Global Goods Competition

As the US refocuses on the impacts of international trade through the lenses of many trade agreements, it doesn’t hurt to consider from where our competitors are coming. The US wants to reduce, for example, its trade deficit with China. To do that, either China will have to buy more of our goods or we will have to buy less of theirs.

Today I want to focus on US exports of goods to China and the rest of the world. I am ignoring services exports because we have a surplus in our trade with services. Our trade problem seems to reside in goods. The IMF keeps some good statistics on goods trade, and their best database has some nice detail for the years 2013 to 2017. That’s five years – a long enough time for my buddy Nolan to reach his current age of 5 and long enough to draw some conclusions. My main conclusion is that if the US wants to raise its exports, it is not going to be easy.

The table below contains some relevant data on exports of goods. We see that in 2013, the world exported goods whose value in dollars was a bit more than $18 trillion. Since that time, goods exports did not increase; rather, they fell to a level of $17.7 trillion in 2017. The appetite for goods exports has clearly not grown. It fell by almost half a trillion dollars. Let’s agree that with a shrinking pie and a lot of eager-beaver countries, it won’t be easy to expand US exports of goods.

Comparing the next two lines, we see that as of 2017, advanced nations were selling only a bit more than the sum of all emerging nations. It was about a 60/40 split in 2017, and that split reflects the very strong desire of emerging markets to grow through exports of goods. Advanced nations will not give in easily so the future portends a time wherein both advanced and emerging nations will want to compete with the US to supply the world’s demand for goods.

The countries I chose to compare were based on foods that I love. I also chose ones that are major exporting countries and some with which the US might have a special trade relationship. Notice that with the exceptions of China, Mexico, and South Korea, all these countries shared the experiences of declining goods exports from 2013 to 2017. I am guessing that all those countries will try to do the same thing we are trying to do in the US – find a way to export more.

China’s exports increased between 2013 and 2017. China represented about 12% of the world’s exports in 2013. China was the largest country exporter. But notice even China can’t be too happy with its $67 billion increase in exports between 2013 and 2017. That represented a 3% increase in four years or less than 1% growth per year. Mexico’s was larger at 8% over four years or 2% per year. South Korea's increase was less than 4% per year. Those performances are nothing to brag about at the bar at Tacos Guaymas Mexican Restaurant. So even China, Mexico, and South Korea will not relent in their goals to produce and sell goods to the world.

In 2013, the US was the world’s second largest goods exporter and we claimed 9% of the worlds exports of goods. That’s not bad. But as I have said before, our problem with goods trade is not production or exporting. Our problem is our voracious appetite for buying goods.

Data source: http://data.imf.org/?sk=388DFA60-1D26-4ADE-B505-A05A558D9A42

Goods Exports of Selected Areas
2013 to 2017, in billions of dollars
Source: imf.org:
	2013	2017	% of             World	Change
			2013	2013 to 2017
World	18,193	17,702	100	-491
Advanced Nations	10,685	10,171	59	-514
Emerging Markets	7,509	7,136	41	-373
China	2,210	2,277	12	67
United States	1,579	1,547	9	-32
Germany	1,451	1,441	8	-10
Japan	714	687	4	-27
S. Korea	560	574	3	14
Russia	522	353	3	-169
Canada	465	424	3	-41
Mexico	380	410	2	30
India	314	299	2	-15

US Deficits in Goods Trade

Trade and protectionism are hot topics. At the root of the discussion is what has happened to the US as a trading partner. There is much to this debate and I won’t handle it all here today. Instead I focus on something that I think is central to the issue – the performance of US trade in goods.

International trade goes well beyond trade in goods. But as it turns out, a key part of what we consider to be problematic for the US is trade in goods. We trade services (like entertainment, transportation, shipping, and tourism) and we engage in a lot of international exchange with respect to financial and real assets (bonds, stocks, bank accounts) but we generally run surpluses in those trades. If we have a large and persistent trade deficit, it is mainly with respect to goods.

