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ECONOMIC IMPACT OF U.S.-‐CANADA SUPPLY CHAINS
Prepared by
Trade Partnership Worldwide, LLC
For the
Embassy of Canada Washington, DC
May 2016
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ECONOMIC IMPACT OF U.S.-‐CANADA SUPPLY CHAINS
EXECUTIVE SUMMARY U.S. companies and their workers are linked to companies and workers around the world in global supply or value chains. Canada and the United States have been so linked for decades, thanks to geography and complementary production platforms. This study assesses the impact of the network of supply chains between Canada and the United States on the U.S. economy and the extent to which that network increases U.S. competitiveness in the global economy. We focus where possible on businesses in or linked to the infrastructure and related manufacturing sectors. We found:
• Cross-‐border trade between U.S. and Canadian firms totaled an estimated $491.4 billion,* 73.5 percent of which was either U.S. or Canadian value (the balance came from other countries).
• U.S. content supports manufacturing in Canada. U.S. value accounted for $70 billion, or 8.5 percent, of the value of Canadian manufacturing output. Key sectors included motor vehicles and parts; chemicals, rubber, and plastics; and industrial machinery and equipment.
• A 2014 study found that all U.S.-‐Canada trade supported 8.3 million U.S. jobs (this does not include the 500,000 U.S. jobs resulting from direct Canadian investment in the United States). Of this, trade related to the U.S.-‐Canada supply chain supported between 4.7 million and 6.5 million U.S. jobs across the economy. U.S. manufacturing sectors with the largest employment stake in the U.S.-‐Canada supply chain include industrial machinery and equipment; motor vehicles and parts, and paper products and publishing.
• U.S. goods and services exported around the world include inputs from Canada that help to make those goods more competitive in other markets. Canadian inputs represented $44.0 billion, or 2.5 percent, of the value of U.S. exports. U.S. inputs represented $14.6 billion, or 10.1 percent, of the value of Canadian exports to the rest of the world.
• U.S. sectors that sell goods and services related to public infrastructure projects have a stake in this supply chain. We estimate that the U.S. content of goods made in Canada that potentially could be sold to U.S. public infrastructure projects totaled $1.7 billion. Up to 70,000 U.S. jobs are associated with U.S.-‐Canada supply chains in sectors affected by public infrastructure spending rules.
• U.S. public policy initiatives can have a negative impact on U.S. companies and workers if they fail to recognize the integrated nature of U.S.-‐Canada goods and services production. A range of companies interviewed told us that policies such as “Buy America” and “Buy American,” among others, have precluded them from participating in projects that would have supported U.S. output and U.S. jobs.
* All data are for 2014, the latest available at the time of the report, unless otherwise noted.
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It is increasingly understood that U.S. companies and their workers are linked to companies and workers around the world in global supply or value chains. Canada and the United States have been so linked for decades, thanks to geography and complementary production platforms. U.S. and Canadian raw materials, parts, components and services often cross the border many times to create finished goods and services that are sold in Canada, the United States or exported to third countries. The integration of the two economies is so deep that in at least one sector, motor vehicles, the United States does not distinguish between “U.S.” and “Canadian” parts in its requirements for labeling the origin of a car’s content.1 Traditional trade data for exports and imports tell us very little about the degree of this integration. The identity of the “source” of the product traded is recorded in the trade data as (typically) the place in which it underwent its last substantial transformation. That the good (or service) might include raw materials that came from another country would be unnoticed. Businesses engaged in U.S.-‐Canada trade know that there is U.S. content in goods recorded in the official U.S. trade data as Canadian in origin and, as well, Canadian content in goods counted in official Canadian trade data as of U.S. origin. A growing body of research is attempting to disaggregate this “value added” by each of the countries involved in a product’s (or service’s) supply chain. This study assesses the impact of the network of supply chains between Canada and the United States on the U.S. economy and the extent to which that network increases U.S. competitiveness in the global economy. We focus where possible on businesses in or linked to the infrastructure and related manufacturing sectors. All data are for 2014, the latest available at the time of the report, unless otherwise noted. Section 2 of this paper examines the importance of imports from Canada to U.S. production. Section 3 explores the importance of U.S. content to Canadian manufacturing. Section 4 details the contribution of Canadian inputs to the competitiveness of U.S. exports to third countries. We examine in Section 5 the impact of the U.S.-‐Canadian supply chain on U.S. jobs. Section 6 examines the public policy implications of integrated U.S.-‐Canada supply chains.
1. INTRODUCTION
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The United States imports a range of products from Canada. U.S. imports from Canada totaled $363 billion (see Table A.1 in the Appendix for details). These generally are not products bought by everyday American shoppers: 78 percent of U.S. imports from Canada are raw materials, parts and components, and services used to make other goods and services in the United States. As a result, trade with Canada plays a key role in the U.S. supply chain and in the competitiveness of U.S. farmers, manufacturers and services providers. The table to the right shows select U.S. imports from Canada used almost exclusively by U.S. firms instead of households. For example, nearly all of the $100 billion in oil and natural gas imports from Canada went to firms, not consumers. Nearly 97 percent of non-‐manufactured goods went to firms. For both manufactured goods and services as a whole, the share of imports from Canada used by firms was about 70 percent. Among manufactured goods imports from Canada, ferrous metals (e.g., iron and steel) and nonferrous metals (e.g., aluminum, copper, bronze, etc.) had the highest shares purchases by U.S. firms at more than 99 percent each. Among services imports from Canada, the top sectors in terms of share purchased by U.S. firms were air transport services and business services at more than 95 percent each.
2. IMPORTANCE OF IMPORTS FROM CANADA TO U.S. PRODUCTION
Total Imports Firm Sector Value ($M) Share (%) Non-‐Man. Goods Total 111,161.7 96.8 Oil 85,663.7 100.0 Natural gas 14,500.1 100.0 Manufacturing Total 226,272.3 70.0 Ferrous metals 7,660.2 99.9 Nonferrous metals 17,560.1 99.8 Metal products 4,648.7 87.2 Transportation equip. nec 11,135.9 85.5 Paper products, publishing 10,829.8 84.5 Services Total 25,786.7 70.9 Air transport services 1,730.1 97.8 Business services, nec 6,856.0 95.8 Total – All Sectors 363,220.7 78.3
78 percent of U.S. imports from Canada are raw materials, parts and components, and services used to produce other goods and services in the United States.
Measuring Imports There are several ways imports can be reported. One, the “total value” (e.g., $363 billion reported above) represents the value reported in traditional government data. It reflects imports used by firms and by households. A second way to view imports is the value consumed by firms (i.e., excluding imports purchased by households), referred to in this study as the “firm value” of imports. This value includes content from all sources, in this case from Canada and third countries incorporated into Canadian products that are imported for further processing by U.S. firms. A third measure focuses only on the value added in the product that originated within the country from which it was imported – i.e., domestic resources used to produce for export. This is referred to in this study as “value-‐added imports.”
Imports from Canada with Highest Share Used by U.S. Firms
Source: Table A.1 in the Appendix
Trade with Canada plays a key role in the U.S. supply chain and in the competitiveness of U.S. farmers, manufacturers and services providers.
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U.S.-‐CANADA SUPPLY CHAINS FOR OIL, GAS, AND PETROLEUM PRODUCTS Crude oil from Canada’s western provinces plays an increasingly important role in U.S. supply chains. According to the U.S. Energy Information Administration (EIA), Canada is the top source of U.S. purchases of crude oil and refined products. While U.S. crude imports from other major foreign suppliers have decreased over the last decade, imports from Canada have increased by 94 percent.2 Canadian “heavy” crude oil is qualitatively different than most U.S. “light” crude oil and requires extra processing steps to manufacture into refined petroleum products. As a result, Canadian crude oil usually sells at a discount and some U.S. refineries – particularly in the Midwest – have made major investments to upgrade their facilities for processing heavy crude oil to take advantage of the price differences. For example, Phillips 66’s Wood River Refinery in Illinois uses Canadian crude to produce transportation fuel (gas, diesel, jet fuel), petrochemical feedstocks, asphalt, and coke following a 2011 upgrade that doubled its heavy crude oil processing capacity.3 Similarly, a 2013 expansion allows the BP’s Whiting Refinery in Indiana to process Canadian crude. Now, the nearly 1,900 employees there can process over 19 million gallons of refined fuel per day.4 Major investments in equipment and technologies to process heavy crude specifically means that U.S. refineries cannot shift to non-‐Canadian suppliers easily. Short of such a shift, U.S. refineries like Wood River and Whiting will continue to rely on Canadian crude oil stocks. While crude oil is the largest U.S. import from Canada, imports of natural gas and refined petroleum products also are important for American companies. Nearly all U.S. imports of natural gas come from Canada, primarily from the western provinces. U.S. petroleum refineries consume more than half of Canadian natural gas exports, although U.S. manufacturers of chemicals, plastics and rubber products also use Canadian natural gas as a feedstock. The other major customers of Canadian natural gas exports are U.S. utilities involved in electricity and gas production and distribution. The largest U.S. consumers of Canadian petroleum products are chemicals, plastics and rubber products manufacturers. For transportation services providers, such as the railroad, trucking, and airline industries, refined petroleum products are the most important import from Canada. Most Canadian energy exports to the United States are processed and consumed domestically. However, some Canadian energy exports to the United States end up in natural gas and refined petroleum products destined for third-‐country markets where demand is stronger than it currently is in the United States. This includes Mexico, South and Central America, and Western Europe. For the first time in more than 60 years, the U.S. was a net exporter of petroleum products in 2011.5
Major investments in equipment and
technologies to process heavy crude specifically means that U.S. refineries
cannot shift to non-‐Canadian suppliers easily.
