Housing can’t do it. Technology is strong, but not strong enough to act as the economic driver. And, with consumer demand weak, don’t count on a big retail buying binge. So where is the U.S. economy to turn for the push it needs to pull out of the doldrums? The answer: overseas, where strong demand for everything the U.S. makes — from agriculture to manufacturing — is driving an export renaissance.
Those who say the days of U.S. manufacturing have been relegated to the history books overlook one simple fact: The United States still has the world’s largest manufacturing economy. It is a major supplier of grains, soybeans and corn to the global marketplace. Its products help power the industrial sectors of Europe, Japan and, increasingly, the rapidly growing emerging markets of Asia and South America. Its agricultural exports feed and clothe the growing middle classes in those emerging markets.
“Orders for U.S. capital equipment are strong, and orderbooks are filled out for the next two years,” said Walter Kemmsies, chief economist of port design and engineering consultant Moffatt & Nichol.
Kemmsies thinks U.S. exports of oilseeds and grains, already the largest export commodity to China by value, also could act as the driver for the next U.S. economic cycle. “As people move from rural to urban areas to take higher-paying jobs,” he said, “their diets tend to become more protein-oriented, in particular, beef, and they want better clothing.”
Kemmsies forecasts the value of all U.S. exports will grow at twice the rate of GDP next year, which he estimates at 2.5 to 3 percent, meaning exports will grow 5 to 6 percent.
The strong U.S. export growth of the last few years is misleading, however, because the country has a long way to go before exports could swing more into balance with imports and start to cut its huge trade deficit. The U.S. incurred a $500 billion deficit in trade in goods and services in 2010 and had racked up a $558 billion deficit in the first three quarters of 2011. The last time the U.S. had a surplus in its trade in goods and services was 1975, when it recorded a $12 billion surplus.
It’s that imbalance, of course, that makes the inbound leg of the transportation market the head-haul, with strong utilization rates among ocean carriers clearly outpacing those on the outbound leg. Finding a balance, be it through the National Export Initiative, further weakness in the dollar or federal reform, while elusive, certainly isn’t unattainable.
“The U.S. exports only 40 percent as much of its manufacturing production as the world average,” said Frank Vargo, vice president of international economic affairs at the National Association of Manufacturers. U.S. manufactured goods account for approximately 60 percent of all U.S. exports of goods and services, but in relation to the size of its economy, the U.S. lags, ranking 13th among manufacturing countries in terms of the proportion of manufacturing production it exports, just ahead of Russia and Brazil.
The U.S. share of the global market for manufactured goods has dropped from just under 14 percent in 2000 to less than 10 percent in 2010, a share loss that now costs the country $450 billion a year. “Our trade deficit is due more to under-exporting than to over-importing,” Vargo said.
President Obama’s National Export Initiative targets a doubling of U.S. exports in the five years to 2015. It’s off to a good start, because exports have been growing sharply since the 2008-09 downturn. Exports jumped 20.5 percent in 2010 and were up 17.1 percent in the first 10 months of 2011 over the same period a year earlier, according to the U.S. Commerce Department. The $1.2 trillion in exported goods in the January-October period of 2011 was 42.3 percent ahead of the same period in 2009.
Vargo worries the strong export growth over the last two years will create a sense of complacency that will slow further efforts to increase exports. It might not be a bad thing, he said, if export growth slows this year, because it might spur the government into making greater efforts to dismantle barriers to exports.
U.S. export controls were last updated in 1970 at the height of the Cold War. They need to be adapted to current conditions, because they are barriers to a lot of high-tech exports, Vargo said. The Obama administration, as part of the NEI, has started reform efforts, but the highly charged issue certainly could stall in this election year.
Other export barriers are the various security measures installed at ports because of terrorist threats, but Vargo said many of these measures should not apply to export shipments.
The outlook for exports in 2012 depends on external factors beyond the control of the U.S. “If Europe doesn’t get its act together, exports could actually shrink because no one will be able to get letters of credit,” Kemmsies said. “But if Europe does what it needs to do, export growth could exceed 5 to 6 percent.”
Ironically, the growth of U.S. exports of manufactured goods also depends on the health of the U.S. economy, as well as Europe’s, because so much of the value of U.S. exports to China, the third-largest U.S. export market after its North American Free Trade Agreement partners and Europe, consists of engineering products and machine tools used in Chinese factories that produce consumer goods for export back to those developed markets.
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The second-largest U.S. export commodity to China by value after oilseeds and grains is waste and scrap, shipped in containers and also used in the production or packaging of consumer goods for export. They, too, are vulnerable to consumer demand in developed markets.
Semiconductors and other electronic components, the third-largest U.S. export commodity to China by value, are usually transported by air and used in the Chinese manufacturing of computers and smartphones that are also bound for export.
Negotiating free trade agreements with major trading partners was NAM’s No. 1 priority targeted in its “Blueprint to Double Exports in Five Years,” which it issued in 2010. Since then, however, other real-world events have intruded, namely the debt crisis in several European countries, including Greece, Spain and Ireland, and the lackluster growth in developed economies.
“Now the biggest priority is to see that the financial instability in Europe does not result in such a flood of money into the U.S. that the dollar gets overvalued,” Vargo said.
NAM’s No. 2 priority is for the U.S. to work closely with Europe and Japan to orchestrate faster growth, because, Vargo said, “If those economies don’t grow, our exports won’t grow.”
NAM also puts major stock in free trade agreements and wants the U.S. to negotiate more. It’s something the administration is pushing, as well, as part of its NEI. “The U.S. runs a trade surplus in manufactured goods with every one of the 14 countries it has FTAs with, and that creates more jobs here,” Vargo said.
Excluding oil imports, the U.S. has an overall trade surplus with its NAFTA partners, its single biggest export market. The strongest interest among NAM members is for FTAs with Brazil and India.
The U.S. also should be prepared to undertake more bilateral trade talks to overcome trade barriers with specific trading partners, because the World Trade Organization, launched with the best intentions in 1995 as the successor to the General Agreement on Tariffs and Trade, has proved ineffective in mitigating trade disputes, Vargo said. For example, although China has emerged as the third-largest U.S. export market after NAFTA and Europe, many U.S. companies are reluctant to start exporting to China because they fear their technology will be copied and used to manufacture competing products.
The U.S. also needs to convince China to allow the yuan to revalue instead of keeping its exchange rate artificially low to spur exports. NAM has not taken a position on possible legislation aimed at penalizing China for keeping the yuan’s value low. “Our members are divided on this,” Vargo said. “Some think it could only help, while others think it would start a trade war with China.”