So I am back to playing with the data again this week. With trade figures there are choices to make. Much of what we refer to as trade is measured and captured in our balance of payments (BOP) account. There we find the Current Account and the Financial & Capital Accounts that contain information about exports, imports, and so on. These figures are always presented in nominal terms and thus measure changes in both quantity and price. Export and imports of goods and services are also published in our National Income Accounts (NIA) and those measures of trade are very compatible with the way Gross Domestic Product (GDP) is measured. The NIA accounts are presented in both real and nominal terms.

Yikes – too much information. Anyway, I decided to use the NIA measures since they are compatible with the way GDP is measured. I am using the nominal versions because they are somewhat more compatible with the BOP figures. I did a quick comparison of the real and nominal NIA measures and it didn’t change my overall conclusions. Whew. Where’s that JD?

The table at the bottom shows nominal NIA measures of US exports and imports of goods starting in 1964, the year I began studying Industrial Management at Georgia Tech and was introduced to chili dogs at the V in Atlanta. I present data for five years that are separated by 13 year-intervals because 13 is my favorite number (1964, 1977, 1990, 2003, and 2016). These 5 years bracket 1990 which is a demarcation point for the rise of globalization. This allows me to compare 26 pre-globalization years to 26 post-globalization years. Is this fun or what?

The top of the table presents US imports and exports in billions of dollars. Nominal GDP, also in the table, went from about $6 trillion in 1990 to almost $19 trillion in 2016. Some of that increase is because of price increases – with the rest from quantities. But GDP is not the point today – though it gives you a benchmark as to how much the size of the overall economy changed over those 52 years. Goods exports went from $403 billion in 1990 to almost $1.5 trillion in 2016. Imports increased too – from $508 billion to about $2.2 trillion. The net imports (imports minus exports) was $105 billion in 1990 and increased to $778 billion in 2016.

If I stopped right now many of you would have an aha moment. What you would see is the following post-globalization experience: US imports of goods outran our exports of goods and the trade deficit in goods increased dramatically. There are no smoke or mirrors here. This is the kind of information that supports the popular idea that globalization has not been good for the US and that there might be unfairness working against us – be it so-called free trade agreements or cheating or whatever.

But let’s not stop there. In the second part of the chart we display trade in goods as a percent of GDP. In 1964 goods exports were 3.9% of GDP. By 2016 goods exports accounted for twice the share of the economy at 7.8%. But notice that the pre-globalization gain of 2.8 percentage points (from 3.9% to 6.7% of GDP) compared to the 1.1 percentage point gain in the post-globalization years. That is, exports gained as a share of the economy much more before- compared to after-globalization. What about imports? Imports of goods increased 2.7 points before globalization and then 3.4 points post-globalization.

It is true that imports of goods picked up its pace after globalization while exports did the opposite. But notice also that much of those changes came in the 13 years after 1990. During the time from 1990 to 2003, exports fell as a share of GDP while imports rose dramatically. But then in the most recent 13 years we see that reversing as the share of exports increased at more that twice the pace of goods imports.

What can we say?

First, goods trade – both exports and imports were rising as a share of the economy for 52 years – both before and after globalization began accelerating in 1990.

Second, when we compare the data before 1990 with what happened afterward you can see much bigger increases in imports of goods relative to exports.

Third, if we look closer at the data since 1990 we see that most of the advantage of imported goods peaked by 2003 and has reversed since.

What does all this mean? For one thing it means that this is a pretty rich stew with a lot of vegetables. If we combine these numbers with the numbers from last week’s blog post we wonder if some of these trade results have something to do with the fact that so many countries have been narrowing the economic gaps between them and the US.

The 1990s were a time when many countries decided to open-up and use trade as a development tool. These countries wanted to rebuild and become more competitive and many were very successful as we saw in this blog last week. As incomes across the world grew, so did their appetites for goods and the growth of US exports of goods verifies this. But as their incomes grew they also became stronger competitors to the US and our goods imports rose as well.

