Arizona Exports

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Arizona exports reached a record of $21.1 Billion dollars last year. Arizona State University W.P. Carey School of Business economist Dennis Hoffman will talk about that.

Ted Simons: Arizona's economic growth play not feature an abundance of bright spots, but exports are showing big gains with the state reaching a record level last year, here to talk about that is ASU's W.P. Carey School of Business economist Dennis Hoffman. Good to have you again and thanks for joining us.

Dennis Hoffman: Great to be here.

Ted Simons: We're talking about something upbeat for a change with Arizona's economy. Why are exports up 34% since 2010?

Dennis Hoffman: Largely because they were so low. No, can we just take a second?

Dennis Hoffman: So why do economists, why do data wonks like me get giddy over exports? Is it that we want to feel good about shipping goods to some poor country or something? I mean, that's not it at all. Exports are absolutely key to the prosperity of a regional economy. So, let me see if I can explain this. People walk around this state saying that construction is the driver of the State of Arizona. That's symptomatic. It is not the driver. Our export-based businesses are the driver, our electronics's manufacturers and aerospace defense folks, most recently we have gotten a real boost from service exporters and financial services, and that's the big insurance invasion, and even tourism is an export-based business.

Dennis Hoffman: It is, it is. And so the arithmetic here is we produce goods and services here, or sunshine, next to tourism, and we ship it out of state or provide it to people outside of the state, and in return, dollars flow in. Now, it's those local dollars, then, that end up chasing construction or any local service provider or any local retailer. For example. But, you don't get growth in local retail without a vie brand export base.

Ted Simons: So we got, as I mentioned, 34% since 2010, up 8% since 2013, and 21.1 billion -- that's a record high, again.

Dennis Hoffman: Right.

Ted Simons: What are we exporting here?

Dennis Hoffman: It's the usual suspects of -- in fact, I went through then, electronics are the big deal, if you look at one category, it's aircraft, but they lump all of the aircraft activity into the one category. And electronics are broken out, but if the aggregate, the electronics pieces, the manufacturers are accountable to most of our exporting and where does it go? Mexico. That is where the lion's share of it goes. Don't forget the copper extraction industries, that's a big piece of our export puzzle, as well.

Ted Simons: Interesting. And again, the numbers, Mexico, exports in Mexico of 39%. Canada 10%, and Saudi Arabia, up 67 -- is that aircraft?

Dennis Hoffman: Well, yes, and it's often very low.

Ted Simons: I get it.

Ted Simons: Same thing with the Netherlands, up 61% from zero.

Dennis Hoffman: Sure, sure.

Ted Simons: We're talking about electronics, and we're talking about where these things are going. But, are we seeing public policy as a factor for this, or is it, basically, the nature of things?

Dennis Hoffman: It's pretty much the nature of things. Now, public policy, by the way, at the time, Ted, could do a better job, tariff reform, trans-pacific deal. If -- you know, I hear so much rhetoric around regulation and the business is stifled by regulation and fingers are pointed, you know, the usual suspects of, you know, the affordable care act, or taxes or don Frank, and those may, indeed, be holding some businesses back. But, if we had tariff reform, if we were able to ship goods and services to Asia, cheaper, than we do now, or to Europe, if we weren't fettered by the native structure, especially Ted, during a time when the dollar is so strong, so the cost of our exports has really gone up in the last few months to, you know, the country's that are trying to import the products.

Ted Simons: But explain why that tariff structure exists in the first place.

Dennis Hoffman: It's an artifact of concerns over protecting certain areas, you know, unions had a strong presence, historically, and so it's a group of folks that are really concerned about protecting industry and protecting jobs at home. And one of the true tenants of economics is that free trade makes everybody better off. Certainly, there are local disruptions as that trade kicks in and jobs are lost in certain areas and people have to my great to other opportunities. But, as our export base grows, so will prosperity, and we really need to do a better job. My two things, when I hear about regulation, holding business back, I say two things. Give me comprehensive immigration reform and tariff reform, and watch this economy flourish.

Ted Simons: And as far as Arizona is concerned I would imagine a proximity to California ports, proximity to maybe Mexican ports, as well, and has to help. Are we taking full advantage of that?

Dennis Hoffman: I don't think so. I think that we need to think of ourselves, and by the way when I think of exports, all this data is around exporting out of the country. But, the same principle of regional economics applies if you export out of the state, dollars flow in, if we export to California, dollars flow in, if we export products at the department of defense, and they go to bases around the nation, those dollars flow back into the state. So, we need to take better advantage of the proximity to California. I think that we ought to be -- to California, as Ireland, is to Europe, and Ireland is, is has attracted a lot of foreign and direct investment, and they have created an environment where firms and international businesses want to move to Ireland so that they can ship and do business with the European union, and we Asian to be thinking about ourselves on the neighbor -- we're the neighbor of a lucrative market in California, but it's very costly to do business over there. So why not here?

Ted Simons: Last question, obviously, we may have started at a low level but, 34% increase in four or five years.

Ted Simons: Good news.

Dennis Hoffman: Yeah.

Dennis Hoffman: It's very good. It could be worse.

Ted Simons: Absolutely.

Ted Simons: Can we do a lot better? Are you expecting us to continue this kind of increase?

Dennis Hoffman: The strength of the dollar is going to be a real head wind for, for 2015, and as long as the dollar remains strong. So, we need to fight even harder. That's why things like tariff reform is really very, very important. A real strong dollar is a stifler in terms of the exports. They just cost more.

Ted Simons: So it's wise for us to take advantage while the dollar is high.

Dennis Hoffman: Seize the moment.

Ted Simons: Good to see you, Dennis.

Dennis Hoffman: Great to be here, Ted.

Ted Simons: Wednesday on Arizona Horizon, it's our weekly update on what's happening at the state legislature, with the Arizona capital times and we'll check on news from Tucson in our monthly update, southern exposure. That's at 5:30 and 10:00 on the next Arizona Horizon. That is it for now. I'm Ted Simons. Thank you very much for joining us. You have a great evening. Arizona Horizon is made possible by contributions from the friends of Eight. Members of your Arizona PBS station. Thank you.

Dennis Hoffman:Economist, W.P. Carey School of Business at Arizona State University;

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