Persistently weak export growth is an obstacle to U.S. economic growth and prosperity. Workers displaced by substitution of foreign-produced goods for domestic production should find employment in export-oriented industries. Unfortunately, employment growth over the last 15 years has been below long-term average growth rates.
Due to its position as the world’s largest economy, anything that hamstrings the United States also affects the global economy and trade. This means that the U.S. trade deficit is an impediment to the freight movement industry’s growth and profitability. Until the trade deficit improves, it is likely that competition between freight and logistics services providers will remain intense. In short, overall industry prosperity depends on an improving U.S. trade deficit; otherwise, the ongoing stagnation will persist.
World trade has grown substantially since the early 1990s, largely due to the United States increasing its imports more than its exports, as indicated by the increasing goods trade deficit shown in the accompanying chart. The chart illustrates the trade deficit and its goods and services components. The services trade balance is in surplus, but is not enough to offset the goods trade deficit. The contribution of oil to the goods trade deficit has been declining, thanks to increasing domestic production. However, this has not been enough to reduce the overall trade deficit. It is unlikely that the United States will become less dependent on imported goods; therefore, in order to reduce the trade deficit the United States has to increase its exports.
It is worth noting that the recent strengthening of the U.S. dollar’s foreign exchange value has not significantly increased the value of the trade deficit, as seen in the chart. The stronger dollar lowered the cost of imports but since the U.S. primarily exports commodities and their prices have fallen, the net effect has been minimal on value of the trade deficit. However, it is important to recognize that in terms of volumes, there have been declines in at least some exports, while imports have continued to increase.
Given that the trade deficit has been relatively high for a prolonged period it is possible that export growth weakness is not due to the U.S. dollar losing or gaining value, but rather insufficient investment in export-oriented infrastructure. Over the last 15 to 20 years, growth in world trade spawned investment in freight movement infrastructure, which helped increase trade and incentivize further investment. The problem is that this feedback loop was one-sided; it supported import-oriented infrastructure investment.
Compared to 10 or 15 years ago there is a larger fleet of bigger vessels, more distribution centers and warehouses, more equipment to move and handle cargo and, to a lesser extent, marginally increased road capacity. Most of this investment has not only been import-oriented, but also unbalanced. Larger vessels required navigation channel improvements and terminal-handling capacity increases. The capacity of near-dock rail yards has also improved, but roadways connecting ports or terminals to the hinterland regions they serve have generally not been upgraded to handle the growing freight volumes. A recent American Truck Research Institute study identifies the most congested freight corridors, and cities with seaports are over-represented in the top 100 list.
In addition, the demise of the inland waterway system has reduced the effectiveness of the nation’s import infrastructure.
Rail, waterway and highway congestion, particularly around ports, has likely hurt U.S. exports, including containerized exports that have been trying to utilize empty vessel backhauls to foreign ports. It is likely that congestion in port areas has reduced the availability of empty containers in inland locations where exports originate.
Removing the barriers to U.S. exports could solve the ills that are plaguing the economy’s health. If U.S. exports had increased in tandem with imports, GDP and employment growth would have been higher. Ocean carriers and marine terminals might not have had to engage in intense competition that reduces the ability to invest in infrastructure. Infrastructure that might support exports.
Kemmsies is a longtime economist with a focus on the nation’s freight infrastructure development. He can be reached via American Shipper at (904) 355-2601.
Strategic View: The barrier to prosperity
