Doubling US Exports

Cartoon by Jim Gibson

While everyone is so focused on the beginning of fall sitcoms and American football it might be time to revisit the hopeful goal of the President to double US exports. He stated that goal in 2010 as he announced a five-pronged program to increase America’s focus on selling goods and services abroad. It sounded like a neat idea at the time because people who live outside the US just can’t get enough US produced goods like Kentucky bourbon and Mississippi River cruises. It sounded good to the President because when these foreign folks buy more of our stuff it should increase employment in the US. Of course the President never mentioned an import policy to go with the export policy because I guess when American’s buy Samsung ovens and phones that does not have a negative impact on jobs in the US. But I get ahead of myself.

The President is a clever guy. He knows that it is always much easier to reach a goal if you never exactly define it. Try as I might, I cannot find any clear cut definition of what the president was going to double in five years between 2010 and 2015. As it happens exports can be defined many ways. The balance of payments statistics (BOP) define exports in terms of current prices. The National Income Accounts (NIA) defines them two ways: in current prices and constant prices (Real, or chained).  As you might imagine these measures that include current price change can make a big difference. If we are interested in a version of exports, however that correlates to employment – then it is usually better to use the NIA constant price version. 

Another issue regards whether or not you want to focus on exports of goods and services or goods alone. The President never made it clear which one of these two variants was in his sights. This measurement issue implies that we can never be sure how to determine if the goal has been met. Maybe he was thinking of exports of Chevy Volts?

But semantic issues will not deter us. Let’s focus on NIA’s version of real US exports of goods and services. In the first quarter of 2010, US exports of goods and services reached $1.7 trillion. A doubling by 2015 would imply an increase of $1.7 trillion.  As of the second quarter of 2013 – much more than halfway through the five year period, real exports of G&S reached $1.986 trillion. That is an increase of $286 billion. In three and one half years we have managed to move 16% towards the target. To put that into some perspective, if we were well on target to meet the goal, exports of G&S should have increased by about $1.2 trillion.  Clearly we are way behind schedule if exports of G&S are going to double by 2015.

During this same time period imports of G&S into the US were not standing still. In the last 3.5 years imports of G&S rose from $2.1 trillion to $2.4 trillion – the increase was $324 billion. Exports rose by $286 billion while imports increased by $324 billion. Thus real net exports of goods and services decreased by $38 billion. If exports increase employment and imports decrease it – then in the last 3.5 years the President’s Export plan has worsened the employment situation in the US. We are moving away from the stated goal.

Perhaps you say, we should focus instead on goods. Perhaps the services numbers are not helpful. In that case exports of goods increased by $190 billion in those 3.5 years while imports increased by $277 billion. Net real exports of goods declined by $87 billion. Focusing on goods instead of the broader aggregate of goods and services makes the situation look even worse.

We are now 14 quarters into the plan – 70% on our way to 2015 and only about 16% closer to the export goal. 

Perhaps the apparent failure is because the value of the dollar increased more than expected. A rising dollar would hurt US exports and raise imports. But the dollar has been on a downward trend for quite a while. It is true that the dollar has fluctuated but between 2009 and 2012 the dollar depreciated 8% against the euro, 15% against the yen, and 8% against the Chinese renminbi. In those same years the dollar depreciated by 5% against our major trading partners. It was down 31% against our main trading partners between 2002 and 2012. The dollar is not the problem.

The real problem is that the policy was mainly wishful thinking.  Despite being barely one year out of a world recession in 2010, the administration believed we would believe that it could wave a magic wand and make exports grow at a rate that was almost historically impossible. We would have to go back to about 1995 to get a doubling to today’s figure. That is it took 18 years for real exports of goods and services to double. President Obama thought we could double them again in the five years following a world economic recession. Really?

Exports are not the issue. Net exports makes a little more sense because it admits that trade is a two-way street both creating and destroying jobs. But even net exports are not the point. The US needs a vibrant competitive economy. Making up silly plans is not the way to make that happen.