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To understand U.S.-‐Canada supply chains, it is not enough to know what types of goods and services U.S. firms purchase from Canada; it is also necessary to estimate what types of U.S. firms purchase those goods and services. The table below shows U.S. sectors with the highest imports from Canada, along with those imports’ share of the sector’s production and the types of Canadian goods and services purchased (see Table A.2 in the Appendix for details for additional sectors).
Key U.S. Sectors with High Values of Canadian Goods and Services Used (Millions of U.S. Dollars, Share of U.S. Output, and Key Canadian Exporting Sectors)
Source: Table A.2 in the Appendix * Includes primarily rail, trucking, and pipeline transportation sectors
In total, U.S. enterprises purchased $284.4 billion in imports from Canada, which represents 0.9 percent of total U.S. output by firms. Top imports from Canada were oil and motor vehicles and parts, which accounted for 30 percent and 12 percent of U.S. firms’ imports, respectively. Of the total goods and services imports from Canada for use by firms, U.S. manufacturers consumed about two-‐thirds, or $189.8 billion. Imports from Canada account for about 2.4 percent of the value of U.S. manufacturing output and the top imports from Canada by manufacturing firms (as a whole) are oil (45 percent) and nonferrous metals (8 percent). While firms in the natural resource and services sectors do use inputs from Canada, they account for a much smaller share of output than they represent for manufacturing sectors. U.S. firms in the non-‐manufactured goods sector imported about $3.6 billion from Canada. Imports from Canada account for about 0.4 percent of output and top imports from Canada for these firms include chemicals, rubber, and plastics products (30 percent) and industrial machinery and equipment (19 percent). U.S. services firms import about $58.3 billion in goods and services from Canada, which represents about 0.3 percent of their output. Top imports include petroleum and coal products (12 percent) and chemicals, rubber, and plastics products (11 percent).
Firm Output U.S. Sector’s Top Purchases from Canada (and That Sector Value ($M) Share (%) Product’s Share of U.S. Sector’s Total Imports from Canada) Non-‐Man. Goods Total 3,573.0 0.4 Chem., rubber, plastics (30%); Industrial mach. & equip. (19%) Ag. and fisheries 1,741.6 0.4 Chem., rubber, plastics (47%); Ag. and fisheries (15%) Oil 922.9 0.4 Natural gas (44%); Ferrous metals (iron/steel) (15%) Manufacturing Total 189,815.7 2.4 Oil (45%); Nonferrous metals (8%) Petroleum, coal products 96,087.3 13.0 Oil (89%) Chem., rubber, plastics 19,702.3 1.7 Chem., rubber, plastics (50%); Petroleum, coal prods. (20%) Motor vehicles and parts 14,753.1 2.3 Motor vehicles and parts (68%); Nonferrous metals (7%) Industrial mach. & equip. 8,884.1 0.8 Industrial mach. & equip. (30%); Nonferrous metals (24%) Processed foods 8,007.4 1.0 Processed foods (45%); Agriculture and fisheries (38%) Nonferrous metals 7,557.1 3.8 Nonferrous metals (85%) Services Total 58,301.1 0.3 Petroleum, coal products (12%); Chem., rubber, plastics (11%) Construction 8,357.0 0.5 Wood products (26%); Industrial mach. and equip. (20%) Recreation, other serv. 6,601.0 0.4 Air transp. services (24%); Processed food products (19%) Other transp. services* 5,228.8 0.7 Petroleum and coal products (70%) Total – All Sectors 284,437.2 0.9 Oil (30%); Motor vehicles and parts (12%)
Imports from Canada account for 2.4 percent of the value of U.S.
manufacturing output.
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Given that the top U.S. import from Canada is oil, it is little surprise that the top U.S. importing sector is petroleum and coal products. About 90 percent of the sector’s imports from Canada are oil, which is then used to make fuel products (see box, page 5). In total, imports from Canada accounted for 13.0 percent of American petroleum product manufacturing output – more than any other industry. Other manufacturing sectors that rely most heavily on inputs from Canada include nonferrous metals (Canadian inputs represent 3.8 percent of the sector’s value of U.S. output), motor vehicles and parts (2.3 percent of output), and other transportation equipment (2.0 percent of output). Among non-‐manufactured goods, U.S. agricultural and fisheries firms imported $1.7 billion from Canada, primarily chemicals, rubber, and plastics products (47 percent). Among services providers, construction firms imported $8.4 billion from Canada, led by wood products imports (26 percent). U.S. "recreation and other services" firms, which includes restaurants, hotels and other tourism-‐related providers, purchase $6.6 billion in Canadian inputs, led by purchases from Canadian air transportation providers and processed foods manufacturers. A range of industries consumes imports of most Canadian products, so the benefits of imports from Canada affect more U.S. sectors than one might first imagine. For example U.S. firms use $17.5 billion in Canadian nonferrous metals. While just 6 percent of total U.S. imports from Canada, nonferrous metals account for a significant share of imports for several industries, as shown below.
Top U.S. Sectors Importing Canadian Nonferrous Metals (Share of Sector’s Imports from Canada)
Source: Authors’ estimates Table A.3 in the Appendix details the Canadian-‐only value included in U.S. imports from Canada for all sectors. The pattern of trade is similar to that for firm imports, although values and shares are slightly lower since inputs from third countries (e.g., Mexico) are excluded.
Imports from Canada accounted for 13.0 percent of
U.S. petroleum product manufacturing output – more
than any other industry.
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Pictured above: The 2015 Ford F-‐150 is the first pickup truck with an all-‐aluminum body.
RIO TINTO IN MONTREAL, QUEBEC—Rio Tinto is a global mining and metals company with about 55,000 employees. Rio Tinto Aluminum’s global headquarters is in Montreal; its fully integrated production facilities include bauxite mines, alumina refineries, and primary aluminum smelters that employ 11,000 workers in Canada. Rio Tinto employs about 3,400 workers in the United States at production and sales facilities for non-‐ferrous metals (e.g., copper, gold) and minerals (e.g., boron).
Swapping lighter aluminum for heavier steel has been a key way that American motor vehicle manufacturers have been able to meet increasingly high Corporate Average Fuel Economy (CAFE) standards, which must hit 55 miles per gallon by 2025. But according to Rio Tinto, the United States does not produce enough primary aluminum to meet domestic demand. As a result, U.S. manufacturers rely heavily on the 2.2 million tons supplied by Canada.
Thus, American buyers of the iconic 2015 Ford F-‐150 purchased a pickup truck with an all-‐aluminum body, including millions of pounds of Rio Tinto primary aluminum from Canada. Rio Tinto provides primary materials for many parts of the F-‐150, including slab to U.S. sheet suppliers, billet to U.S. extruded parts suppliers, and primary foundry ingot to U.S. wheel suppliers. The F-‐150 is not alone among new American, aluminum-‐intensive car models: the 2016 Cadillac CTS6 is hundreds of pounds lighter than competitors like the Audi A8, BMW 7-‐series, and Mercedes S-‐class vehicles.
Rio Tinto Aluminum’s close proximity to the U.S. automotive customer base allows for continuous technical and product development. As U.S. carmakers use greater volumes of aluminum, tons of the metal supplied by Canada will continue to support employment at U.S. motor vehicle manufacturers and lower costs of those vehicles to American consumers.
“Canadian supply of primary aluminum is absolutely strategic to the U.S. auto industry. The short, reliable supply chain meets ‘Just-‐in-‐Time’ delivery requirements. In addition, High-‐quality materials and an exceedingly low CO2 production footprint due to our hydroelectric network make Canadian aluminum crucial for U.S.-‐based OEMs focused on both performance and sustainability.”
-‐ Jim Dickson, Director of Global Automotive Strategy at Rio Tinto
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INTEGRATED SUPPLY CHAINS FOR AUTO PARTS
Pictured above: From metal crossmember to a Jeep, Canadian components are integrated into U.S. automobiles in multiple stages.
MAGNA T.E.A.M. SYSTEMS IN TOLEDO, OHIO—Magna International is a global automotive parts supplier headquartered in Ontario, Canada. Founded in 1957, today Magna employs nearly 140,000 workers at 305 manufacturing and 93 product development, engineering, and sales centers in 29 countries. About half of these workers are in North America, where Magna has 65 facilities in the United States, 60 in Canada, and 29 in Mexico.
Magna Exteriors is a wholly owned business unit of Magna that produces bumper fascia systems, exterior trim, modular systems, and other structural components for automotive, commercial truck, consumer, and industrial markets. Magna Exteriors operates 5 facilities in Canada – all in Ontario – and about 15 in the United States. It also has an extensive supplier network on both sides of the border for specific components.
The diagram above illustrates how one auto part is repeatedly incorporated into more complex products before final assembly. In this example, a hydroformed upper crossmember (picture 1) starts in Strathroy, Ontario. It is imported into Michigan for assembly into a carrier (picture 2) and then incorporated into a full front-‐end module (picture 3) by Magna T.E.A.M. in Ohio. Magna sends empty racks back to Canada to start the process again and front-‐end modules to Chrysler for final assembly. Chrysler then exports the finished Jeeps around the world.