Since so many countries were starting from very low incomes and poor productivity it made sense for the US to make special compensations or to ignore remaining protections in these countries. US citizens gained many of the benefits as more goods were available to them at lower prices. Lower prices gave US residents more dollars to spend and these people redirected some of these surpluses to US companies and created millions of jobs. The GDP data below show remarkable growth in our economy as some jobs declined while other expanded. 

There are some who think that the US can use its own arsenal of protectionist policies to preserve and restore jobs in the US. But that thinking is short-sighted. Despite catching up many countries still retain much lower incomes and a distinct price advantage that goes with it. Protecting US citizens from low prices on low-skilled goods makes no sense. It’s like sticking a finger in the dyke. What makes more sense is to recognize that the world has changed and that developing countries need to protect their own industries and workers less. Let’s not raise the worldwide level of protection – let’s lower it. 

But what about all those US workers in firms and industries that cannot compete? The answer is pretty simple in principle. Protecting these workers is only a temporary measure so long as the American worker makes $50k per year and foreign competitors make half or less. What makes sense is to encourage other countries to keep catching up with our incomes – and to find ways to better train and retrain our workers to fit better into US advantages in education, science, technology, entertainment, communications, and so on. The data below suggest that the export/import issue started turning in 2003. Perhaps we can keep that alive in the next 13 years following 2016.

Billions of Dollars	1964		1977	1990	2003	2016
Nominal GDP		686	2,086	5,980	11,511	18,625
Exports of Goods		27	128	403	741	1,446
Imports of Goods		40	153	508	1,296	2,224
Net Imports		13	24	105	555	778
As  Percent of GDP		1964	1977	1990	2003	2016
Exports of Goods		3.9	6.2	6.7	6.4	7.8
Imports of  Goods		5.8	7.3	8.5	11.3	11.9
Net Imports		1.9	1.2	1.8	4.8	4.2
Source BEA.gov

It's the Economy, Stupid

What joins us all together is the reality of the economy. If the economy tanks tomorrow, Democrats and Republicans will lose jobs or find their incomes rising less than hoped. If inflation roars back, we will all complain about the higher prices we have to pay.

While Ds and Rs have their preferred recommendations for economic policy, what will matter most is not who is right but whether or not we attend to real economic problems and make improvements in our lives.

So rather than dwell on policies and policy debates, I thought it wouldn’t hurt to lay out where the health of the economy sits right now. This amounts to a description of economic challenges, or you might say for those of you on post-New Year diets, this amounts to the before-diet picture.

Dieters want the post-diet photo to show major beautiful changes relative to the before-diet photo. So where you begin is very important. But even where you begin is not completely objective when it comes to the economy. And some people might think that any description of the economy right now is tainted with politics. An Obama supporter might disagree with any remarks that show a weak economy. The Republican would bristle at the idea that the economy might look strong right now.

Furthermore the economy is pretty complicated and dynamic. Anyone who attempts to describe the current economy might be leaving something out – or might be too focused on the latest data rather than more enduring trends. I readily admit that this is no easy task. And no matter how hard I try it won’t be perfect.

But it ought to be done and those who disagree with some of the conclusions below are free to ignore them or to add their own comments.

The place to start is with the growth of national output – or what we call real GDP. Most people would agree that it is not growing as fast as it used to. While there have been some quarters of decent growth in the past eight years, the overall trend is modest. We grew at a faster pace during most of the 1990s and right before the great recession of 2008-09.

Associated with that growth has been enough employment growth to push the unemployment rate down to levels close to what we describe as “full employment.”

Despite this increase in employed persons, we also have high levels of people who have been unemployed for more than 15 weeks, high levels of people who want full-time jobs, many folks who took jobs beneath their skills, and finally a lot of people who simply quit looking for jobs.

Despite an increase in the demand by employers, many workers lack the specific skills being demanded and thus shortages of workers exist side-by-side with surpluses of workers. The net result is that wage gains are lacking, and we talk about labor market mismatches.

