-priced power, and the smelters “cannot operate” under

those conditions.26

Because Pacific Northwest smelters comprise a large portion of domestic smelting capacity,

these market conditions could have a significant effect on U.S. import dependence for primary

aluminum. In the United States, aluminum consumption in the third quarter dropped by 22

percent since the last full quarter of production. In 2001, to date, consumption has fallen by

5 percent; analysts predict an 8-percent decline for the year.27 As a result of U.S. production

declines outstripping declines in U.S. demand, import penetration levels in the United States

have increased (table 3).

Table 3

Quarterly U.S. aluminum production, imports, exports, consumption, and import penetration

Item

1999 2000 2001

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

—————————————1,000 metric tons—————————————

Production1............... 1,842 1,834 1,874 1,858 1,754 1,636 1,469 1,442 1,427

Imports1................. 661 612 723 746 686 542 651 616 689

Exports1................. 98 129 115 110 108 101 86 84 77

Consumption ............. 2,405 2,318 2,482 2,494 2,333 2,077 2,034 1,972 2,039

———————————————Percent———————————————

Import penetration .......... 27.5 26.4 29.1 29.9 29.4 26.1 32.0 31.2 33.8

 

1

 Includes primary and secondary aluminum.

Source: Official statistics of the U.S. Geological Survey and the U.S. Department of Commerce.
DECEMBER 2001

Industry Trade and Technology Review U.S. Primary Aluminum

28 Aluminum company representative, interview by USITC staff, Nov. 30, 2001.

29 “Aluminum Prices Will Struggle Until Mid-2002,” Economist Intelligence Unit,

Sept. 21, 2001. 

30 Dedicated natural-gas means a smelter with a guaranteed source of natural gas which

will be used to run power plants which provide energy to the aluminum smelters or other

customers. In many cases, this gas is a byproduct of petroleum production and would otherwise

be flared.

31 “Aluminum Price to be Marginal in 2001 Despite Cuts,” Platts Metals Week, June

11, 2001, p. 8.

32 Bahrain, a country from which the United States did not import any unwrought

aluminum in 1997, became the ninth-largest supplier in 2000, with 22,049 mt imported. These

shifts indicate an increased import reliance in the primary aluminum industry. Richard Moore,

“Expansion to make smelter world’s biggest producer,” Gulf Daily News, May 11, 2001.

33 Aluminum News, “Russian Aluminum Shifts Sights to U.S. Market,” AMM, July 18,

2001, found at Internet address www.amm.com/subscrib/2001/jul/inside3/0718ala1.htm,

retrieved July 18, 2001.

17

Without production from the Pacific Northwest smelters, the increasing import dependence

for primary aluminum may continue as the country recovers from the economic slowdown.28

Despite the lower consumption in the United States in 2001, imports this year are at their

highest level in over a year. As consumption returns to previous levels (above 2.4 million mt),

import penetration could rise to more than 50 percent assuming no change in U.S. production.

This occurrence becomes more likely because foreign production is growing. According to the

International Aluminum Institute, although production in North America fell by 14 percent

in the first 3 quarters of 2001, this shift was accompanied by a 22-percent increase in

production by Africa. Despite the downturn in U.S. consumption, worldwide production of

aluminum was down only 3 percent in the first 3 quarters 2001 (15.3 million mt, as compared

with 15.8 million mt over the same period in 2000). 

