White House makes exports priority, but will fall short of ambitious target, expert says.
By Eric Kulisch
The United States may have been on track during the first two years of President Obama’s five-year plan to double exports from $1.6 trillion to $3.2 trillion by the end of 2014, but has no realistic chance of achieving that goal, according to a top international trade expert.
U.S. exports increased 16.7 percent in 2010 to $1.83 trillion. Last year, the total value of U.S. exports grew 14.5 percent to a record $2.1 trillion, and supported 10 million jobs. In March, the United States set a monthly record of $184.4 billion, followed by sales of $183 billion worth of goods and services overseas in May.
But this year export growth is expected to be about 5 percent, as large emerging markets cool down and Europe stagnates, and could recover to near 8 percent next year, Paul Bingham, who heads the economics practice at infrastructure consulting firm CDM Smith, predicted.
“That’s pretty healthy compared to the rest of the economy. But it’s nowhere near the pace the country would have to be on to achieve that goal in five years,” he said June 25 in Chicago at a seminar, organized by the Containerization and Intermodal Institute, on how to expand ocean container exports.
Since Obama unveiled the National Export Initiative in his 2010 State of the Union address, the administration has pushed through free trade agreements with Panama, Colombia and South Korea, promoted U.S. products through strategic trade missions, brought more foreign buyers to trade shows, tried harder to educate the business community about loan programs and other resources, and created a multi-agency trade enforcement unit to pursue unfair trade practices by foreign governments. The effort is unique in the sense that it involves all relevant branches of government, including the State Department, operating in a much more coordinated, sustained fashion than ever before.
But there are limits to what can be accomplished.
Obama’s target “implied a growth rate that was unprecedented. Nowhere in the time series of U.S. trade statistics have we seen trade grow that fast for that long a period of time,” Bingham said.
The export spike in 2010 and 2011 was off a low base of activity following the recession and resulted from the rapid recovery in global trade.
“But that wasn’t sustainable,” Bingham said.
The freight transportation economist cautioned that the administration is also defining its outcome as nominal trade in dollar terms, meaning that inflation isn’t padding the results. Doubling exports refers to value, not physical volume, and includes services.
In 2011, merchandise exports increased $202 billion to a record $1.48 trillion.
Obama’s goal to double exports is a stretch, but is easier for the American public to grasp than a more realistic percentage that doesn’t inspire people to action, Bingham explained.
“We’re not going to achieve the goal. That’s my forecast.
“But it’s still worth trying to get there” because exports, especially manufacturing, contribute to the overall economy and lowering the trade deficit, he said.
Even though U.S. exports may not multiply by an arbitrary presidential figure that doesn’t imply international trade is on the wane.
Some sectors and less traditional markets are flourishing, according to the Commerce Department. Foreign sales of automotive parts are up 60 percent and trade to Brazil, India, Russia and China has grown more than 50 percent, or by $56 billion, in the past two years.
Turkey, Indonesia and South Africa are also countries that are growing at a rapid rate and desire U.S. products and services, Michael Masserman, Commerce’s executive director for export policy, promotion and strategy, said.
The United States achieved record exports to Europe in March despite the headwinds of the debt crisis on the continent.
U.S. exports to Russia last year increased almost 40 percent to $8.3 billion. In April, U.S. exports to Russia reached $1.1 billion, the largest month on record.
Meanwhile, exports could receive a significant boost from energy markets as the United States begins to rapidly develop new oil and gas resources in shale formations, Greg Tuthill, senior vice president for sales and marketing for NYK Line (North America), said.
Last year, the United States became the world’s No. 1 producer of natural gas.
More than a dozen companies have applied to the Department of Energy for permits to export the fuel because of the size of new reserves.
And, refined fuel — gasoline, diesel and jet fuel — became the top U.S. export in 2011 for the first time in 21 years. The United States is now a net exporter of refined products. Energy analysts say a decline in U.S. consumption of oil leaves more capacity for exports and the lack of pipelines from shale oil fields in North Dakota to the Gulf means that the oil first goes to refineries in Oklahoma before being shipped out.
Boosting the competitiveness of U.S. products in foreign countries these days is the ongoing decline in the value of the dollar vis-à-vis other currencies, especially those in emerging markets.
IHS Global Insight earlier this year forecast total U.S. merchandise trade would grow 6 percent for the remainder of the decade compared to 3 percent for U.S. Gross Domestic Product. Trade is increasingly important to the U.S. economy as a greater proportion of economic activity each year is tied to importing and exporting, Bingham noted.
That trend will continue as the rest of the global economy grows faster than the United States and global demand for imports increases.