Looking deeper at the modest real GDP growth we find one sector particularly lacking. Consumers are pulling their own weight through spending on housing and autos purchases. But the spending by firms on plant, equipment, and software has been in the doldrums. This has two key impacts. First, near-term growth lacks punch and second, new investments by firms have not raised productivity of workers and have harmed international competitiveness of companies. This means we get slower growth today and tomorrow, and we threaten future wage growth and our ability to compete with foreign companies.

Exports of goods and services have slowed for many reasons but primarily because many of our trading partners have not recovered or remain in recessions after the global recession. These foreign purchasers are not buying goods and services at home – and they are not buying from us.  

Interest rates and the value of the dollar have been rising. This is no surprise mostly because of the relative strength of the US economy. If interest rates rise appreciably more this could dampen investment spending further; if the dollar continues strengthening this might jeopardize exports.

Lackluster economic growth has also impacted poverty. The official US poverty rate in 2015 fell to 13.5% of the population – down from 14.8% in 2014 but is still higher than in 2007 (12.5%) and 2000 (11.3%).

Debt is also of concern. The Federal government’s debt threatens to reach more than 100% of the economy. Student debt has reached new peaks with little sign of abatement or payment. Similarly, mortgage debt is getting bigger and riskier.

This “photo” of the US economy today is where we have come to in early 2017. Is it complete? I doubt it. Does it foretell a disastrous future? I don’t think so. Is it where we want it to be? I don’t think so.

But I do think it wouldn’t hurt to have this story in the back of our minds as we contemplate and debate remedial actions in the days ahead. No matter what other issues we try to solve, we should at least not make these economic trends worse. I don’t care to place blame or praise for today’s economy. I just want us to make it better. 

Lesson 1. International Trade Ignorance

Those of you who can count will recognize that my last lesson was Lesson 16 and therefore you were expecting Lesson 17 this time. Unfortunately I checked the records and I never had a Lesson 1. I started with 2. Sheesh. So I am naming today’s main plate Lesson 1.

This lesson is about international trade. International trade is a lot like pho, the Vietnamese soup. A lot of people really like it but almost no one knows how to prepare it. Otherwise Campbell’s would have canned it already. We're similarly ignorant about international trade. When my fifth grade teacher called me ignorant, I was very hurt. But later I realized it did not mean I was terminally stupid – only that I didn’t know very much. I was willing to go with that.

I fear that our President-Elect is a bit ignorant about international trade. I also fear that he will read this post and ask me to be Secretary of Doggie Bags, but the truth is that most of us are ignorant about international trade. So no insult is intended.

One of my professors once talked about international trade in terms of the tail that wagged the dog. Unless you have a really small dog with an unusually large tail, you expect the dog to wag its tail. So saying international trade is like the the tail wagging the dog ought to have your ears perked and your tail wagging.

What my professor meant is that there used to be a day when trade pretty much meant one thing – countries selling goods to each other. "Goods" implies a tangible, e.g. a manufactured product or an agricultural product. You can imagine a time when much of world trade was coal or corn or clothing or cars. Countries loved to export goods because it expanded their ability to sell. The more they sold, the more incomes and employment grew.

So exporting goods was really cool. It was the big dog. You were the coolest kid on the continent if you could export your goods to other countries. That’s what many people think is what international trade is all about. Exports of goods! In 2015, the US exported $1.5 trillion of goods. Go team.

The interesting thing about an export of goods is that a bunch of foreign currency comes into world markets to pay for your goods. What do we do with all those foreign currencies? They are pretty but papering your walls with it can only go so far. Then some bright bulb thought, "Hey, with all this foreign money, maybe I could buy things from other countries!" So export countries would use the foreign currency to buy goods from other countries. Imports go hand in hand with exports. And more important, imported goods can really help your country – especially if you import things that help you to be happier and more productive.