U.S. power problems discourage companies from investing in the United States, while

providing producers an incentive to invest in areas (such as Canada, Latin America, and

Africa) where energy costs are not as high.29 Aluminum smelters tend to follow less expensive

sources of electricity, either from hydroelectric energy sources or dedicated natural-gas.30

Canada and Latin America are rich in hydroelectric sources, and countries such as Bahrain,

in the Middle East, have ready access to natural gas. Hence, these countries and regions have

a substantial competitive advantage as compared with U.S. producers, particularly those in

Pacific Northwest, and are increasing production. For example, Alcan’s new Canadian

smelter, Alma, is expected to produce 270,000 mt in 2001 that is specifically developed to

target U.S. markets.31 Alba, in Bahrain, which currently accounts for 3 percent of world

production, is planning an expansion that will add about 250,000 mt of capacity and make it

the world’s single largest smelter with a capacity of 750,000 mt.32 In Russia, access to energy

from Siberian hydroelectric stations, low capital costs, and low salaries suggest that Russia

will likely sustain production, even during periods of low prices. Imports of Russian primary

aluminum were at record highs during 1999-2000, and Russia has indicated that it “plans to

take advantage of aluminum smelting capacity shutdowns in the United States to gain a

foothold in the U.S. market.”33
DECEMBER 2001

U.S. Primary Aluminum Industry Trade and Technology Review

34 “Aluminum prices will struggle until mid-2002,” Economist Intelligence Unit, Sept.

21, 2001. 

35 Aluminum News, “Malaysian Aluminum Smelter Awaiting OK,” AMM, Sept. 4,

2001, found at Internet address www.amm.com/subscrib/2001/sep/0904al01.htm, retrieved Sept.

19, 2001.

36 Official statistics of the U.S. International Trade Commission.

18

In the longer-term, an extensive number of projects are reported to be in operation during

2003-05. BHP Billiton (Mozambique) is adding 250,000 mt per year of capacity in 2003.34

Also in the planning stages are facilities in Vietnam (73,000 mt capacity), Venezuela, China,

Malaysia (500,000 mt),35 India, and Chile. These anticipated increases in global production

by countries having ready access to low cost electricity could prevent aluminum prices from

rebounding to levels that would enable economically feasible restarts of idled capacity in the

Pacific Northwest. The likelihood of any aluminum price increase would be further reduced

if consumption does not recover as anticipated, and the market is affected by additional

production.

Another concern for the U.S. aluminum industry is the increase in primary aluminum

production in China. China has traditionally produced aluminum only for domestic

consumption and has been a net importer of aluminum. However, since China has expanded

capacity, it has imported less. For example, U.S. exports of unwrought aluminum to China

dropped by 54 percent (to 135 mt) since the power crisis in June 2000 as China replaced

imports with domestic production.36

A final concern expressed by the primary aluminum industry in the Pacific Northwest is the

potential economic effects of the continued shutdown in the region. The Northwest aluminum

plants are located in rural, economically challenged areas, and they are a significant part of

the local economy (box 3).

Box 3

Implications for the Local Economy

The Northwest smelters provide economic stimulus to the area, oftentimes as one of the key employers. 

For example, 2 plants in Spokane employ 2,180 workers and provide $151 million in income. An

additional 7,280 Spokane jobs depend on the plants. If aluminum plants in Goldendale, Washington

close, the unemployment rate in Goldendale and the surrounding county could soar to 30 percent.1

Moreover, a typical aluminum-industry job pays $58,710 per year in salaries and benefits. Salaries are

regularly augmented by overtime, but during the shutdowns, workers are losing money because they are

only paid their base wages.2 Further, since smelters will not likely restart for 2 or more years, some

workers have been laid off and are not receiving supplementary pay from the smelters. For example,

Kaiser is currently paying 70 percent of the salaries of 950 employees affected by smelter shutdowns.3

 

1

John Carlisle, “Energy Crisis Spreads: Aluminum Industry Faces Shutdown, Layoffs Due to Electricity

Shortage,” National Policy Analysis, The National Center for Public Policy Research, found at Internet address

www.nationalcenter.org/NPA338.html, May 2001,retrieved July 6, 2001.

 

2 Nicholas Geranios, “Northwest Aluminum Industry Slumbering, But Will It Return,” Associated Press,

June 15, 2001.

