Monday, September 20, 2010

Exports: Data and Myths

We hear much about our balance of payments deficit, and how we no longer compete in manufacturing, and how we are locked in some kind of economic death spiral. Bruce Katz and Jonathan Rothwell recently published an article, Five Myths about U.S. Exports, in the Washington Post. It presented a refreshingly positive look at our economic interactions with the rest of the world.

1. Exports have been a shrinking share of the economy.
“Given our sizable trade deficit, many people assume that we must be selling less to the rest of the world than we once did. This is not true. Despite the drop in June, U.S. exports grew 14.1 percent from the second quarter of 2009 to the second quarter of 2010, a pace far outstripping the 3 percent growth of the economy overall. In fact, the share of our economy devoted to exports has been growing continuously since its modern low during the Great Depression. Exports now account for roughly 12 percent of GDP, up from 3 percent in the 1930s.”

“And compared with other countries, our exports make up a small segment of our economy. Moreover, recent census data show that most U.S. businesses are focused solely on the domestic market: Only 1 percent of them are exporters.”

2. Exports come only in boxes.
“In 2008, the United States exported more than $500 billion in commercial services. The largest segment of these -- $113 billion worth -- was business, professional and technical services, including management and consulting, research and development, and computer services. Our other service exports include travel and tourism (the services we sell to international tourists, from restaurant meals to hotel stays, count as exports, even though they are enjoyed on U.S. soil), financial services, and Hollywood films.”

3. U.S. exports are no longer internationally competitive.
“With so much emphasis on the decline of American manufacturing (we were once the world's top exporter), many people don't realize that the United States ranks third in the world in merchandise exports, just behind Germany and China, according to the World Trade Organization. Certain industries that specialize in high-value exports (integrated circuits, say, or other electronic components) are particularly strong. Exports of transportation equipment, to take another example, grew by 10.6 percent between 2003 and 2008, outpacing the growth in transportation imports.”

“Once services are added to the calculation, the United States exports a higher value of products than any other country in the world -- $1.5 trillion in 2009, compared with Germany's $1.3 trillion and China's $1.3 trillion.”

4. Trade with developing countries eliminates jobs for U.S. workers.

Trade has positive and negative effects when dealing with developing countries. Low wage manufacturing does tend to drive down wages and eliminate jobs in this country. However, that is balanced by the developing country increasing its imports from the U.S. The authors see the real issue being that our country has no mechanism to deal with this economic dislocation. They suggest “more aggressive and comprehensive unemployment insurance and retraining programs.” I am not sure what that means exactly.

5. U.S. exports won't increase until other countries "play by the rules."

The authors say, basically, other countries are doing what other countries do. Certainly they try to stack the deck in their favor. We aren’t even smart enough to have a policy that would encourage more exports from our business community, so how can we complain. The potential is there to participate in world trade more effectively. We just have to take advantage of it.

The administration does have an initiative to encourage more exports, with the goal of doubling them in the next five years and creating two million jobs in the process. The plan reportedly contains the following activities.
“The President’s Export Council issued a report Thursday that called for a variety of steps to boost US companies' ability to sell abroad. Recommendations included a campaign to raise awareness about export opportunities for small and medium-size firms; bringing more international buyers to US trade shows; boosting the number of US trade missions going abroad; and providing more funding to help finance exports.”

That is not exactly awe inspiring, but it is a start.

For those interested in actual numbers, the BEA (Bureau of Economic Analysis) provides here a spreadsheet with imports and exports and balances, for both goods and services, by month and by year from 1992 to the present. In 2009 our exports of goods were $1.07 T while our exports of services were valued at $0.502 T. Roughly, a third of our exports were services and we ran a positive balance of $132 B in that category versus a negative balance in goods of $507 B. We also currently ship about $30 B a month overseas for oil imports. That is a large chunk of our deficit.

If we are supposedly out of the manufacturing business, then what are we exporting? I found this nice graphic in Businessweek magazine.  This will be hard to read unless you zoom in.  The data presented is for 2009 and 2010 through July. Notice that exports seem to be growing at a healthy rate. 

I feel a bit better after reading this article and seeing the data. I will assume a better future is ahead of us—at least until the next bout of bad news.

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