So exports of goods imply imports. While exports have an important role for national goals, imports of goods are also part of that equation. If a country imported only Twinkies, then maybe you might want to rethink the value of the imports. But countries often import vital things they can’t get at home.

Nowadays most of the world has discovered services. Services are intangibles which essentially disappear once they are consumed. A float down the Rhine might cost you $20k but on your way home all you have left are some nice memories and the JD bottle you stole from your room fridge. Travel, tourism, entertainment, communications, utilities, healthcare, etc. are services. In the US today, about 70% of what we spend goes for services. So whatever I wrote above about goods adheres equally to services. Services exports augment a nation’s output and employment; services imports fill in what we don’t or shouldn’t make ourselves. In 2015, US services exports were $743 billion.

When people subtract national imports from exports, they are doing a legitimate operation. For example, if exports are less than imports of goods and services, we call that negative number a trade deficit. That causes frowns. We don’t like deficits. But in reality the negative number is telling you only one thing directly – currency going out exceeded currency coming in. What this negative number tells you – for example, a deficit of goods and services of $500 billion in 2015 – is that $500 billion did not return to the US via imports of goods and services. So what? It does NOT tell you that the US is in a half-billion dollar hole. In fact, what we know is that the nation got benefits from the exports AND it got benefits from the imports. Adding them together, we got about $5 trillion of benefits to the country in 2015.

I see you are tiring. Give me 10 burpees. The best part is coming.

What we have left out of all this is a huge part of trade call financial stuff. Okay, there is a more technical term but for now remember that the trade deficit left $500 billion of dollars around the world that people did not want to use for US goods and services. 

Notwithstanding wallpaper, foreigners who hold all those dollars can use that money and more if they want to buy financial stuff in the USA. They can open up an account  at the IU Credit Union. They can buy corporate or government bonds. They can buy shares of Apple or shares of an index fund. They can also acquire or merge with Apple or the Crosstown Barber Shop.

Wow. And they are not limited by that $500 billion left over from the trade deficit. They can invest all they want. And I don’t have to convince you that when foreigners buy US assets, it is a good thing. It is good because US firms find it easier and less costly to raise capital for investment. It is good because it lowers US interest rates. It is good because it can infuse the latest technology and innovations into American companies.

In 2015, foreigners increased their ownership of US companies (what we call foreign direct investment or FDI) by around $350 billion dollars. That’s not how much they owned – that’s how much they INCREASED their ownership in that one year. They increased FDI by around the same amount in 2014. In those two years, foreigners increased their ownership of portfolios in America by about $736 billion. Money is gushing into the USA. Between this portfolio investment and the FDI, we are talking about an increase of dollars buying US assets of more than $1.4 trillion.

Here’s the point: Trade includes cross border transactions of goods, services, foreign direct investment, portfolio investment, and more. Anyone who focuses on one of these to the exclusion of the rest is not telling you the full story. International trade is great for the USA. Yes, we have a trade deficit. But we also have a pile of very valuable imports of goods and services flowing in and a waterfall of the world’s savings wanting to invest here. Anyone who suggests that we should jeopardize the latter so as to remediate the trade deficit in goods is not understanding the meaning of international trade.  

Export Doldrums: The Little Engines that Couldn't

Americans earn income when they produce things and get paid for the production. Our nation produces lots of things. Pfizer has been in the news lately because they are merging with another company. Pfizer makes Viagra. That makes a lot of people happy but I won’t go into that because some of our readers might take offense. We also make guns and houses and the list goes on and on. We also produce services. In fact the majority of what the nation produces is classified as a service. If you work at Macy’s you get paid the minimum wage or less to perform the sales function. If you are an Uber driver you get paid each time you deposit someone at a desired location like LaTorre’s Mexican Restaurant. If you sell tickets for cruise ship voyages you receive income so that people can gain about 50 pounds and see the shorelines of very interesting places.