While this specific product is sold to Jeep in Ohio, other products may be exported for final assembly in Canada. This cross-‐border supply chain highlights the high value and share of Canadian content in U.S. automobiles and vice versa.
Product: Metal crossmember Manufacturer: Vari-‐Form, Strathroy, ON, Canada
Product: Carrier Manufacturer: Bayloff Stamped Products, Belleville, MI, USA
Product: Front-‐end module Manufacturer: Magna T.E.A.M Systems, Toledo, OH, USA
Product: Jeep Wrangler Manufacturer: Chrysler Jeep, Toledo, OH, USA
1 2
3 4
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Pictured above: The Pulaski Skyway Bridge in Newark, New Jersey, for which Canam fabricated 2,500 steel girders.
CANAM IN CLAREMONT, NEW HAMPSHIRE—Canam Group specializes in designing integrated solutions and fabricating customized products for the North American construction industry. While headquartered in Quebec, its 4,000 employees are roughly split between the U.S. (2,100 employees) and Canada (1,900 employees). Canam Steel Corporation, its U.S. subsidiary, has a plant in Point of Rocks, Maryland, one in Claremont, New Hampshire, and two in Canada. The company’s 200 workers in Claremont – population 13,355 – make it a major employer in that small town.
Canam’s Claremont workers have a particular specialty in bridges and have taken the lead on some major projects such as the replacement of the Tappan Zee and Goethals Bridges in New York. These projects alone exceeded $90 million in contracts for Canam, yet it is limited in its efforts to win new contracts by Buy America rules.
That is because many components for bridges must be created on a job-‐by-‐job basis to meet the projects’ specifications, and therefore require special machinery. With four facilities manufacturing for the bridges division, it does not make sense to have duplicative machinery in all four facilities given the limited demand for custom-‐made components.
So what happens if the custom components can only be made in the Quebec facility? For projects subject to requirements related to using American iron and steel, Canam may choose not to bid at all, since it would require investing in expensive equipment for U.S. facilities when it already has the equipment in Canada. That remains true even if the majority of a prospective project’s steel would come from the United States and Canam’s New Hampshire employees would do most of the work.
In these cases, U.S. domestic content rules hurt Canam’s employees in New Hampshire and Maryland as well as American suppliers that provide key components to Canam such as ArcellorMittal, St. Louis Fasteners in Missouri, and Birmingham Fasteners in Alabama.
“We believe that both the U.S. and Canadian markets would benefit from reducing trade barriers that exist between our two countries. We should look at solidifying our relationships to become more competitive against sources outside of North America.”
-‐ Mike Burnet, Vice President of Purchasing at Canam Group
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Just as U.S. firms benefit from Canadian content in American production, Canadian output contains a significant amount of U.S. “value added” content. Canadian output contained $160 billion in U.S. content, including $70 billion of U.S. content in Canadian manufactured goods. Total U.S. content accounts for 5.0 percent of total Canadian output – about seven times higher than the share of Canadian content in U.S. output. In the manufacturing sector, the share is even higher at 8.5 percent (see Table A.4 in the Appendix for details for additional sectors). U.S. content accounts for about 3.1 percent of Canadian output in the natural resources sector and 2.3 percent of Canadian output in the services sector. Within manufacturing, the U.S. content is higher for a number of Canadian sectors, including metal products (16.9 percent), motor vehicles and parts (13.4 percent), ferrous metals (10.6 percent), and electronic equipment (10.1 percent). A Canadian services sector for which U.S. value matters most to total output is air transportation (10.6 percent).
Ferrous metals $1.3 billion
Nonferrous metals $568 million
Metal products $460 million
Chemicals, rubber, plastics $333 million
Industrial machinery $262 million
Other $329 million
3. ECONOMIC IMPACT OF U.S.-‐CANADA SUPPLY CHAINS ON CANADIAN MANUFACTURING
U.S. Content Output Sector Value ($M) Share (%) Non-‐Man. Goods Total 7,229.4 3.1 Oil 2,241.3 2.0 Ag. and fisheries 1,808.7 3.4 Manufacturing Total 69,868.0 8.5 Motor vehicles and parts 17,458.9 13.4 Chemicals, rubber, plastics 10,665.2 5.6 Industrial mach. & equip. 6,834.3 8.1 Processed foods 5,999.7 3.3 Petroleum, coal products 3,864.4 9.8 Services Total 50,439.3 2.3 Construction 13,231.7 4.5 Gov’t, health, edu., def. 12,080.2 1.8 Total – All Sectors 160,410.1 5.0
Canadian Sectors Containing the Most U.S. Value Added Content
Source: Table A.4 in the Appendix
Canadian output contained $160 billion in U.S. content, including $70 billion of U.S. content in Canadian manufactured goods.
The type of value added varies greatly by the producing sector, as shown by the graphic below highlighting U.S. value added within Canadian metal products.
Types of U.S. Content in Canadian Metal Products Output (Value of U.S. Content)
Source: Authors’ estimates
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Pictured above: The Sea-‐to-‐Sky Highway in British Columbia, where Marcon used components from D.S. Brown in Ohio.
MARCON METALFAB IN DELTA, BRITISH COLUMBIA—Marcon provides custom–fabricated steel and rubber products for the transportation, building construction, utilities and other industries. Its services range from design to installation, including materials processing, fabrication, and quality management. While Marcon operates exclusively in Canada, it very much supports American jobs through purchases of U.S. exports. It buys most of its steel from U.S. mills (see box below).
It also purchases finished components from multiple American companies. Once such company is Scougal Rubber. Founded in Seattle, Washington in 1916, Scougal Rubber opened a second facility in McCarran, Nevada in 2010 that specializes in supplying the bridge bearing market. Marcon uses bridge bearings from Scougal Rubber for transportation projects throughout Western Canada.
D.S. Brown in North Baltimore, Ohio is another key Marcon supplier. Marcon carries the full line of D.S. Brown products, including neoprene seals, steel extrusions and other assemblies used to fabricate expansion joints, as well as other solutions for building and maintaining transportation infrastructure. For example, Marcon used D.S. Brown compression seals and strip seals in its work on The Sea-‐to-‐Sky Highway Upgrade and hundreds of additional projects throughout Canada.
SELECT AMERICAN STEEL SUPPLIERS TO MARCON METALS Atlas Tube in Plymouth, MI (hollow structural section) Cascade Steel in McMinnville, OR (square/round bar) Evraz in Portland, OR (plate) Gerdau Midlothian in Midlothian, TX (wide flange beam)
Nelson Stud Welding in Walnut, CA (studs) Nucor in Plymouth, UT (angle) Seaport Steel in Seattle, WA (pipe) SSAB in Muscatine, IA (plate)
“We already spend $2-‐3 million annually on U.S. products and steel. If not precluded from working in the U.S. Pacific Northwest by Buy America rules, we easily could double our U.S. purchases. It is a very large market.”
-‐ Ari Burstein, President of Marcon Metalfab
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1
U.S. Exports U.S.-‐Canada supply chains contribute to U.S. competitiveness in third-‐country (non-‐Canadian) markets as well. The integrated nature of U.S.-‐Canada manufacturing today means that U.S. exports to third-‐country markets benefits from the costs savings and increased productivity afforded by just-‐in-‐time delivery, for example. Competitiveness benefits from an ability to respond quickly to changes in demand. Of the nearly $1.8 trillion in U.S. goods and services exported to other countries, an estimated $44.0 billion of that value came from Canada. The vast majority of Canadian content – about $38.2 billion – was in exports of manufactured goods (see Table A.5 in the Appendix for details for additional sectors).
4. ECONOMIC IMPACT OF U.S.-‐CANADA SUPPLY CHAINS ON U.S. EXPORTS TO THIRD COUNTRIES
Canadian Canadian Sector Value ($M) Share (%) Non-‐Man. Goods Total 1,128.6 1.0 Ag. and fisheries 916.8 1.1 Coal 112.3 0.8 Manufacturing Total 38,185.1 3.0 Petroleum, coal products 17,007.5 13.1 Chemicals, rubber, plastics 6,438.8 2.5 Industrial mach. & equip. 3,261.7 1.1 Nonferrous metals 2,407.1 4.1 Motor vehicles and parts 2,297.6 2.8 Services Total 4,676.8 1.2 Air transport 2,074.3 5.9 Other transport, nec 1,431.3 3.7 Total – All Sectors 43,990.5 2.5
U.S. Sectors Containing the Most Canadian Content in Exports to Third Countries
Source: Table A.5 in the Appendix
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Further emphasizing the importance of Canadian oil to U.S. manufacturers, the top two U.S. export sectors in terms of the value of Canadian content are petroleum and coal products and chemicals, rubber, and plastics. U.S. exports from those two sectors contain an estimated $23.4 billion in Canadian value – more than all other export sectors combined. U.S. nonferrous metals (e.g., aluminum) exports contain over 4 percent Canadian content. Nearly 3 percent of the value of U.S. motor vehicle and parts exports is Canadian in origin. Among services sectors, Canadian value contained in U.S. exports is highest for air and other transportation services at 5.9 percent and 3.7 percent, respectively. Once again this reflects a dependence on oil imports. In some cases, the Canadian content included in U.S. exports to third countries is “direct.” U.S. industry buys products directly from Canadian firms in a sector that are further manufactured by enterprises in that sector in the United States and then exported. For example, Canadian oil represents nearly all of the Canadian value in U.S. petroleum and coal products exports. In other cases, Canadian value comes indirectly in the form of Canadian content in one sector (like energy) included in other products (like steel) consumed by the U.S. industry. For example, about one third of the Canadian value in U.S. industrial machinery and equipment exports is “indirect” (e.g., Canadian energy in purchases of steel). Other U.S. export sectors with high shares of “indirect” exports include agriculture and fisheries and other transport services (e.g., rail and road transport services). Thus upstream Canadian sectors are indirectly part of U.S.-‐Canadian supply chains.