This should benefit container carriers because the two biggest commodity categories for U.S. exports — machinery and electronics — are primarily shipped by container.
| Sources: U.S. DOT, Research and Innovative Technology Administration, Bureau of Transportation, Statistics, Nov 2011 and CDM Smith. |
Government and industry officials point out that an abundance of opportunities await companies willing to do business over the border, where growth rates are frequently much higher than in mature markets like the United States. Eighty percent of world growth by 2015, and four-fifths of purchasing power, will be outside the United States. But they lament the fact that only 1 percent of U.S. businesses export, and the majority of those that do only export to one country — typically Canada or Mexico.
Many firms are uneasy about the perceived complexity of international trade, and unaware of available assistance programs, to leave the comfort of the domestic market.
“Exporting is simply not in the American DNA,” Amy Liu, co-director of the Metropolitan Policy Program at the Brookings Institution, wrote in a commentary on the organization’s Website in February.
The United States is still the top exporting country in the world, but it’s third in export of goods. And the export share of GDP is much lower in the United States (13.9 percent), than in places such as Germany (48 percent), where the population understands that trade is closely tied to jobs, income and wellbeing.
“This is really what I see the NEI as trying to ultimately change. It’s to get the business culture in this country to be focused more on exports and to understand that globalization is not just a threat to jobs here but it’s a tremendous opportunity for our economy and it’s actually the path to take to grow in ways that we can’t if we were only trying to manufacture and sell to ourselves in a domestic market,” Bingham said.
Redoubling Efforts. Few of the 100 or so freight industry representatives in Chicago who participated in an impromptu poll knew about the U.S. Export Assistance Centers operated by the International Trade Administration’s Commercial Service in local communities, the Small Business Administration’s development centers or the Export-Import Banks’ trade financing services.
There are 107 Export Assistance Centers in 49 states that helped 5,600 companies in 2011 export for the first time or increase their overseas sales.
The government’s support for exports ranges from providing market research and loan guarantees, to addressing market access barriers.
It’s ironic, Masserman suggested, that companies lobby heavily for passage of free trade agreements but often don’t take advantage of them once they are in effect.
“We have to do a better job educating folks about what these trade agreements mean,” he said.
The Obama administration is planning further measures to spur exports, Masserman said. This summer the International Trade Administration (ITA), part of the Commerce Department, is revamping the Export.gov Website that serves as a one-stop portal for trade news, advice and government resources to give it a Facebook-type feel and be much more interactive.
Spreading the word about the vast array of resources available to companies unsure about how to find buyers in foreign markets or how to comply with import and export rules is more difficult with the tight federal budget, which makes partnerships with private sector groups such as the American Association of Port Authorities even more important, Masserman said.
The AAPA agreed to help advance the NEI’s goals last summer by developing best practices for ports to expand and improve their export promotion efforts.
Commerce officials consider ports natural vehicles for educating shippers about the government’s export services because they understand commercial transaction requirements and can use their contacts with transportation providers, foreign buyers, regulatory bodies and others involved in facilitating trade to identify overseas markets and trade leads.
More than 75 percent of merchandise exports by volume and more than 36 percent by value are transported on the water.
Masserman, who took over leadership of the NEI in March after the departure of Courtney Gregoire, said he wants to deepen the partnership by getting ports more involved in trade missions. In February, the department led its first ports and maritime trade mission to India to introduce dredging, port security, maritime technology, transportation and logistics companies to that nation’s maritime sector. The Port of Baltimore was able to sign a sister port agreement with the Port of Mundra promising to exchange information on trade opportunities and port development issues.
The U.S. Trade and Development Agency, which provides grants to overseas infrastructure development and trade capacity projects that use U.S. companies to perform the work, is sponsoring a reverse trade mission in late September to familiarize the Indian public and private sector representatives with U.S. technologies and services in the ports sector. Meetings will take place in Washington, New Orleans, San Diego and Los Angeles.
A key part of the administration’s strategy is to localize the NEI’s efforts in metropolitan areas because that’s where the bulk of export production takes place, Masserman said.
In 2011, the ITA partnered with the Brookings Institution on a Metro Export Initiative to help metropolitan areas tailor integrated export plans to the strengths and goals of each community. Many of the plans involve metro chambers of commerce, non-profit groups, universities, financial institutions, regional economic development authorities and port authorities working in coordinated fashion. The idea is to encourage local officials, who typically focus on helping local firms grow domestically, to make export promotion a regular part of their development work, and give them tools to help firms acquire export capabilities.
States do not have the data to understand their own export strengths, nor the effectiveness of their existing export programs. Their export efforts are reactive, fragmented, inconsistently funded and frequently ignore the export-promotion work of other groups or the federal government, according to Brookings, a well-established think tank in Washington.
Trial programs were recently launched in Los Angeles; Syracuse, N.Y.; Minneapolis; and Portland, Ore.
Portland, for example, plans to heavily promote the region’s strengths in computer electronics and clean technology services, and assist firms in those sectors.