In 2014 USA National Output or GDP was $17.4 trillion dollars. Wow. That is a pile of stuff! Of that amount $7.9 trillion was for consumer services and pretty much the rest was for goods sold to consumers and goods and services purchased by businesses and governments. In 2014 we imported goods and services of about $2.8 trillion and we exported $2.3 trillion.

It is those exports that I want to focus on today. Look at it this way – we produce stuff at home and sell it to people both here and outside the country. Let’s call the local buyers Pete and those offshore buyers Charlie. If we are US policymakers we want Pete and Charlie to buy a lot of US stuff. When they do that all kinds of good things rise – output, profits, jobs, wages, and so on. Please, no Viagra jokes. We have problems in the USA presently because neither Pete nor Charlie are on a spending spree. So the economy limps along.

I will pick on Pete another day but the question today is what happened to Charlie? And that’s what the next 117 pages are about. If you are in Colorado or Washington light up your favorite smoke and hold on. Otherwise JD works well. 

The first thing to keep in mind is that the US, unlike some other countries, is not dominated by export sales. That $2.3 trillion of foreign sales is only about 13.2 percent of GDP. If that figure was half of GDP then what I am about to say below would be alarming. But since export sales are 13.2% of GDP that means what foreign buyers do is important but it also means the 86.8% of local buyers are much more important.

But we talk about local buyers all the time so let’s spend a little time investigating foreign sales or exports.

Who buys our crap? Mostly people who are close by – Canada and Mexico are the two top foreign destinations for US goods and services. Together they bought $646 billion in 2014. That amounts to 28% of all US exports. Next in line were China and the UK. Below are the top 12 destinations for US goods and services. Together these 12 countries purchased in 2014 $1.4 trillion or a little over 60% of US total exports to the world.

            

            Canada

            Mexico         

            China

            United Kingdom

            Japan

            Germany

            Brazil

            South Korea

            France

            India

            Saudi Arabia

            Italy

If the US economy has been slowing down because Charlie is not buying as usual, then we should be able to see this in the data. So I compared two 8 year time periods for evidence of change: 2000 to 2007 and 2007 to 2014. It turns out that exports grew much slower in the latter period compared to the former. The next table shows the increase during 01 to 07, the increase during 08 to 14, and the differences. Data are from www.bea.gov 

  

US Export Sales to the World from 2000 to 2014.

                               0 to 7  7 to 14  Diff

Canada                   2297  1802     -495

Mexico                   1515  1068     -447

China                        897     345    -552

United Kingdom       773     645    -128

Japan                         760     735     - 25 

Germany                   531     421    -110

Brazil                        415     178    -237

South Korea              404     291    -113

France                        333    268      -65

India                           225      93    -132

Saudi Arabia              154      75      -79

Italy                            171    143      -28

   Total                      8474   6064  -2410

0-7 is the sum of US exports during the years 2000 through 2007

7-14 is the sum of US exports during the years 2007 through 2014

Diff is the difference between the first two columns

A negative number for Diff means lower export sales in 2007 to 2014

Numbers are in billions of dollars

The key point is that US exports have slowed dramatically. From 2000 to 2007 the US exported a total of $8.5 trillion in goods and services to the top 12 country destinations. From 2007 to 2014 we exported less, $6.1 trillion. The difference is not small -- $2.4 trillion! That is a 28 percent reduction.

While China explained about one-fifth of that seven year decline – notice that US exports slowed to every one of the top 12 country destinations. All 12!  Between our NAFTA partners Canada and Mexico we explain almost a trillion of the decline.

These declines do not come from one country or one part of the world. Economic problems in Europe, Asia, South America and even the Middle East all contributed to weakness in US sales abroad. As these countries suffer economic recessions and slow growth, their people are able to buy less. They buy less at home and they buy less from other countries, including the USA.

Next we turn to economic projections for these 12 countries. Expectations of stronger growth abroad would translate into a stronger demands for US goods and services. Below is a table I generated using economic growth data from the IMF World Economic Outlook (October 2015) Tables A2 and A4.