Nearly 3 percent of the value of U.S. motor
vehicle and parts exports is Canadian in origin.
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Pictured above: JCM and Robar Industries buy from each other and export each others’ products throughout the world.
JCM INDUSTRIES IN NASH, TEXAS—JCM is a family-‐owned manufacturer of pipe fittings for water and sewer projects. Founded in 1976, the company employs about 140 workers in the small town of 3,000 people near the Texas-‐Arkansas border. JCM manufactures couplings, tapping sleeves, and expansion joints for pipelines and provides emergency repair services throughout the United States.
JCM exports to and imports from Canada. Robar Industries Ltd. in British Columbia and Quebec is an important customer and supplier to JCM because of the complementary nature of their products and companies. Robar Industries also is a small, privately owned, specialized fittings manufacturer.
JCM imports certain steel couplings, services saddles, and tapping sleeves from Robar Industries for further manufacturing in Texas. It then exports large carbon-‐ and stainless steel tapping sleeves back to Robar Industries as well as to customers in the Caribbean, Central and South America, Europe, the Middle East and Asia. Robar Industries exports products with JCM components around the world as well.
The relationship allows JCM to specialize in larger pipes requiring thicker metal, such as a project involving a 296” diameter pipe to move water from the Colorado River to Phoenix. Robar Industries typically supplies products using thinner materials that JCM cannot manufacture as efficiently.
Yet U.S. domestic content rules, such as American Iron and Steel (AIS) provisions, can jeopardize these relationships and the American jobs that depend on them. AIS requires complete traceability for products that end up in projects paid for with either Clean Water or Drinking Water State Revolving Funds (SRFs). In some cases, the compliance costs associated with the AIS paperwork chain can be more costly than materials, thereby offsetting the gains from integrated supply chains.
“I consider Canada an extension of the U.S. market and vice versa. We do cross-‐border business seamlessly, except when governments make business more difficult. The burden of the AIS paperwork chain is both slowing and reducing the number of project starts.”
-‐ Ron Collins, President of JCM Industries
15
Pictured above: Fallingwater, the Frank Lloyd Wright house whose unique terrain required an E/One sewer system.
ENVIRONMENT ONE CORPORATION IN NISKAYUNA, NEW YORK— Environment One Corporation (E/One) is a manufacturer of sewer systems. Based just northwest of Albany, New York, E/One conducts most of its manufacturing in the town of Niskayuna and employs about 150 workers in upstate New York. Its products typically are installed in areas where conventional (gravity) systems cannot go, either because the land is too rocky, flat, hilly, or wet – such as Frank Lloyd Wright’s famous “Fallingwater” house in Mill Run, Pennsylvania.
Like JCM and many other companies, E/One both imports from and exports to Canada. On the import side, E/One sources from Canada a variety of component parts, including printed circuit boards, castings, and other miscellaneous parts as necessary.
These components are then incorporated into the specialty systems E/One manufactures in the United States before going to any of the 41 countries in which E/One Sewer systems are installed. In addition to Canada, they can also be found throughout Europe, Australia, New Zealand, and Japan. E/One’s Utilities Systems division exports to many others.
E/One is a part of an integrated metal components company with a number of American foundries, but those foundries do not produce the “sand castings” used in its sewer system products. The domestic foundries instead focus on higher-‐grade castings such as those used in the aerospace industries, so E/One must still source castings from outside the United States, including Canada.
Also like JCM, E/One is impacted by U.S. domestic content rules impacting water projects. It has sought waivers for products not available in the United States, but the process to obtain a waiver and/or prove compliance can slow the project down and divert precious time and money away from the goals of the project and towards compliance with domestic content rules.
“Our challenge is not a lack of interest in buying local. We sometimes cannot get parts from American suppliers at costs that allow us to compete. Take away the globally source components and we do not have a competitive product to sell.”
-‐ Bill Bashant, Director of Global Sourcing at Environment One Corporation
16
U.S. content represents a high share of value in a wide range of Canadian exports to the rest of the world. Nearly a quarter of the value of Canadian motor vehicles and parts exports to third markets consists of imported American content. Canadian exports of other transportation equipment; nonferrous metals; chemicals, rubber, and plastics; and industrial machinery and equipment all contain more than 14 percent U.S. content. Among all sectors, Canadian air transportation services actually contain the most U.S. value. In this case, it is petroleum and coal products – further demonstrating the interdependent nature of the two energy economies. Of the $12.9 billion in Canadian minerals exports to other countries, about $1.2 billion – or 9.4 percent – is attributable to U.S. content. This value came primarily from “direct” value of purchases of U.S. fuels (e.g., gas and petroleum) as well as industrial equipment. In total, $14.6 billion of Canada’s $144.6 billion in exports to the world consists of U.S. input value, or about 10.1 percent. It is important to note that the share of U.S. content in Canadian exports to the world could be used as a proxy for the value of U.S. exports contained in imports from Canada as well. So roughly 10.1 percent of the value of U.S. imports from Canada comes from American-‐made products returning as a part of something more processed.6
Indirect Exports U.S. companies do not just benefit from increased competitiveness in third-‐country markets associated with using Canadian inputs. American companies also export indirectly through Canada when U.S. raw materials, parts and components are included in Canadian exports to third countries. U.S. content accounted for $14.6 billion – or 10.1 percent – of Canada’s $144.6 billion in goods and services exports to other countries. An estimated 14.0 percent of the value of Canada’s manufactured exports to third-‐country markets came from the United States. U.S. content accounted for 7.7 percent of the value of Canada’s natural resource exports and 6.1 percent of Canada’s services exports (see Table A.6 in the Appendix for details for additional sectors).
U.S. U.S. Sector Value ($M) Share (%) Non-‐Man. Goods Total 2,642.8 7.7 Minerals, nec 1,217.0 9.4 Ag. and fisheries 994.2 7.0 Manufacturing Total 9,325.0 14.0 Nonferrous metals 1,773.1 16.4 Chemicals, rubber, plastics 1,751.1 15.2 Industrial mach. & equip. 1,366.2 14.9 Transportation equip., nec 1,075.9 18.5 Motor vehicles and parts 898.9 23.9 Services Total 2,664.9 6.1 Air transport 1,074.9 25.1 Business services nec 524.2 2.9 Total – All Sectors 14,632.7 10.1
Canadian Sectors Containing the Most U.S. Content in Exports to Third Countries
Source: Table A.6 in the Appendix
Much of the value of U.S. imports from Canada comes
from American-‐made products returning as a part of
something more processed.
17
Pictured above: Co-‐production at IPEX’s series of facilities and suppliers across North America make it difficult to distinguish between U.S. and Canadian products.
IPEX IN PINEVILLE, NORTH CAROLINA—IPEX manufactures pipe, primarily of plastic, for municipal water projects. Headquartered in Ontario, it has about 2,000 workers at facilities across Canada and 425 workers at facilities across the United States. About 95 percent of IPEX’s raw materials come from chemical plants in Texas or Louisiana. IPEX’s integrated supply chain makes classification of its products as “American” or “Canadian” difficult.
For example, IPEX facilities in Canada import raw materials from the United States. They also import semi-‐manufactured pipe from their U.S. facilities for further processing in Canada. They export semi-‐manufactured pipe to the U.S. facilities for further processing in the United States and sell finished pipe in Canada, the United States, and other countries. Conversely, IPEX facilities in the United States buy raw materials from U.S. suppliers. They import semi-‐manufactured and finished pipe from their Canadian facilities. They export semi-‐manufactured pipe to their Canadian facilities for further processing and sell finished pipe in the United States, Canada, and other countries.
Complex manufacturing operations such as these are made possible by the elimination of tariffs between the United States and Canada, but U.S. domestic content requirements can threaten these supply chains. In one case, pipe manufactured from U.S. raw materials that included manufacturing processes in both Michigan and North Carolina was rejected for a project in Michigan because some of the work had been done in Toronto. Minimal Canadian content meant the product failed to meet relevant “Buy America” provisions. This does not help IPEX’s American workers. Instead, attempts to force North American supply chains to conform to national boundaries decreases efficiency and increases costs at IPEX’s U.S. plants – limiting their long-‐term growth potential.
Plastic resins supplier – 95 percent of IPEX’s raw materials purchases is from U.S. suppliers in Texas and Louisiana.
IPEX facility (Canada) – IPEX has 2,000 workers at Canadian facilities that import from the United States, and export to the United States and other countries.
IPEX facility (U.S.) – IPEX has 425 workers at U.S. facilities that import from Canada, and export to Canada and other countries.
IPEX’s integrated supply chain makes classification of its
products as “American” or
“Canadian” difficult.
