x Abu Dhabi, UAESunday 23 July 2017

US export growth reveals re-balancing in global markets

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.

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 over the next decade and tens of millions more will start college. Old and young will be massive buyers of everything from advanced medical services to online entertainment. Asian governments are investing billions in telecommunications, energy, power grids and hospitals.

All of this comes at a time when, for a durable recovery, America requires new sources of growth. There's no easy ways at home; exports are the only alternative.

Since the Second World War, US exports have doubled about every 10 years, growing at about 8.3 per cent each year. To double that in five years, as the Obama administration hopes, would require businesses and farmers to raise this growth rate above 15 per cent annually, keeping it there until 2014. Can the US double the 1.7 million cars, 300 civilian airplanes, 540 million kilos of almonds, 25 million kilos of lobster, 9,900 electrocardiograph machines, and $20 billion worth of semiconductors it sent to the rest of the world last year? That's a tall order.

One way to examine how the US is doing is to examine container flows. The Port of Los Angeles in recent years has unloaded an ever-rising amount of cargo from Asia, returning many empty containers across the Pacific Ocean. This year that trend has been reversed: each month, the port ships 18,000 more filled containers to Asia than it receives.

America's long-suffering automakers shipped 56,000 cars to Shanghai, Beijing and other wealthy Asian 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. Shipments of circuits, paper, and artificial limbs show the same trends. Should this year's pace keep up - even with anxious debates over currency rates and trade balances - US 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 rising more quickly, up by 40 per cent each. Demand for US goods in Brazil and Colombia is growing just as fast, and in South Korea and Taiwan even faster. Even with a slow year selling to crisis-stricken Europe, US exports are up by 18 per cent there this year, well above the rate needed to double in five years, and almost enough to double in four.

Some of this year's US 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 results of cyclical effects that are likely to diminish in the next year or so. This year's jump is in part a natural rebound from a bad 2009, when a 15 per cent drop in exports marked the sharpest fall in US trade since the 1930s. A low dollar value against other major currencies such as the euro and yen also makes American exports cheaper in most world markets and this trend may continue.

To keep up the pace, however, the US must work harder to open more markets. A long-overdue look at the antiquated American embargo in Cuba and work with foreign partners to approve three improved free-trade agreements with South Korea, Panama and Colombia will help. The US and the global economy would also benefit from pushing ahead with modernising export-control laws and reducing the complex bureaucracy that deters exports of less-sensitive American dual-use technologies.

But the current US administration still needs to think bigger and reshape the trade strategy inherited from its predecessors. Over the last decade, beginning in the Clinton administration's last months and throughout the Bush era, the US trade agenda centred on free-trade agreement relationships. The programme aroused emotion, but remains too small for the export growth the administration wants. All 14 FTA relationships concluded since 2000 combined cover about 5 per cent of US trade - 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 per cent 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 centre of policy.

Trade policy, using the World Trade Organisation'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 centre 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.

Asian consumers must do more spending and American families more saving. But that is only part of the equation. The US must continue to 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 rebuild confidence in America's competitiveness.

 

Edward Gresser served as a policy adviser on trade in the Clinton administration and is now director of trade and global markets at the Democratic Leadership Council in Washington, DC

© Yale Center for the Study of Globalisation