                    97-06  07-15  16-20
Canada          3.4     1.6       1.9
Mexico          3.3     2.1       3.1
China             9.4     9.1       6.3
UK                 3.1     1.0       2.2
Japan              0.9     0.4       0.9
Germany        1.5     1.1       1.5
Brazil             2.7     2.7       0.8
S. Korea         4.9     3.4       3.4
France            2.4     0.7       1.7
India               6.6     7.3       7.6
Saudi Arabia  3.9     5.0       2.7
Italy                1.5   -0.8       1.2
Average          3.7    2.8       2.8

           

Column 1 is the average annual growth rate of  Real GDP for each country from 1997 to 2006. The second column has average growth rates from 2007 to 2015 (the 2015 number is a projection for the year made in October of this year) and the third column averages the predictions for the IMF for the years 2016 and 2020. 

We see two things from this above table. First, the economic growth rate of the main US trading partners declined significantly after 2006. Every country except for India and Saudi Arabia (Brazil's growth rate did not change) slowed considerably in the 2007 to 2015 time period. This helps to explain the major reductions in US exports during those years. Incomes of our trading partners slowed or declined --- and they purchased less from the USA. 

Second, the IMF is not expecting things to improve in the next five years. The 12 country group's average GDP growth will not improve at all. Looking at our top three destinations only we see a big improvement expected in Mexico, a small gain for Canada, and a continued decline in China. India is expected to grow faster while Brazil and Saudi Arabia will suffer continued growth problems. 

Exports are not everything to the USA -- but they are important. If we believe the IMF's economic growth forecasts it is difficult to see any real hope for an export led resurgence of growth in the USA. As I wrote last week -- free trade agreements are the right thing to do but in this slow global growth environment it is difficult to believe that countries will approve a strong agreement and even with such an agreement, income problems will swamp any gains that might come from trade-opening agreements. The world needs a locomotive but it is unclear who will play that role.  

Lesson 9 US Exports of Goods and Services to the World

I was annoyed by the stock market last week but was unprepared for the Indiana Hoosiers football team giving up 47 points to the Salukis of Southern Illinois. Yes, they did win in the last seconds but even that was mostly the result of divine intervention. So it was not easy choosing a topic for the blog this week.

What I should write about is Cari Ray. I had the outstanding privilege of watching her perform Saturday night after the football game and came away thinking this genius woman must be a combination of Bob Dylan, Janis Joplin, Linda Ronstadt, and possibly Carol King. Her song words make you cry and laugh and her voice is like peppered velvet. Okay I had a JD or two – but if you don’t believe me click on this link and make up your own mind. https://www.reverbnation.com/cariray

Instead I decided to move on to Lesson 9 and exports. I have written on that topic several times usually trying to explain why it is so hard to use trade as a way to grow the economy. The post today follows that tradition and uses recent events to underscore the main lesson. Despite having enough holes to sink a battleship, the US economy is not really the story. Today we cast our eyes offshore to identify the sources of US economic problems. Donald Trump likes to castigate China. According to the Donald, China either cheats or it tries to irritate us by going into a recession. How dare they annoy us by going through a recession! But it isn’t just China. Look the other direction and watch how slowly Europe is growing. How insensitive of them to grow so slowly. And then – while I am on a roll – all those emerging markets have their nerve encountering government corruption and the predicted results of having one-horse (commodity) economies.

Do you get my drift? We wonderful US citizens are being saddled by the rest of the world. Our little Engine that Could is being held back by all those foreigners. This post today is to try to put some of that into a perspective. I focus on one part of the story – the part that seems compelling to many people. These problems in the rest of the world hit us in the USA because we export goods and services to them. We are kind and generous and we sell our pots and pans and ipods and banking services to people in China, Vietnam, and S. Korea. Now they have the audacity to have wounded economies. Never mind that these economic problems cause severe dislocation and poverty in those countries – what we focus on is the audacity they have in buying less from the USA. We cannot use our own errant monetary and fiscal policies to prop up the economies of our trading partners – so we mostly complain, accuse, and advance trade policies (like exchange rate manipulation and free trade agreements) that have a zero chance of being effective in today's global economic environment.