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A large number of jobs in the United States depend on U.S.-‐Canada supply chains. Based on Dixon and Rimmer’s (2014) estimate that 8.3 million U.S. jobs depended on U.S.-‐Canada trade in 2013,7 we estimate that U.S. jobs tied to the supply chain could range from 4.7 million to 6.5 million. Broadly, these jobs are directly or indirectly related to the total value of cross-‐border trade between U.S. and Canadian firms (6.5 million), which totaled $491 billion. More narrowly, they are jobs directly or indirectly related to the U.S. or Canadian value added contained in cross-‐border trade between firms, which totaled $361 billion.
Conceptualizing the U.S. Jobs Impact of U.S.-‐Canada Trade and Supply Chains
Source: Table A.7 in the Appendix Distributing the national estimates to U.S. sectors show that U.S. workers that benefit the most from the U.S.-‐Canada supply chain are those in sectors that see increased spending from the cost savings associated with trade: government, health, education, and defense as well as wholesale and retail trade Within manufacturing, the sectors with the largest employment start in the integrated supply chain include industrial machinery and equipment; motor vehicles and parts, and paper products and publishing. In total, an estimated 414,000 to 563,000 U.S. manufacturing jobs rely on U.S.-‐Canada supply chains (see Table A.7 in the Appendix for details for additional sectors).
5. IMPACT OF U.S.-‐CANADA SUPPLY CHAINS ON U.S. JOBS
4.7 million U.S. jobs depend on U.S.-‐
Canada value added trade between firms
6.5 million U.S. jobs depend on U.S.-‐Canada trade between
firms
8.3 million U.S. jobs depend on total U.S.-‐Canada trade
between all parties
19
NLMK USA IN PENNSYLVANIA AND INDIANA—NLMK is a steel manufacturer that produces hot-‐ and cold-‐roll coil as well as galvanized steel products. It employs about 1,100 American steel workers, including nearly 800 at two facilities in Sharon and Ferrell, Pennsylvania – north of Pittsburgh on the Pennsylvania-‐Ohio border – and about 325 in Portage, Indiana. These are good jobs with average wages and benefits exceeding $100,000 a year – and most depend on imports.
NLMK needs steel slab to make finished steel products. Its Portage facility has the capacity to make some steel slab but it falls far short of NLMK’s hot-‐rolling capacity of 2.7 million metric tons. Limited supplies of American-‐made slab necessitate that NLMK imports slab to keep its downstream rolling facilities operating and those workers employed. This is particularly true in Pennsylvania, where 100 percent of the slabs are imported. NLMK imports slab from various countries, including Canada.
While “slab converters” like NMLK need imports to keep facilities operating at capacity, Buy America provisions can disqualify steel products manufactured from imported slab for U.S. highway, transit, and water projects. They even can affect sales of non-‐covered products. For example, distributors and manufacturers that supply steel products to projects subject to domestic procurement requirements are often reluctant to mix supplies because of the added costs related to traceability and compliance.
Over the last several years, Buy America procurement rules have been extended to new areas, including water and sewer projects. These extensions raise costs for taxpayer funded projects and threaten American manufacturing jobs at companies like NLMK whose customers are less likely to buy steel for any application if it does not meet Buy America requirements. If such limitations were removed, NLMK estimates it could roll another 100,000 tons annually in Indiana alone, leading to about 25 new union and management jobs.
“Since most manufacturers do not know when a Buy America-‐specific order will come in, they protect against getting ‘overbalanced’ on non-‐compliant materials by not buying any at all. We have a manufacturer right down the road that limits their buy from us because they don’t have systems in place to keep separate inventories.”
-‐ Bob Miller, President of NLMK USA
More than 70 percent of NLMK’s jobs – and 100 percent of its jobs in Pennsylvania – are wholly dependent on imports.
If domestic content rules were removed, NLMK could add 25 new jobs in Indiana alone.
20
Pictured above: Nova Bus purchased by Philadelphia SEPTA transportation authority
NOVA BUS AND PREVOST IN PLATTSBURGH, NEW YORK—Nova Bus and Prevost, subsidiaries of the Volvo Group, employ more than 2,500 workers in four plants (and the service network) between the United States and Canada. There are about 350 workers at its principal U.S. facility in Plattsburgh, New York, with the rest working at the three Canadian facilities in Quebec.
Both Nova Bus and Prevost sell transit buses and commuter coaches, respectively, to U.S. transit authorities. Participation in this market requires final assembly in the U.S. and a 60 percent domestic content requirement for both final assembly and all major components. It took the company about two years to adjust its primary supply chain to meet the requirement of 60 percent domestic content. Yet complications remain, particularly since it must meet client-‐specific requests that can greatly decrease sourcing flexibility.
For example, while Nova Bus might prefer to use Volvo transit bus engines – as it is a Volvo Group subsidiary – these specific engines are only manufactured in Europe. The small size of the U.S. market for transit buses does not justify U.S. production for this size engine, so Nova Bus has no choice but to use a vendor engine that meets the domestic content requirement.
If clients request special components, such as high-‐end transmissions manufactured only in Europe, it can limit the options for other components. Since only a certain percentage can come from non-‐U.S. sources, Nova Bus may need to cut out Canadian suppliers – regardless of quality and cost considerations. Such adjustments to meet procurement rules, as opposed to providing the best value, are not in the customers’ best interests (e.g., transit authorities and ultimately taxpayers).
One concern for companies like Nova Bus and Prevost is the prospect of even higher U.S. domestic content requirements in the future. Representatives of the company suggested that increasing the requirement from 60 percent U.S. content to 70 percent U.S. content as Congress recently did would be challenging because of further limits on potential suppliers.
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Integrated supply chains, including those tying U.S. and Canadian goods and services producers, have a number of positive effects on each economy. They permit companies such as Magna T.E.A.M Systems (page 9), JCM Industries (page 14), and E/One (page 15) to concentrate on producing that good or service which they can make best. Relying on others to supply parts and components makes each company more competitive, thereby freeing resources to spend on developing new, cutting-‐edge ways to produce the good or service, or to market it or otherwise grow sales. As producers specialize, they are able to increase profits at the same time they lower prices, while consumers benefit from lower costs. This increases the purchasing power of both producers and consumers. Just as the benefits of co-‐production are magnified as they travel through an integrated supply chain, so too are the negative impacts of barriers to trade. These impacts can be multiplied many-‐fold depending on how often the product affected crosses a border. While the North American Free Trade Agreement (NAFTA) reduced (nearly) all U.S. and Canadian tariffs affecting bilateral trade to zero, tariffs have not disappeared completely. While not large relative to total trade, the United States still collected $173 million in tariffs on imports from Canada in 2014 – more than 20 years after NAFTA took effect. Top products assessed tariffs include oil, auto parts, electrical equipment and other industrial goods. Nontariff barriers can be equally if not more costly and disruptive to integrated supply chains. Local content requirements – most notably “Buy America/Buy American” requirements8 – have not only locked out Canadian producers from bidding on U.S. infrastructure projects, but companies with significant U.S. production such as Canam (page 10) and IPEX (page 17) and as well. Buy America policies that prevent Marcon Metalfab (page 12) from bidding on U.S. projects in the Pacific Northwest limit purchases from companies in numerous U.S. states. Similar rules preventing companies like NLMK (page 19) and Nova Bus and Prevost (page 20) from using trusted suppliers limits their ability to bid aggressively on U.S. projects – even those not covered by domestic content rules – to the detriment of their American workers whose jobs depend on imported materials. Even when products can comply with U.S. domestic content rules, such policies often lead to increased costs, administrative burdens, and project delays. Ultimately, U.S. taxpayers bear the costs of higher spending by municipalities and other government entities for infrastructure projects. Estimating the loss to American companies and workers from the inability to meet domestic content thresholds is difficult. This much we can suggest: Canadian firms supply customers with goods and services that fall within the types of infrastructure spending affected by these policies. Those goods and services contain U.S. content that was produced by U.S. workers. We estimate that the value of U.S. content contained in those Canadian sales in 2014 totaled $1.7 billion and supported 50,000 to 70,000 U.S. jobs (see Appendix B for Methodology).
6. POLICY IMPLICATIONS OF INTEGRATED U.S.-‐CANADA SUPPLY CHAINS
The United States still collected $173 million in tariffs on
imports from Canada in 2014 – more than 20 years after
NAFTA took effect.
22
This research has found that Canadian goods and services are important inputs to the production of U.S. goods and services, and vice versa. In addition, Canadian content is included in the value of U.S. goods and services that are exported to third countries. U.S. content also gets exported indirectly, as it is incorporated into Canadian goods and services that are exported to third countries. We also note from extensive interviews with U.S. and Canadian companies that public policies designed to support U.S. jobs may actually have the reverse effect, as they ignore the integrated supply chain and preclude U.S. companies from selling goods and services in their own markets.
