By Perc Pineda, Ph.D.
The U.S. plastics industry generated an $8.6 billion trade surplus in 2020. U.S. trade in plastics—resin, products, machinery, and molds for plastics—with our 20 free trade agreement (FTA) partner nations totaled $15.6 billion last year. This is encouraging, but there’s also still plenty of opportunity for billions of dollars in growth.
Mexico and Canada have been the largest partners of the U.S. in plastics trade since the creation of the North American Free Trade Agreement in 1994, which preceded the 2020 U.S. Mexico Canada (USMCA) free trade pact. Both countries are the top export markets of U.S. plastics and the main sources of U.S. plastics imports. Undoubtedly, all three countries benefit from these free trade agreements, which have increased plastic trade volume within North America.
The U.S. had an $8.6 billion trade surplus with Mexico and a $9.2 million surplus with Canada last year. Unlike Mexico where the U.S. consistently maintains a trade surplus in plastics, the U.S. trade balance with Canada has fluctuated over the years. Since 1990, the U.S. has had nine years of trade surplus with Canada. However, the U.S. trade deficit with Canada on plastics machinery and molds has been persistent. Based on trade data from 1990 from the U.S. Census Bureau, the U.S. had a trade deficit with Canada in plastics machinery since 1991 and molds for plastics since 1990.
Other Free Trade Agreement Partners
Outside of USMCA, the U.S. had a plastics trade surplus with 14 of the remaining 18 FTA countries in 2020. The trade deficit with Bahrain of $7.7 million was in plastic products. The U.S. was a net importer of plastic products and machinery from Israel which resulted in a trade deficit of $375.5 million. The U.S. also had trade deficits with Oman ($229.5 million) and South Korea ($1.4 billion). The trade deficit with Oman was in resin and plastic products. In the case of Korea, the U.S. had a surplus in molds, but deficit in resin, products, and machinery.
A closer look at the trade data going back to 1990 reveals persistent U.S. trade deficits with FTA countries on certain plastics categories. For instance, the U.S. has had a trade deficit with South Korea in plastic products since 1990. Last year, the deficit in plastic products was $1.2 billion and has grown at a 10-year compounded annual growth rate (CAGR) of 12.2% between 2011-2020—after the free trade agreement was enacted. Before the trade pact, the trade deficit was significantly lower—$0.3 billion in 2010 that grew 9.1% (CAGR) over the 2001-2010 period. In recent years, U.S. trade surplus with South Korea on resin and machinery turned into a trade deficit. The trade deficit in resin began in 2017. For the seventh consecutive year, the U.S. had a trade deficit in plastics machinery with South Korea in 2020.
The U.S. also suffers a trade deficit with Israel despite its long-standing free trade agreement from 1985. In plastic products alone, the U.S. had a $442.4 million trade deficit with Israel in 2020. Through the 1990-2020 period, the U.S. was a net importer of plastic products from Israel. Moreover, the U.S. has run a trade deficit with Israel on plastics machinery since 2012.
The U.S. was also a net importer of molds from Peru and Singapore from 1990-2020. Last year, the U.S. trade deficits in molds with Peru and Singapore were $8.1 million and $167.0 million, respectively.
A free trade agreement does not guarantee a balanced trade or trade surplus between trade partners. But it provides trade partners the opportunity to leverage the benefits that come with free trade such as zero tariffs. More importantly, a free trade agreement provides trade partners with an advantage over countries that are not parties to the trade agreement.
Perhaps, U.S. plastics companies can explore export opportunities in resin and plastic products in Jordan, a free trade partner. Of the $772.7 million of resin and plastic products Jordan imported from different countries last year, the U.S. share was a meager 2.0%.[i] The same case can be made with Morocco. The U.S. share of Morocco’s $2.1 billion imports of resin and plastic products in 2020 share was a modest 3.9%. There also could be export opportunities in countries where the market size is small, but the U.S. export share could be increased such as in Peru. Of the $69.2 million in plastics machinery imported in Peru in 2020, the U.S. share was only 4.5%.
Trade agreements are tools to access and grow export market share, which U.S. plastics companies should consider as part of their overall growth strategy. Global merchandise trade volume is projected by the World Trade Organization to increase 8.0% this year. The U.S.-Japan trade agreement on market access for certain agricultural and industrial goods went into effect last year. It is a step in the right direction towards an expanded free trade agreement. The U.S. also started trade talks with the U.K. last year. The net effect of free trade agreements with Japan and the U.K. would be a net positive for the U.S. plastics industry.
[i] Trade data used in this paragraph are from the International Trade Center (ITC) – a joint agency of the World Trade Organization and the United Nations.