For our lesson today I went to bea.gov and found some US export data. Here are some things I learned. In 2014 US exports of goods and services to the world equaled about $2.3 trillion. Most of it – 69% was goods and the remainder was services (travel, banking, etc). The $2.3 trillion amounted to 13.5% of GDP that year.  Despite slow global growth, that share has generally increased from about 9% in 2002 to more than 13% each year since 2011.  So exports have been a healthy component of the US economy. But while healthy – they are clearly not the dominant force. Spending on domestically produced goods and services (consumer and business goods and services) averages about 70% of GDP (assuming we net out imported goods from domestic sales).

Result – export sales are a relatively small but important and growing part of US sales.

Despite growing faster than GDP, US exports sales to the world have slowed. In the five years between 2009 and 2014, exports of goods and services increased by 47%, slower than the 66% growth between 2002 and 2007 (pre-global recession).

The table below shows the geographical sources of the decline. But first, some facts from the table.

The 29 countries that make up the European Union bought the most of any destination -- $498 billion in 2014.

The largest EU buyers were the UK, Germany, France and Italy – the four of them totaled $273 billion in 2014.

The largest single-country buyers of US products in 2014 were our NAFTA partners. Canada bought $375 billion and Mexico purchased another $241 billion.

China ($167 billion) and Japan ($114 billion) were the next largest buyers of US goods and services followed by Brazil, S. Korea, India and Saudi Arabia. None of the remaining countries bought more than $26 billion goods and services from the US in 2014.

The heavy-weight countries when it comes to buying US goods and services, therefore are Canada, Mexico, China, the UK, Japan, Germany, Brazil, France, and S. Korea.

Finally consider how things have changed. I offer two rates of growth of export sales in the table below. The first number is the percentage change before the world recession – from 2002 to 2007. The second number is after the recession between 2009 to 2014. Both are five year time periods.

These numbers show that growth to these key destinations for US goods in services fell to every destination except for Mexico and Japan. In the earlier time period exports to Mexico rose by 40% only to rise by 78% in the five years from 2009 to 2014. Exports to Japan were basically slow in  both time periods but picked up marginally.

If you want to see the problem areas for US exports, look at the rest of the key destinations. Our biggest trading destination, the EU, was the main culprit with sales growing only 24% between 2009 and 2014 after increasing  by 77% in the earlier time period.

China is an interesting case. While export sales to China grew at a blistering pace of 175% in the earlier period, they were still growing by 91% in the final five years. So China helps explain some of the US export slowdown but it is hard to scold China when they are still buying US goods and services faster than anyone on the chart. At that rate our exports to China would double every five years.

So let’s get real. The rest of the world does not want to grow more slowly. The rest of the world hurts more than we do when they cannot find ways to increase income. Whether it is China or Germany of Canada – there is a little the US can gain by sticking a finger in the eyes of trading partners. Politicians like to simplify. But none of this is simple. Rather, Us policymakers should spend time working on our own real deficiencies. Last week I discussed how our policy makers are out of the traditional bullets but there is much we can do at home. Perhaps we could do better at world trade if we focused on what makes US companies more powerful and competitive.

Table

US Exports in billions of dollars

Numbers in parentheses are five year percentage changes in export sales to each destination (from 2002 to 2007/from 2009 to 2014)

Destination            

United Kingdom     $118              (69/21)        

Germany                     78              (76/14)

France                         51              (41/18)

Italy                            26               (54/23)

Rest of EU                273                  (na)

European Union             $498       (77/24)

Canada                             375       (57/51)

Mexico                             271       (40/78)

China                               167        (175/91)

Japan                               114        (23/26)

Brazil                                 71        (93/78)

S. Korea                             67        (62/56)

India                                   37        (224/43)

Saudi Arabia                      27        (100/57)