7. CONCLUSION
23
ENDNOTES
1 Labels for content combine U.S. and Canadian content into something called “U.S./Canadian content.” See National Highway Traffic Safety Administration, “Part 583: American Automobile Labeling Act (ALLA) Reports,” http://www.nhtsa.gov/Laws+&+Regulations/Part+583+American+Automobile+Labeling+Act+%28AALA%29+Reports. 2 U.S. Energy Information Administration, Crude Oil Imports by Country, http://www.eia.gov/dnav/pet/PET_MOVE_IMPCUS_A2_NUS_EPC0_IM0_MBBLPD_A.htm
3 Phillips 66 company websites, http://www.phillips66.com/EN/Advantaged%20Crude/index.htm; http://www.phillips66.com/EN/about/our-‐businesses/refining/Pages/Wood-‐River-‐Refinery.aspx
4 BP company website, http://www.bp.com/en_us/bp-‐us/what-‐we-‐do/refining/whiting.html
5 “U.S. petroleum product exports exceeded imports in 2011 for first time in over six decades,” U.S. Energy Information Administration, March 7, 2012, https://www.eia.gov/todayinenergy/detail.cfm?id=5290. 6 Using total share of U.S. content in Canadian exports as a proxy for U.S. content in imports from Canada may result in some double counting. That is because the “indirect” content captures U.S. exports to Canada used initially in one Canadian sector, and then embodied in sales downstream to another Canadian sector. Yet even if goods and services are resold downstream in Canada, they only enter the Canadian economy one time. A further analysis reallocating U.S. content across sectors while controlling for double counting would be required to estimate the actual share of U.S. content in Canadian exports to the United States. 7 Dixon, Peter B. and Maureen T. Rimmer. “The dependence of U.S. employment on Canada, 2013.” December 2014, http://www.copsmodels.com/pdf/canada_trade_2013.pdf.
8 “Buy American Act” rules apply when the federal government is directly purchasing products or materials or a federal building or facility is being constructed (such as U.S. highways, federal prisons, etc.). It requires that at least 50 percent of the cost of the final product be U.S.-‐made components. “Buy America” rules usually apply to state and local government projects when these projects are funded by the Federal Transit Authority. They require that 100 percent. See John R. Luckey, “Domestic Content Legislation: The Buy American Act and Complementary Little Buy American Provisions,” Congressional Research Services, April 25, 2012, https://www.fas.org/sgp/crs/misc/R42501.pdf.
Table A.1: U.S. Imports from Canada, 2014 (Millions of US Dollars, cif Value, and Share)
Source: Global Trade Analysis Project (GTAP) database
Sector Total U.S. Import Value ($M)
U.S. Import Value, Firms Only ($M)
Share Used by U.S. Firms (%)
Non-‐Manufactured Goods Total 111,161.7 107,644.4 96.8 Agriculture and fisheries 8,871.0 5,385.1 60.7 Forestry products 138.1 132.6 96.0 Coal 138.4 138.4 99.9 Oil 85,663.7 85,663.7 100.0 Natural gas 14,500.1 14,497.2 100.0 Minerals, nec 1,850.4 1,827.4 98.8 Manufactured Goods Total 226,272.3 158,497.4 70.0 Processed foods 16,634.1 7,106.1 42.7 Beverages and tobacco 1,153.4 547.3 47.5 Textiles 1,466.7 972.2 66.3 Apparel 542.3 22.2 4.1 Leather products 130.5 14.2 10.9 Wood products 12,196.1 8,114.1 66.6 Paper products, publishing 10,829.8 9,154.5 84.5 Petroleum, coal products 18,052.8 13,622.2 75.5 Chemicals, rubber, plastics 34,749.2 23,552.0 67.8 Mineral products, nec 1,879.3 1,494.5 79.5 Ferrous metals 7,660.2 7,651.1 99.9 Nonferrous metals 17,560.1 17,514.4 99.8 Metal products 4,648.7 4,054.5 87.2 Motor vehicles and parts 58,913.2 32,749.8 55.6 Transportation equipment nec 11,135.9 9,520.1 85.5 Electronic equipment 3,882.3 2,910.1 75.0 Industrial machinery and equipment 23,461.8 19,278.2 82.2 Other manufactures 1,375.7 220.0 16.0 Services Total 25,786.7 18,295.4 70.9 Electricity 2,849.4 1,385.8 48.6 Gas manufacture, distribution 23.9 14.9 62.3 Water 4.4 3.5 79.3 Construction 5.2 5.2 99.5 Wholesale and retail trade 1,993.9 286.9 14.4 Ocean transport 101.9 99.9 98.2 Air transport 1,730.1 1,691.9 97.8 Other transport nec 101.9 925.3 75.5 Information services 972.5 760.5 87.2 Financial services 1,885.1 1,347.2 72.6 Insurance 4,033.3 2,097.5 52.0 Business services nec 6,856.0 6,567.4 95.8 Recreation and other services 1,321.7 509.3 38.6 Government, health, education, defense 2,813.5 2,600.1 92.4 Total – All Sectors 363,220.7 284,437.2 78.3
Table A.2: Value of U.S. Firms’ Imports from Canada by User Sector (Millions of US Dollars and Key Exporting Sectors)
Note: data may not add to Total-‐All Sectors because the latter includes investment-‐related value added that could not be allocated to a specific industry. Source: Authors’ estimates
U.S. Sector Importing from Canada
Value of Sector’s Imports from Canada ($M)
Imports from Canada as a Share of
Production (%)
Key Canadian Products Used by U.S. Sector (and Those Product’s Share of U.S. Sector’s Total Imports from Canada)
Non-‐Manufactured Goods Total 3,573.0 0.4 Agriculture and fisheries 1,741.6 0.4 Chemicals, rubber, plastics (47%); Ag. and fisheries (15%) Forestry products 41.2 0.2 Agriculture and fisheries (27%); Ind. mach. & equip. (14%) Coal 449.3 0.6 Industrial machinery & equip. (67%) Oil 922.9 0.4 Natural gas (44%); Ferrous metals (iron/steel) (15%) Natural gas 113.3 0.5 Natural gas (59%); Ferrous metals (iron/steel) (11%) Minerals, nec 304.7 0.6 Industrial machinery and equip. (39%); Minerals, nec (23%) Manufactured Goods Total 189,815.7 2.4 Processed foods 8,007.4 1.0 Processed foods (45%); Agriculture and fisheries (38%) Beverages and tobacco 1,198.7 0.7 Agriculture and fisheries (31%); Processed foods (26%) Textiles 1,263.2 0.7 Chemicals, rubber, plastics (59%); Textiles (22%) Apparel 428.4 0.3 Textiles (53%); Chemicals, rubber, plastics (18%) Leather products 155.9 0.7 Processed foods (inc. animals) (44%); Chem., rub., plas. (38%) Wood products 3,688.7 1.4 Wood products (77%) Paper products, publishing 6,280.5 1.2 Paper products, publishing (77%) Petroleum, coal products 96,087.3 13.0 Oil (89%) Chemicals, rubber, plastics 19,702.3 1.7 Chem., rubber, plastics (50%); Petroleum & coal prods. (20%) Mineral products, nec 991.6 0.7 Mineral products nec (27%); Chem., rubber, plastics (20%) Ferrous metals 3,332.0 1.6 Ferrous metals (49%); Nonferrous metals (25%) Nonferrous metals 7,557.1 3.8 Nonferrous metals (85%) Metal products 5,168.9 1.4 Nonferrous metals (46%); Ferrous metals (38%) Motor vehicles and parts 14,753.1 2.3 Motor vehicles and parts (68%); Nonferrous metals (7%) Transportation equipment nec 5,648.3 2.0 Transportation equipment nec (73%) Electronic equipment 4,575.5 0.7 Nonferrous metals (34%); Electronic equipment (23%) Industrial machinery and equipment 8,884.1 0.8
Industrial machinery and equipment (30%); Nonferrous metals (24%)
Other manufactures 2,092.7 1.6 Ferrous metals (69%) Services Total 58,301.1 0.3 Electricity 2,749.2 0.6 Natural gas (66%) Gas manufacture, distribution 834.8 1.1 Natural gas (93%) Water 360.0 0.2 Chemicals, rubber, plastics (18%); Other transp. services (17%) Construction 8,357.0 0.5 Industrial machinery and equip. (20%); Wood products (26%); Wholesale and retail trade 9,435.0 0.3 Motor vehicles and parts (34%); Other business services (12%) Ocean transport 641.1 0.8 Petroleum and coal products (62%) Air transport 2,940.9 1.1 Petroleum and coal products (72%) Other transport services 5,228.8 0.7 Petroleum and coal products (70%) Information services 1,298.9 0.2 Information services (43%); Other business services (15%) Financial services 1,879.6 0.1 Other business services (46%); Paper products, pub. (11%) Insurance 789.8 0.1 Other business services (36%); Insurance services (30%) Business services nec 4,922.4 0.2 Other business services (22%); Paper products, pub. (21%) Recreation and other services 6,601.0 0.4 Air transp. services (24%); Processed food products (19%) Government, health, education, defense 12,262.5 0.2
Chemicals, rubber, plastics (36%); Other business services (11%)
Total – All Sectors 284,437.2 0.9
Table A.3: Value Added from Canadian Firms Contained in U.S. Production by U.S. Sector (Millions of US Dollars and Share)
Note: data may not add to Total-‐All Sectors because the latter includes investment-‐related value added that could not be allocated to a specific industry. Source: Authors’ estimates