 

3 Kelly Barron, “Helter Smelter,” Forbes, Apr. 2, 2001, pp. 53-54.
DECEMBER 2001

Industry Trade and Technology Review U.S. Primary Aluminum

37 In 1999, there were 83 secondary smelters in the United States, primarily in

California, Tennessee, and the Great Lakes region. Secondary smelting requires 95 percent less

electricity than primary smelting to produce the same amount of metal. “Aluminum Statistical

review for 2000,” The Aluminum Association, 2001, p. 11. 

38 In the last full quarter of operations since idling of capacity (first quarter 2001)

production of secondary smelting accounted for 49 percent of total aluminum production. If

Pacific Northwest primary production remains closed, secondary smelting output will likely

remain higher than primary output, particularly as more secondary smelters begin operations.

39 “Hydro Aluminum Plans New Recycling Plant In Texas,” Industry News, The

Aluminum Association, Sept. 25, 2001, found at

http://www.aluminum.org/dailya.cfm?docid=658, retrieved Nov. 19, 2001; and “Norsk Hydro to

Build Second State of the Art Aluminum Recycling Plant in the United States,” PR Newswire,

Sept. 25, 2001.

40 Gillian O’Conner, “Promises of More Product for Less Cost,” Aluminum Survey,

Financial Times, Oct. 31, 2001.

41 For more information on these technologies, see the Office of Industrial Technologies

Internet site at http://www.oit.doe.gov/aluminum/portfolio.shtml.

19

The increase in U.S. secondary aluminum production may help to counter primary production

decreases.

37 Since January 2001, the height of the power crisis, secondary production has

increased by 13 percent overall, peaking at 274,000 mt in August 2001.38 This trend is

expected to continue as more secondary aluminum smelters come online. For example, Hydro

Aluminum Metal Products, the largest global supplier of billet, is planning an aluminum

remelt plant in Commerce, Texas that will have a capacity of 90,000 mt of primary-quality

aluminum from scrap. The plant is expected to serve the Southwestern aluminum market.

Hydro's first U.S. remelt plant opened in May of this year in Henderson, Kentucky.39

Although this increased U.S. secondary production could help lessen overall U.S. dependence

on imports, it is unlikely to benefit the Pacific Northwest producers because the additional

supply could prevent prices from rising sufficiently to enable economically viable production

in the Pacific Northwest.

Outlook

One option to address the power crisis is to reduce electric-power costs of the aluminum

smelting process. Research on new anode technology is expected to reduce average smelter

costs by at least one-fifth, and could be introduced into existing smelters within 5 to 10 years.

According to industry analysts, the most promising type of new technology, termed “inert

anode,” would replace carbon anodes in smelters with anodes that are not consumed during

the smelting process.40 Most of the major aluminum smelting firms in the United States are

involved in researching these new technologies through the “Industry of the Future” program

administered by the U.S. Department of Energy, Office of Industrial Technologies, which has

funded a number of studies on new anode technologies.41
DECEMBER 2001

U.S. Primary Aluminum Industry Trade and Technology Review

42 These projects are tentative and detailed information, including expenditures, is not

available for each facility. “Northwest Aluminum Smelters Create New Power Ventures to Fight

Energy Crunch,” Business Wire, June 28, 2001.

43 For further information see Vincent DeSapio, “Commericialization of Hybrid

Automobile: Prospective Demand for Light Metals,” U.S. International Trade Commission,

International Trade and Technology Review, Mar. 2001, pp. 32 and 33. 

44 “Industry Facts: Metal Markets - Transportation,” The Aluminum Association, found

at Internet address http://www.aluminum.org/default3.cfm/17/71/2?CFID=7993967&

CFTOKEN=63193861, retrieved Oct. 4, 2001.

20

Another option is the construction of power plants at the smelter site to take primary

aluminum smelters off the public grid. BPA is promoting this option in its efforts to remove

aluminum smelters from dependency on BPA-sourced power. Several aluminum companies

are studying the economic viability of building power plants to supply their smelters:42

• Kaiser is examining the feasibility of two 100 MW power plants at its Mead and

Tacoma, Washington smelters. 