The Los Angeles region export plan aims to overcome five challenges:
- Too much emphasis on export promotion and not enough one-on-one mentoring and market research support.
- Too many companies that are not “export ready” clogging up core export services programs.
- Fragmented and disconnected programs, creating confusion about who does what.
- Export service providers plagued by insufficient resources.
- California has no international trade agency.
The strategy involves creation of a Los Angeles Regional Export Council (LARExC) responsible for coordinating existing export services and providers into an export network, doing research, and managing a regional export Website. A new program, called Export Champions, is designed to connect partner companies within target industries to MBA research teams at universities that will conduct market research and training, and develop export business plans.
“What I think is really exciting about the Metro Export Initiative is that, if we do this right, we have a chance to have exports be something sustainable so that when cities and states are doing their regional economic development planning, exports will always be a part of that plan,” Masserman said.
He told American Shipper that another 10 to 20 cities will start Brookings export pilot programs by the end of the year.
Others are also bringing resources together to support exports. The state of Illinois and the city of Chicago, under the leadership of Mayor Rahm Emanuel, Obama’s former chief of staff, also have their versions of the NEI.
Chicago is the seventh largest export metro area in the nation, with shipments totaling over $34 billion.
In 2010, Washington Gov. Chris Gregoire launched a state export initiative which officials tout as contributing to a record $64.6 billion in exports last year. Gregoire led a trade mission to England, Ireland and the Farnborough Air Show July 4-12 to introduce Washington aerospace, green energy and technology companies to potential European partners.
At the national level, the Obama administration has prioritized Russia under the NEI and is trying to get the country to lower barriers to market access. It is pushing to repeal the Jackson-Vanik amendment before Russia is accepted into the World Trade Organization this summer because of the large opportunity for U.S. firms there.
Jackson-Vanik was enacted in 1974 in an effort to pressure the Soviet Union to allow Jewish emigration. It requires the president to certify to Congress each year that Russia permits free emigration.
If the law is still on the books when Russia accedes to the WTO, the United States will be in violation of rules requiring all WTO members to grant each other permanent normal trade relations. The average tariff for imports into Russia is about 10 percent, but goes down to 7.5 percent once Russia joins the WTO. U.S. companies, however, will be stuck with the 10 percent tariff and be at a competitive disadvantage compared to other countries without congressional action.
Senate Republicans oppose normalized trade relations on the grounds that Russia still violates human rights, supports the Syrian regime in its crackdown on protesters, doesn’t control theft of U.S. intellectual property, and has rampant government corruption.
Michael Camuñez, assistant secretary of commerce for market access and compliance, recently met with Russian officials in Moscow and told U.S. business leaders at an American Chamber of Commerce meeting there that the government has mobilized its resources to help them take advantage of Russian demand for U.S. goods and services.
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His visit was preceded by a trade mission led by Francisco Sánchez, the under secretary of commerce for international trade, to develop business leads for companies specializing in clean energy, electrical power management and energy-efficient building as Russia begins to address pollution and energy conservation.
In April, 12 U.S. auto parts suppliers participated in a Commerce trade mission to Moscow and two other cities to explore opportunities in Russia’s growing auto market.
Masserman said administration officials are keenly aware of the importance of infrastructure investment to speed exports to market.
On July 6, President Obama signed a two-year, $105 billion surface transportation bill authorizing funding for highway aid to states and safety programs. The legislation addresses calls on the Transportation Department to develop a national freight policy and strategic plan for the first time, and institutes other reforms to better utilize dwindling user fees, but ultimately failed to address the systemic, long-term funding shortfall that exacerbated years of neglect for maintenance and expansion of highways, railroads, harbors and airports.
The Obama administration is also keen on attracting more foreign direct investment, in the form of new plants and facilities or expansion of existing facilities in the United States, Masserman said.
Foreign companies employ about 5 million people who earn more than $400 billion, he said.
Many foreign companies are part of the recent resurgence in U.S. manufacturing, which has benefitted from stagnant labor costs, high fuel prices and other factors that make import shipments less economical, and the weak dollar.
In early July, for example, Europe’s Airbus announced plans to build single-aisle planes in the A320 family at a new $600 million plant outside Mobile, Ala., where it already operates an engineering center. The assembly line is scheduled to open in 2016 and result in the hiring of about 1,000 workers.
Within the last year, four global tire manufacturers have unveiled plans to open manufacturing facilities in South Carolina and BMW is adding another assembly line to its existing plant there.
Select USA is a program created by the ITA in 2011 that coordinates federal resources and partners with state, regional and local economic development organizations to keep U.S. businesses from relocating overseas and attract foreign companies to U.S. shores. Part of the program involves training Commerce Department personnel in U.S. embassies and elsewhere to promote the United States as a good place to invest because of its relatively low taxes, educated workforce, big consumer market and other strengths, Masserman said.