Sector Total Value ($M) Share U.S. Production (%)
Non-‐Manufactured Goods Total 2,353.0 0.3 Agriculture and fisheries 1,082.4 0.3 Forestry products 26.2 0.1 Coal 285.1 0.4 Oil 680.9 0.3 Natural gas 86.8 0.4 Minerals, nec 191.5 0.4 Manufactured Goods Total 140,070.4 1.8 Processed foods 5,373.1 0.7 Beverages and tobacco 838.9 0.5 Textiles 771.5 0.4 Apparel 272.0 0.2 Leather products 99.1 0.5 Wood products 2,454.0 0.9 Paper products, publishing 4,370.5 0.8 Petroleum, coal products 84,115.6 11.3 Chemicals, rubber, plastics 12,120.3 1.1 Mineral products, nec 608.8 0.4 Ferrous metals 1,906.6 0.9 Nonferrous metals 3,956.5 2.0 Metal products 2,859.6 0.8 Motor vehicles and parts 7,701.9 1.2 Transportation equipment nec 3,447.1 1.2 Electronic equipment 2,769.9 0.4 Industrial machinery and equipment 5,263.4 0.5 Other manufactures 1,141.7 0.9 Services Total 40,382.2 0.2 Electricity 2,051.0 0.5 Gas manufacture, distribution 687.4 0.9 Water 343.2 0.2 Construction 5,433.1 0.3 Wholesale and retail trade 6,151.6 0.2 Ocean transport 406.8 0.5 Air transport 1,599.8 0.6 Other transport nec 3,689.9 0.5 Information services 1,097.4 0.2 Financial services 1,571.2 0.1 Insurance 665.3 0.1 Business services nec 3,567.9 0.1 Recreation and other services 4,561.8 0.3 Government, health, education, defense 8,555.7 0.1 Total – All Sectors 200,874.9 0.7
Table A.4: Value Added from U.S. Firms Contained in Canadian Production by Canadian Sector (Millions of US Dollars and Share)
Note: data may not add to Total-‐All Sectors because the latter includes investment-‐related value added that could not be allocated to a specific industry. Source: Authors’ estimates
Sector Total Value ($M) Share Canadian Production (%)
Non-‐Manufactured Goods Total 7,229.4 3.1 Agriculture and fisheries 1,808.7 3.4 Forestry products 692.9 4.4 Coal 274.8 3.9 Oil 2,241.3 2.0 Natural gas 803.5 3.8 Minerals, nec 1,408.2 5.0 Manufactured Goods Total 69,868.0 8.5 Processed foods 5,999.7 3.3 Beverages and tobacco 606.9 8.9 Textiles 759.4 4.9 Apparel 366.9 5.8 Leather products 62.2 4.5 Wood products 1,677.5 5.1 Paper products, publishing 3,799.3 4.5 Petroleum, coal products 3,864.4 9.8 Chemicals, rubber, plastics 10,665.2 5.6 Mineral products, nec 1,481.2 9.9 Ferrous metals 3,068.7 10.6 Nonferrous metals 3,778.7 7.0 Metal products 3,211.5 16.9 Motor vehicles and parts 17,458.9 13.4 Transportation equipment nec 3,047.4 8.0 Electronic equipment 1,664.6 10.1 Industrial machinery and equipment 6,834.3 8.1 Other manufactures 1,521.2 3.3 Services Total 50,439.3 2.3 Electricity 2,177.1 4.3 Gas manufacture, distribution 219.8 7.5 Water 115.8 7.4 Construction 13,231.7 4.5 Wholesale and retail trade 6,090.0 1.6 Ocean transport 813.8 8.3 Air transport 2,055.7 10.6 Other transport nec 1,450.1 1.9 Information services 1,622.8 2.1 Financial services 2,164.8 1.6 Insurance 367.6 1.0 Business services nec 5,944.9 1.7 Recreation and other services 2,104.9 3.7 Government, health, education, defense 12,080.2 1.8 Total – All Sectors 160,410.1 5.0
Table A.5: Canadian Content in U.S. Exports to Other Countries, 2014 (Millions of US Dollars and Percent)
Source: Authors’ estimates
U.S. Export Sector Value of U.S. Exports ($M)
Total Canadian Input Value ($M)
Direct Canadian Input Value ($M)
Indirect Canadian Input Value ($M)
Total Canadian Share (%)
Non-‐Manufactured Goods Total 110,928.4 1,128.6 511.7 616.9 1.0 Agriculture and fisheries 84,441.3 916.8 365.4 551.4 1.1 Forestry products 2,261.2 9.8 4.1 5.7 0.4 Coal 13,629.6 112.3 78.9 33.5 0.8 Oil 382.4 2.0 1.5 0.5 0.5 Natural gas 2,919.5 18.3 14.4 3.9 0.6 Minerals, nec 7,294.3 69.4 47.4 22.0 1.0 Manufactured Goods Total 1,253,687.3 38,185.1 32,776.6 5,408.5 3.0 Processed foods 56,744.0 729.7 554.0 175.7 1.3 Beverages and tobacco 8,843.7 93.8 61.9 31.9 1.1 Textiles 15,947.4 158.0 106.1 51.9 1.0 Apparel 3,706.4 21.8 10.8 11.0 0.6 Leather products 2,888.7 29.3 21.5 7.8 1.0 Wood products 8,435.3 142.4 114.7 27.7 1.7 Paper products, publishing 30,338.6 436.4 353.2 83.2 1.4 Petroleum, coal products 129,528.5 17,007.5 16,777.9 229.6 13.1 Chemicals, rubber, plastics 258,434.3 6,438.8 4,412.8 2,026.0 2.5 Mineral products, nec 10,527.9 130.1 69.0 61.1 1.2 Ferrous metals 24,330.7 524.2 396.6 127.6 2.2 Nonferrous metals 58,723.1 2,407.1 2,230.6 176.5 4.1 Metal products 27,669.5 533.1 376.6 156.5 1.9 Motor vehicles and parts 82,854.7 2,297.6 1,899.5 398.1 2.8 Transportation equipment nec 96,852.0 2,220.4 1,907.2 313.2 2.3 Electronic equipment 128,664.0 1,262.2 897.2 364.9 1.0 Industrial machinery and equipment 284,700.2 3,261.7 2,195.9 1,065.8 1.1
Other manufactures 24,498.2 491.1 391.0 100.1 2.0 Services Total 402,131.6 4,676.8 1,386.0 3,290.7 1.2 Electricity 538.8 7.6 3.3 4.2 1.4 Gas manufacture, distribution 1,697.7 21.6 18.3 3.3 1.3 Water 530.0 2.9 1.3 1.6 0.5 Construction 7,930.5 67.0 40.4 26.6 0.8 Wholesale and retail trade 18,202.0 79.4 49.8 29.6 0.4 Ocean transport 2,331.4 54.5 17.5 37.0 2.3 Air transport 34,968.1 2,074.3 380.3 1,694.0 5.9 Other transport nec 38,984.2 1,431.3 291.8 1,139.5 3.7 Information services 12,922.5 40.3 26.5 13.8 0.3 Financial services 52,433.4 85.2 52.9 32.3 0.2 Insurance 18,413.1 32.6 21.8 10.8 0.2 Business services nec 109,686.3 342.2 225.9 116.3 0.3 Recreation and other services 32,660.8 232.7 142.1 90.6 0.7 Government, health, education, defense 70,832.9 205.0 114.1 90.9 0.3
Total – All Sectors 1,766,747.3 43,990.5 34,674.3 9,316.2 2.5
Table A.6: U.S. Content in Canadian Exports to Other Countries, 2014 (Millions of US Dollars and Percent)
Source: Authors’ estimates
Canadian Export Sector Value of Canadian Exports ($M)
Total U.S. Input Value ($M)
Direct U.S. Input Value ($M)
Indirect U.S. Input Value ($M)
Total U.S. Share (%)
Non-‐Manufactured Goods Total 34,121.0 2,642.8 1,866.9 775.9 7.7 Agriculture and fisheries 14,195.6 994.2 630.4 363.7 7.0 Forestry products 854.6 60.3 46.9 13.4 7.1 Coal 4,853.8 304.5 234.9 69.6 6.3 Oil 269.1 8.8 6.7 2.1 3.3 Natural gas 1,014.1 58.0 46.2 11.8 5.7 Minerals, nec 12,933.8 1,217.0 901.7 315.2 9.4 Manufactured Goods Total 66,648.3 9,325.0 8,039.6 1,285.5 14.0 Processed foods 6,549.2 611.3 493.7 117.7 9.3 Beverages and tobacco 418.0 27.0 17.9 9.1 6.5 Textiles 315.7 42.2 37.1 5.1 13.4 Apparel 215.5 18.0 13.6 4.4 8.3 Leather products 58.6 5.6 4.5 1.1 9.6 Wood products 2,880.9 225.0 163.7 61.3 7.8 Paper products, publishing 7,241.4 594.6 461.0 133.6 8.2 Petroleum, coal products 1,218.6 95.9 80.8 15.0 7.9 Chemicals, rubber, plastics 11,556.6 1,751.1 1,585.0 166.1 15.2 Mineral products, nec 232.3 22.0 17.2 4.7 9.5 Ferrous metals 1,524.3 239.2 204.2 35.0 15.7 Nonferrous metals 10,806.5 1,773.1 1,530.1 243.0 16.4 Metal products 1,437.6 171.7 129.6 42.1 11.9 Motor vehicles and parts 3,757.9 898.9 832.8 66.1 23.9 Transportation equipment nec 5,830.5 1,075.9 964.3 111.7 18.5 Electronic equipment 2,750.7 315.1 278.7 36.4 11.5 Industrial machinery and equipment 9,141.3 1,366.2 1,148.5 217.7 14.9
Other manufactures 712.7 611.3 76.9 15.4 12.9 Services Total 43,815.2 2,664.9 2,098.9 566.0 6.1 Electricity 554.5 42.2 36.5 5.7 7.6 Gas manufacture, distribution 197.7 18.0 16.7 1.3 9.1 Water 5.1 0.6 0.5 0.1 11.4 Construction 454.5 38.2 25.3 12.9 8.4 Wholesale and retail trade 2,955.2 97.3 57.8 39.5 3.3 Ocean transport 2,692.1 290.9 222.0 68.9 10.8 Air transport 4,279.6 1,074.9 977.7 97.3 25.1 Other transport nec 1,537.1 79.6 41.9 37.8 5.2 Information services 2,119.9 76.5 52.2 24.3 3.6 Financial services 1,897.2 48.2 32.2 16.0 2.5 Insurance 2,298.1 46.3 23.4 22.9 2.0 Business services nec 17,859.3 524.2 364.7 159.5 2.9 Recreation and other services 4,387.1 250.5 193.0 57.4 5.7 Government, health, education, defense 2,577.8 77.6 55.1 22.5 3.0
Total – All Sectors 144,584.5 14,632.7 12,005.4 2,627.4 10.1
Table A.7: U.S. Jobs Tied to U.S.-‐Canada Trade and Supply Chains (Thousands of Jobs, cif Value, and Share)
Source: Rimmer and Dixon (2014) and authors’ estimates
Sector Jobs Tied to Total Trade
Jobs Tied to Gross Value Trade
Jobs Tied to Value Added Trade