• McCook is studying a $150 million 280 MW plant at its Longview, Washington

smelter.

• Golden Northwest Aluminum is planning natural gas fired power plants at both of its

smelters on the Columbia River totaling 720 MW. 

• Golden is also planning a 600 MW wind farm project in Klickitat County,

Washington.

 

This strategy could enable aluminum companies to potentially generate more revenue by

selling excess energy to the grid, if necessary.

U.S. aluminum companies can also continue to support research and to develop more

aluminum consumption. Currently, the best prospect for new uses for aluminum are in

automobile production.43 Ford, Audi, General Motors and DaimlerChrysler are developing

aluminum- intensive vehicles. Due to its light weight, aluminum provides a lifetime fuel

savings of 500-700 gallons of gasoline per vehicle. Ford’s test vehicles provide 46-percent

weight savings in the structure, with no loss in crash protection.44 Uses for aluminum are not

limited to frames. Engine blocks, formally of cast-iron have been switched to aluminum, a

move that can save 100 pounds or more for larger V8 designs.

The Pacific Northwest primary aluminum industry may undergo long-term restructuring

because of uncertain power costs and growing foreign and domestic competition. Restarting

idled capacity is problematic when aluminum prices are low, and the future price may not

increase to levels that would restore the economic viability of these producers. Without a

change in current market conditions and guaranteed sources of power, nearly one-half of U.S.

primary smelting capacity could be in jeopardy. Further, there could likely be a substantial

increase in U.S. import reliance for this key manufacturing metal and implications for the

local economies where smelters have provided significant employment. However, if the

Pacific Northwest producers develop power alternatives and aluminum consumption in

important sectors increases, smelter restarts could occur in the future.#
DECEMBER 2001

Industry Trade and Technology Review Key Performance Indicators

 

1 The data and views presented for the following indicators are those of the industry sources noted and of the

authors. They are not the views of the United States International Trade Commission as a whole or of any

individual Commissioner. Nothing contained in this information based on published sources should be construed to

indicate how the Commission would find in an investigation conducted under any statutory authority.

A-1

APPENDIX A

Key Performance Indicators of Selected

Industries and Regions1

Title Author1 Page

Steel Harry Lenchitz

(202) 205-2737

lenchitz@usitc.gov

A-2

A-3

Automobiles Laura A. Polly

(202) 205-3408

polly@usitc.gov

A-4

Unwrought Aluminum Judith-Anne Webster

(202) 205-3489

webster@usitc.gov

A-5

Flat Glass James Lukes

(202) 205-3426

lukes@usitc.gov

A-6

Services Tsedale Assefa

(202) 205-2374

asefa@usitc.gov

A-7

North American Trade Ruben Mata

(202) 205-3403

mata@usitc.gov

A-8

A-9
DECEMBER 2001

Key Performance Indicators Industry Trade and Technology Review

A-2

STEEL

• Based on quarterly financial statements, overall profitability of U.S. integrated and specialty steel producers

declined in the third quarter of 2001. As prices declined, in some cases approaching the marginal costs of

production, operating income declined sharply. Minimills recorded increased profitability compared to their first

quarter 2001 slump, but profitability remained below the levels of preceding years due to depressed prices.

 

• USX-U.S. Steel Corporation and Bethlehem Steel Corporation (the largest and third largest domestic steel

producers) announced on December 4, 2001 that they were considering a merger of the two firms. Five days

later, USX-U.S. Steel confirmed that it was considering the purchase of National Steel Corporation (the sixth

largest domestic steel producer). The majority owner of National Steel is NKK Corporation of Japan, which

immediately announced its support of the proposed acquisition. Also, according to the Wall Street Journal

(December 14, 2001) USX-U.S. Steel is considering the acquisition of Wheeling-Pittsburgh Steel Corporation.

