Surprising But True, US Exports Are Growing
Nine months ago, the Obama administration set a goal: to double American exports in five years. The announcement, in the president's State of the Union address, attracted doubts from economists who know that a five-year doubling has not happened since the 1970s and then only because of a bout of inflation.
The country's trade attention has moved on, with distress over Chinese currency valuation. But US exporters are on track to meet the president's goal, and a more ambitious policy could provide the extra push.
The administration set the goal because the US has no other obvious source of growth needed for recovery.
Before the crash, Americans were famously the world's shoppers, driving growth not only in the US, but in factories of San Salvador and Phnom Penh, on exchanges in Hong Kong and London, as they shopped for clothes and TVs, borrowed for new homes and big cars. They felt their jobs were secure, relied on steadily rising home values to ensure a decent retirement, and believed themselves wealthier than they really were.
A few years later, job security is a memory. Asset-wealth shriveled. Families put their money in the bank and stay out of the mall. Between 2007 and 2009, America's household savings soared from $180 billion annually to above $600 billion.
All virtuous and rational, but the revival of thrift creates its own challenge as Americans hope for growth and job creation. Americans save an additional $400 billion or so each year, translating to a bit more security and a bit less growth, as 3 percent of GDP shifts from consumption to savings.
It's unlikely that shopping and home-buying will restore growth. Government fiscal stimulus – a good temporary option, but not a permanent substitute – is phasing out. For a durable recovery America needs a new source of growth, and there's no easy ways at home. Exports are the only alternative. The question is how to make them grow – and the administration's goal is a lot of growth.
Last year, Americans shipped US$1.55 trillion worth of goods and services abroad. The total, to cite a few random items, included 1.7 million cars, 300 civilian airplanes, 540 million kilos of almonds, 25 million kilos of lobster, 9,900 electrocardiograph machines for the world's hospitals, $20 billion worth of semiconductors. Doubling all this is a big job.
Since World War II American exports have doubled about every 10 years, growing at about 8.3 percent each year. To double in five years, as the Obama administration hopes, would require businesses and farmers to raise this growth rate above 15 percent annually, keeping it there until 2014.
A big challenge, but so far the US is on pace. One way to examine the trend is to check container flows. The Port of Los Angeles in recent years unloads ever-rising Asian cargoes, returning many containers across the Pacific empty. This year reverses the trend: Each month, the port ships 18,000 more filled containers to Asia.
More cargoes than most realize go to China. America's long-suffering automakers shipped 56,000 cars to Shanghai, Beijing and other wealthy cities in the first half of this year – up six-fold from last year's 9,000. Cotton exports to China have doubled, medical equipment jumped from $400 million to $500 million, and so on through printed circuits, paper, artificial limbs and the like. Should this year's pace keep up – even with anxious debates over currency rates and trade balances – exports to China will double, not in five years but in a little more than two.
China is not a unique case. American exports to Singapore, Thailand, Indonesia and Malaysia are faster still, up by 40 percent each. Brazil and Colombia buy just as fast; Korea and Taiwan even faster; Japan, Canada and Mexico a bit slower. Even with a slow year selling to crisis-stricken Europe, US exports are up by 18 percent this year, well above the rate needed to double in five years, almost enough to double in four.
So far, US exporters are on track to meet the goal. But they need more help. Some of this year's export growth – in particular the rising sales to China, Brazil and Asean – probably reflects acquisition of new customers as the world economy grows. But some, especially jumps to Canada, Japan and Mexico, are the result of cyclical effects likely to wear in the next year or so. This year's jump is in part a natural rebound from a bad 2009, when a 15 percent drop in exports marked the sharpest fall in US trade since the 1930s. A low dollar value against other major currencies like the euro and yen also made American exports cheaper in most world markets. Of course, currency values can rise or fall.
To keep up the pace, therefore, the administration must work harder to open markets. Much can be done in the coming year with medium-sized initiatives. Work with Congress and foreign partners to approve the three free-trade agreements inherited with Korea, Panama and Colombia. Take a long-overdue look at the antiquated Cuba embargo. Push ahead in modernizing export-control laws and reduce the complex bureaucracy that deters exports of less-sensitive American dual-use technologies.
But then the administration needs to think bigger and reshape the trade strategy inherited from predecessors.
Over the last decade, beginning in the Clinton administration's last months and throughout the Bush era, the US trade agenda centered on free-trade agreement relationships. The program aroused emotion, but remains too small for the export growth the administration wants. All 14 FTA relationships concluded since 2000 combined cover about 5 percent of US – not nearly enough to double exports. For that, negotiators must go where the money is.
A few big economies – China, Japan, Mexico, Canada and the European Union – account for most of American trade, buying about 65 percent of US exports. Together with a few big middle-income countries like Brazil, Korea, India and Russia, these largest trading partners need to return to the center of policy.
A few large industry clusters – health technologies and medical services, energy and environmental industries, information and media – are likely to drive much of the next decade's growth in trade. In Asia alone, 150 million people will retire the next decade; tens of millions more start college. Old and young will be massive buyers of everything from advanced medical services to online entertainment. Their governments are investing billions in telecommunications, energy, power grids and hospitals.
Trade policy, using the World Trade Organization's Doha Round or a series of sectoral agreements among the big countries, should direct some spending to US technologies and services. Regional initiatives can complement this spending. Japanese interest in a nascent set of talks known as the "Trans-Pacific Partnership" is a sign, but should not be the center of policy.
Such an agenda is a challenge to negotiate abroad and pass at home when the American public is – not at all unreasonably – worried about job security. But the administration's judgment last winter remains correct.
Families are saving, staying away from malls and real-estate offices. The US must look abroad, tapping foreign demand through exports, for the best chance to restore growth and reduce unemployment. Meshed with education reform and support for scientific research, trade is the way to rebuilding public confidence in American competitiveness and long-term strength. As ambitious as the administration's export goal might look, it's the right goal and within reach.
Edward Gresser is trade and global markets director with the Democratic Leadership Council. This is reprinted with the permission of the Yale Center for the Study of Globalization