Non-‐Manufactured Goods Total -‐159.2 -‐124.2 -‐91.3 Agriculture and fisheries 9.7 7.6 5.6 Forestry products 9.7 7.6 5.6 Coal 10.8 8.4 6.2 Oil & Gas -‐191.7 -‐149.5 -‐109.9 Minerals, nec 2.3 1.8 1.3 Manufactured Goods Total 687.3 536.1 394.1 Processed foods 41.3 32.2 23.7 Beverages and tobacco 4.4 3.4 2.5 Textiles 12.2 9.5 7.0 Apparel 2.2 1.7 1.3 Leather products -‐0.6 -‐0.4 -‐0.3 Wood products -‐2.6 -‐2.0 -‐1.5 Paper products, publishing 117.7 91.8 67.5 Petroleum, coal products 6.4 5.0 3.6 Chemicals, rubber, plastics 110.4 86.1 63.3 Mineral products, nec 18.8 14.6 10.8 Ferrous metals 18.0 14.0 10.3 Nonferrous metals -‐9.2 -‐7.1 -‐5.2 Metal products 63.8 49.7 36.6 Motor vehicles and parts 113.6 88.6 65.1 Transportation equipment nec 28.5 22.2 16.3 Electronic equipment -‐5.3 -‐4.1 -‐3.0 Industrial machinery and equipment 132.2 103.2 75.8 Other manufactures 35.4 27.6 20.3 Services Total 7,744.9 6,041.5 4,441.4 Electricity 35.1 27.4 20.1 Gas manufacture, distribution 2.6 2.0 1.5 Water 11.3 8.8 6.5 Construction 295.0 230.2 169.2 Wholesale and retail trade 2,337.7 1,823.6 1,340.6 Ocean transport 225.6 176.0 129.4 Air transport 30.9 24.1 17.7 Other transport nec 41.3 32.2 23.7 Information services 123.1 96.0 70.6 Financial services 474.6 370.2 272.1 Insurance 107.3 83.7 61.5 Business services nec 570.1 444.7 326.9 Recreation and other services 85.2 66.5 48.9 Government, health, education, defense 3,405.0 2,656.1 1,952.6 Total – All Sectors 8,273.1 6,453.5 4,744.2
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Assessment of Value Chains While gross export flows are one way to assess the cross-‐border relationship between the U.S. and Canadian economies, in this report we focus instead on economic linkages. By this, we mean the extent to which output from one sector then feeds into another sector. This flow of output of goods and services is the basis for the concept of “value chains” linking the activities (value added) in sectors at various stages of processing, leading ultimately to the final output of goods and services. When one focuses on the downstream flow of intermediate output to final output – for example steel sold to motor vehicles production and to construction – this is referred to as forward linkages. When we instead examine the original sectors providing value added to final output in a given sector – for example steel, electricity, engineering services, and machinery all feeding into motor vehicle production – this is referred to instead as backward linkages. Backward linkages help to identify the importance of workers and production in upstream firms contributing to final output.1 Working with the GTAP data, a global multi-‐region multi-‐sector database (Narayanan et al 2015), we begin by denoting a representation of intermediate and final demands as follows: (1) ! = !− !" In equation (1), the term Y denotes a final demand vector, Z denotes a gross output vector, and A denotes a matrix of intermediate use coefficients. Equation (1) therefore defines final output with respect to intermediate input requirements. With some manipulation we arrive at the Leontief inverse matrix, also known as the multiplier matrix M. (2) ! = (!− !)!!! = !" The multiplier matrix M measures the inputs contained in a unit of final output. In particular, if we assign the sector indexes i, j to the A and M matrices, then a representative element of the M matrix mij gives the direct and indirect inputs (and thus the sector i receipts) linked to each unit (for example each dollar) of sector j receipts in the data. This implies real production activities measured by value of output. For our purposes, it provides a means to trace, through these income flows, the flow of gross activity and value added from intermediate to final goods and services, ostensibly across borders as well as sectors. Because linkages will vary by industry, different multipliers will characterize each industry. We focus here on value added. Note that in terms of gross output values Z, some share of this involves value added within each sector. We define !! as the diagonal matrix indexed over i, j with diagonal elements equal to the value added shares of output Z. We then use M to provide a breakdown of the flow of value added across activities in the form of the matrix V. (3) ! = !!! Similar to the Leontief inverse matrix itself, the V matrix identifies the inputs of value added in each
APPENDIX B: METHODOLOGY
2
sector related to a unit of final demand. If we multiply V by the diagonal matrix !! whose non-‐zero elements are the vector of final outputs, the matrix yields a breakdown of economy-‐wide value added (the primary component of Gross National Product on a source basis). Similarly, if we multiply V by the diagonal matrix !! whose non-‐zero elements are the national export vector, we can recover the value added content of exports X (both direct and indirect). (4) ! = !!! (5) ! = !!! The G matrix and the H matrix give us the set of linkages, both direct and indirect, between value-‐added across sectors. Further manipulation of the H matrix, for example applying U.S. value added in exports to Canada against the matrix of imports used by Canadian sectors in production, allows us to identify the importance of value added contained in U.S. exports to Canada in determining the total cost of production Canadian industry. Estimation of U.S. Employment Related to U.S.-‐Canada Supply Chain To estimate the number of U.S. jobs related to value added trade with Canada, i.e., the value of U.S. output contained in that trade, we relied on estimates provided by Dixon and Rimmer (2014) regarding the number of U.S. jobs tied to trade with Canada and the U.S. output related to trade with Canada. These jobs estimates reflect direct, indirect and “induced” U.S. jobs, a broad measure of the U.S. jobs associated with U.S. output that is created by trade with Canada. From Dixon and Rimmer, we created a concordance file to GTAP sectors in order to get total employment tied to U.S.-‐Canada trade for the sectors reported throughout this report. To estimate the jobs tied to supply chains only, we determined the share of trade between firms and applied that ratio to the sector-‐specific jobs tied to trade generally to estimate the jobs tied to gross value trade between firms in the United States and Canada. We repeated this process using only the share of trade between firms consisting solely of U.S. and Canadian value to estimate the lower bound of number of jobs tied to U.S.-‐Canada supply chains. Estimation of Infrastructure Sector Subcomponent of U.S. Sectors Detailed data are not available to directly calculate the value of the U.S.-‐Canada supply chain to U.S. industries and sectors involved in infrastructure projects, including public infrastructure products. However, we provide a very rough estimate of the value of the supply chain for this subsector by estimating the shares each subsector may account for of the sector total value of output. For example, we know from U.S. government data that public construction spending accounts for 28 percent of total U.S. construction spending in 2014 (see https://www.census.gov/construction/c30/c30index.html). We can apply that share to the construction sector’s estimated value added tied to the U.S.-‐Canada supply chain. Similarly, we know from the Annual Survey of Manufacturers data that bus shipments represent about 5.8
3
percent of 2014 motor vehicle sector shipments (see http://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ASM_2014_31GS101&prodType=table). Also from the Annual Survey of Manufacturers, subway car shipments represent about 1.3 percent of the value of other transportation product shipments. Applying these shares to the estimated value added tied to trade with Canada yields the total estimate of the infrastructure subsector’s share of that value added. References Christen, Elisabeth, Joseph Francois, and Bernard Hoekman. "Computable general equilibrium modeling of market access in services." Handbook of Computable General Equilibrium Modeling 1 (2013): 1601-‐1643. Dixon, Peter B. and Maureen T. Rimmer. “The dependence of U.S. employment on Canada, 2013.” December 2014, http://www.copsmodels.com/pdf/canada_trade_2013.pdf. Francois, Joseph, Miriam Manchin, and Patrick Tomberger. "Services linkages and the value added content of trade." The World Economy 38.11 (2015): 1631-‐1649. Narayanan, G., Badri, Angel Aguiar and Robert McDougall, Eds. 2015. Global Trade, Assistance, and Production: The GTAP 9 Data Base, Center for Global Trade Analysis, Purdue University