 

• LTV Corporation won bankruptcy court approval on December 7, 2001, for an Asset Protection Plan which

includes the immediate shutdown and hot-idling of LTV's integrated steel facilities while continuing normal

operations of LTV Copperweld. The Asset Protection Plan was supported by LTV’s management, lenders,

creditors and the United Steel Workers, which represents LTV’s unionized employees.

 

• Third quarter 2001 imports of finished products decreased slightly from second quarter 2001, but were down

more than 25 percent compared with third quarter 2000 (table A-1). Semifinished imports increased

significantly from second quarter 2001, but were still down by almost 17 percent compared to third quarter

2000. 

 

Table A-1

Imports decrease significantly in third quarter 2001 compared with third quarter 2000 

Item Q3 2001

Percentage

change, Q3

2001 from 

Q3 20001 YTD 2001

Percentage

change, YTD

2001 from 

YTD 20001

Producers’ shipments (1,000 short tons) ........... 24,818 -6.3 75,893 -9.4

Finished imports (1,000 short tons) ............... 5,903 -25.4 17,484 -25.2

Ingots, blooms, billets, and slabs (1,000 short tons) ... 1,873 -17.2 4,613 -34.9

Exports (1,000 short tons) ...................... 1,494 -7.5 4,619 -6.1

Apparent supply, finished (1,000 short tons) ....... 29,227 -16.6 88,827 -18.8

Ratio of finished imports to apparent supply (percent) . 20.2 2

-3.9 19.7 2-3.2

1

 Based on unrounded numbers.

2

 Percentage point change.

Note.–Because of rounding, figures may not add to the totals shown.

Source: American Iron and Steel Institute.
DECEMBER 2001

Industry Trade and Technology Review Key Performance Indicators

A-3

STEEL

Table A-2

Third quarter 2001 steel service center shipments decrease by almost 13 percent from third

quarter 2000

Item Jun. 2001Sept. 2001

Percentage

change, Sept.

2001 from

 Jun. 20001 Q3 2000 Q3 2001

Percentage

change, Q3

2001 from

 Q3 20001

Shipments (1,000 short tons) ........ 2,175 1,923 -11.5 7,167 6,246 -12.9

Ending inventories (1,000 short tons) . . 8,163 7,677 -6.0 8,954 7,677 -14.3

Inventories on hand (months) ........ 3.8 3.6 (

2

) 3.7 3.6 (

2

)

 

1

 Based on unrounded numbers.

 

2

 Not applicable.

Source: Steel Service Center Institute.

• Steel service center shipments declined to 6.2 million tons of finished steel products during third quarter 2001,

decreasing almost 6 percent from second quarter 2001(6.6 million tons), and almost 13 percent from third

quarter 2000. Service center inventories followed a similar pattern- almost 6 percent lower at the end of the

third quarter (Sep. 2001) compared with the end of the second quarter (Jun. 2001), and more than 14 percent

lower compared to the end of Sep. 2000.

 

• The majority of member companies responding to the most recent survey (December 5, 2001) by the Steel

Service Center Institute (http://www.ssci.org) predicted either no change or a decrease in general economic

activity, and in their own business prospects, during the next three months.

 

• The December, 2001 survey by the Steel Buyers Forum of the National Association of Purchasing Management

(http://www.napmsbf.org) projected either no change or a decrease in dependence on foreign sources of steel. 

In addition, the majority of respondents (78 percent) reported that foreign mill prices are not significantly

different from domestic price levels.

 

• Respondents to the Steel Import Market Survey (December, 2001) by the American Institute for International

Steel (http://www.aiis.org) predict steady or decreasing imports of all categories of steel, with the exception of

semifinished, during the next two months. Survey respondents unanimously predict an increase in

semifinished steel imports.

 

• Representatives of forty steel producing countries met in Paris on December 17, 2001 under the auspices of

the Organization for Economic Cooperation and Development to discuss possible reductions in global steel

capacity (estimated at 840 million tons per year), which exceeds present global consumption by five percent. 

(http://www.oecd.org/oecd/pages/home/displaygeneral/0,3380,EN-document-0-nodirectorate-no-12-23585-0,FF.html)
DECEMBER 2001

Key Performance Indicators Industry Trade and Technology Review

A-4

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

0

500

1000

1500

2000

2500

Total sales-consumption Domestic sales

Import sales

Note.–Domestic automobile sales include U.S.-, Canadian-, and Mexican-built automobiles sold in the United

States; these same units are not included in import sales.

Source: Automotive News; prepared by the Office of Industries.

2,089,285

1,537,642

551,643

 1997 1998 1999 2000 2001

Figure A-3

U.S. sales of new passenger automobiles fell in 3rd quarter 2001; 3rd quarter sales of

domestic autos registered a larger percentage decrease over 2nd quarter as compared with

sales of imports, by 5 percentage-points

AUTOMOBILES

Table A-3

U.S. sales of new automobiles, domestic and imported, and share of U.S. market accounted for

by sales of total imports and Japanese imports, by specified periods, January 2000-September

2001

 Percentage change 

Item

Jul.-Sept.

2001

Jan-Sept.

2001

Jul.-Sept. 2001

from 

Apr.-Jun. 2001

Jan.-Sept. 2001

from 

Jan.-Sept. 2000

U.S. sales of domestic autos

(1,000 units)

1

......................... 1,538 4,982 -14.5 -9.1

U.S. sales of imported autos

(1,000 units)2........................... 552 1,619 -3.4 1.6

Total U.S. sales (1,000 units)

1, 2

............... 2,089 6,602 -11.9 -6.7

Ratio of U.S. sales of imported autos to 

total U.S. sales (percent)

1, 2

................ 26.4 24.5 9.6 8.9

U.S. sales of Japanese imports as a 

share of the total U.S. market (percent)

1, 2

...... 11.0 10.4 15.2 1.2

1

 Domestic automobile sales include U.S.-, Canadian-, and Mexican-built automobiles sold in the United States.

2

 Imports do not include automobiles imported from Canada and Mexico.

Source: Compiled from data obtained from Automotive News.
DECEMBER 2001

Industry Trade and Technology Review Key Performance Indicators

A-5

UNWROUGHT ALUMINUM1

 

• U.S. imports from Russia have fallen off last year’s record-breaking levels, but U.S. import penetration continued to grow

as shipments from Canada, Australia, and Venezuela increased during the first three quarters of 2001 as compared with

the same period in 2000. 

 

 

 

• Increased power costs in the Pacific Northwest have resulted in idled smelters and production cuts in that region (See

related article in this issue). The aluminum industry in Brazil is faced with severe droughts that have led the Brazilian

government to order cuts of electricity usage by 25 percent in the most stricken areas. These cuts have caused Alcoa's

Pocos de Calda smelter in Minas Gerais to reduce production by 50 percent, from 90,000 metric tons per year to 45,000

metric tons per year, and production at the Alumar smelter in Sao Luis to reduce production by 92,500 metric tons, a

decline of 25 percent. The power cuts are expected to be maintained until March 2002.

 

Table A-4

Inventories in LME warehouses reached their highest levels in 18 months despite production

cuts in the United States and Brazil

 Percentage change

Item Q3 2000 Q2 2000 Q3 2001

Q3 2001

from 

 Q3 2000

Q3 2001

from 

Q2 2000

Primary production (1,000 metric tons) .......... 883 669 632 -28.4 -5.5

Secondary recovery (1,000 metric tons) .......... 871r 770 795 -8.7 2.8

Imports (1,000 metric tons) ................... 685 616 689 0.6 11.9

Import penetration (percent)

1

.................. 29.4 31 33.8 215.0 28.3

Exports (1,000 metric tons) ................... 108 84 78 -27.8 -7.1

Average nominal price (¢/lb) .................. 75.9 71.2 65.4 -12.6 -6.8

LME inventory level (1,000 metric tons) .......... 361 629 722 100.0 14.8

1

 Calculations based on unrounded data

2

 Percentage point change

Note: Revised data indicated by “r.”

Sources: Compiled from data obtained from U.S. Geological Survey and World Bureau of Metal Statistics.

1

 Product coverage is changed from previous issues, and now includes only unwrought aluminum and certain

aluminum alloys for improved data comparability. 
DECEMBER 2001

Key Performance Indicators Industry Trade and Technology Review

A-6

FLAT GLASS

Background

• The U.S.-Japanese agreement on Japanese market access for imports of flat glass sought to

increase access and sales of foreign flat glass in Japan through such means as increased adoption

of nondiscriminatory standards and expanded promotion of safety and insulating glass. The

agreement covered the 1995-99 period and expired on December 31, 1999.1

• Japanese demand for imported glass improved in 2000. The average monthly quantity of Japanese

imports from all countries increased by 57 percent during 2000 to 2.9 million square meters, while

the average monthly value of such imports increased by 89 percent to $25.7 million. Imports from

the United States increased by 30 percent to 561,000 square meters and by 93 percent to $13.7

million, respectively, but the U.S. share of the market declined.

 

Current

 

• The Japanese economy remains sluggish in 2001, and consumption of imported flat glass continued

its downward trend. The average monthly quantity of Japanese imports from all countries

decreased by 7 percent during the first ten months of 2001 to 2.7 million square meters, whereas

the average monthly value of such imports decreased by 16 percent to $21.4 million. However,

imports from the United States decreased by 22 percent to 441,000 square meters and by 18

percent to $11.3 million, respectively, and the U.S. share of the market has declined in terms of

quantity; imports from the United States lost market share to less expensive imports from Thailand

and Korea during this period.

 

 

1

 Office of the U.S. Trade Representative (USTR), The President’s 1999 Annual Report on the Trade Agreements

Program, p. 227, downloaded from http://www.ustr.gov/reports/tpa/2000/index.html on Mar. 3, 2000.
DECEMBER 2001

Industry Trade and Technology Review Key Performance Indicators

A-7

SERVICES
DECEMBER 2001

Key Performance Indicators Industry Trade and Technology Review

A-8

NORTH AMERICAN TRADE

U.S. trade with its North American partners is highlighted in table A-5. The following is a summary of key

developments during the third quarter of 2001.

 

• During January-September 2001, total U.S. trade with its NAFTA partners ($444 billion) decreased by

3.7 percent ($17.3 billion) from the comparable period of 2000. The U.S. merchandise trade deficits with

Canada ($-56.4 billion) and Mexico ($-30.2 billion) continued an increasing trend which began in 1998,

rising by 6 percent and 17 percent, respectively. A continuing downturn in the U.S. economy, as

evidenced by a 0.4 percent decrease in GDP in the third quarter of 2001, should result in a drop in the

U.S. trade deficit with both Canada and Mexico as the volume of total trade continues to contract.

 

• Two-way trade with Canada sustained a declining trend, and fell by 3.5 percent ($10 billion) to $278

billion during the first nine months of 2001. A decrease in Canada’s GDP of 0.2 percent between July

and September 2001--the first back-to-back quarterly contraction since 1992--led U.S. exports to decline

by 6 percent ($6.8 billion) to $111 billion during the third quarter of 2001. U.S. imports from Canada

likewise declined by 2 percent ($3.2 billion) to $167 billion from the corresponding period.

 

• The fall in U.S. exports was led by transportation equipment and parts, electronics, miscellaneous

plastic products, and forestry products. 

 

• The contraction in U.S. imports from Canada was led by telecommunications equipment and

automotive products, and represents the fourth consecutive quarter that imports from Canada

decreased, making it the longest string of quarterly declines in more than two decades. 

 

• Canada’s economy is highly dependent on the United States, which purchased 65 percent of Canadian

manufacturing output in 2000 and 87 percent of Canadian exports. Moreover, the United States annually

sells 23 percent of its total exports and purchases 19 percent of its total imports from Canada.

 

• Mexico’s third quarter GDP dropped by 1.6 percent compared with July-September 2000, the steepest

contraction in the economy since the fourth quarter of 1995, when the country faced its deepest recession

in decades. The economic contraction stems principally from lower U.S. demand for Mexican crude oil

and manufactured products as a result of a sharp downturn in the U.S. economy--88percent of Mexico’s

exports were shipped to the United States in 2000. 

 

• U.S. exports to Mexico totaled $68.3 billion during January to September 2001, a decrease of 8

percent ($5.8 billion) from the corresponding period in 2000. Exports were led by electrical

machinery and electronic equipment, principally computers and telecommunications equipment;

motor-vehicles and parts; and plastic products and resins.

 

• Capital and intermediate goods accounted for 81 percent of Mexico’s imports from the United States

during January to September 2001. The bulk of these imports are destined for Mexico’s two

temporary import programs: the Maquiladora Progam and PITEX. Production and employment under

these programs fell by an estimated 10 percent during the third quarter of 2001 compared with the

third quarter of 2000. Maquiladora employment fell to 1.1 million in September 2001, a decrease of

14 percent (181,917) from September 2000. 

 

• During January-September 2001, U.S. imports from Mexico decreased by 2 percent ($1.5 billion) over

the corresponding 2000 period. Electrical machinery, finished vehicles, auto parts, crude petroleum, and

apparel were the leading imports from Mexico. Falling petroleum prices accounted for much of the

decline in U.S. imports in 2001. The average per-barrel price for Mexico’s crude mix fell by 35 percent

to $10.52 in October 2001 compared with $16.15 in October 2000.
DECEMBER 2001

Industry Trade and Technology Review Key Performance Indicators

A-9

NORTH AMERICAN TRADE

Table A-5

North American trade, 1996-2000, January-September 2000, and January-September 2001

 Percent

January-September change

Item 1996 1997 1998 1999 2000 2000 2001 2000/01

---------------------------Value (million dollars)------------------------------

U.S.-Mexico trade:

Total imports from Mexico .... 74,179 85,005 93,017 109,018 134,734 100,045 98,542 -2

U.S. imports under NAFTA

Total value ............. 55,076 62,837 68,326 71,317 83,995 62,840 61,141 -3

Percent of total imports .... 74 74 73 65 62 63 62 -

Total exports to Mexico .... 54,686 68,393 75,369 81,381 100,442 74,116 68,314 -8

U.S. merchandise trade balance

with Mexico1............ -19,493 -16,612 -17,648 -27,637 -34,292 -25,929 -30,228 -17

U.S. -Canada trade:

Total imports from Canada .... 156,299 167,881 174,685 198,242 229,060 170,137 166,982 -2

U.S. imports under NAFTA

Total value ............. 84,245 88,949 111,675 115,715 123,052 92,735 86,030 -7

Percent of total imports .... 54 53 64 58 54 55 52 -

Total exports to Canada ...... 119,123 134,794 137,768 145,731 155,601 117,397 110,595 -6

U.S. merchandise trade balance 

with Canada2............ -37,176 -33,087 -36,918 -52,511 -73,459 -52,740 -56,387 -7

1

 The hyphen (-) symbol indicates a loss or trade deficit, or not applicable. The $34.2 billion deficit in U.S.

merchandise trade with Mexico in 2000 was partially offset by a $2.9 billion U.S. surplus in bilateral services

trade.

2

 The $56.4 billion deficit in U.S. merchandise trade with Canada in 2000 was partially offset by a $5.3 billion

U.S. surplus in bilateral services trade.

Source: Compiled by U.S. International Trade Commission staff from official statistics of the U.S. Department of

Commerce. Statistics in footnote 2 on U.S. services trade with Mexico are based on preliminary data provided

in U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, July 2000, Vol. 

80, No.7.