Tag: exports and imports

Rethinking Currency Manipulation

Interest groups in the United States have focused on the possibility of including provisions in trade agreements with the intent of countering currency manipulation.  The concern is that another country may choose to reduce the value of its currency relative to the U.S. dollar in order to encourage its businesses to export more goods to the United States.   Such currency realignment also would tend to make it more expensive for the devaluing nation to import products from this country.

It’s true that an adjustment in currency exchange rates – regardless of the reason for the adjustment – can have an effect on trade flows.  U.S. industries that export to foreign customers, or compete with imported goods in the domestic marketplace, understandably would prefer that currency relationships not become skewed against their commercial interests.  Currency stability improves the business climate by making it easier to build long-term relationships with customers and suppliers. 

However, currency exchange rates have fluctuated throughout recorded history.  Sometimes those changes may be driven by a government’s conscious desire to devalue its currency.  More often the variability in exchange rates reflects fundamental economic realities.  Economies that experience growing productivity and rising prosperity should not be surprised to find that market pressures cause their currencies to strengthen.  The reverse is true for countries that are growing slowly or not at all. 

A shift in exchange rates changes a country’s “terms of trade,” which is a term  used by economists to describe the ratio of a country’s export prices to its import prices.  From a U.S. perspective, if another country sets its currency at an artificially low level relative to the dollar, the U.S. terms of trade will improve.  The United States will be able to obtain a greater value of imports for the same value of exports.  Exporting the same number of airplanes and soybeans as before will pay for the importation of larger quantities of shoes, coffee, and automobiles. 

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Embracing More of Trade’s Selling Points

As a primer for the new Congress, my friend John Murphy of the U.S. Chamber of Commerce posted the “top ten reasons why pro-growth trade and investment policies and agreements are good for America.” As usual, I agree with John’s points. And I concur that the time is particularly ripe for educating policymakers about the virtues of trade.

But with all due respect to John, his list is not so much about trade and investment. It’s really about exports (one of 10 points is about imports). Informing new members and reminding old of the benefits of exports to U.S. businesses and workers is clearly a worthwhile objective of the Chamber, the business community, and really anybody interested in economic growth. But in some respect there’s a preaching-to-the-choir element in that approach. You’re not going to find too many policymakers opposed to exports, and the administration has constructed a whole new bureaucracy devoted to the proposition that exports should double in five years.

Where the trade agenda has stalled (and where it always has problems) is on the rough terrain that–for lack of a better catchphrase–might be called “rationalizing” imports. That’s been the hard part of trade adovcacy over the years: “We had to cede some access to our markets, but look what we got in exchange!”

In pitching the very same bilateral trade agreements two and three years ago that the business community is pitching today, then-USTR Susan Schwab liked to remind Congress that the United States had an aggregate trade surplus with the countries with whom the Bush administration had concluded free trade agreements, as though that were the appropriate success metric. “We export more to them than we import from them; let’s call this a triumph!” But anyone inclined to accept that statistic as conclusive could simply visit the Commerce Department’s website and see that, at the time, our overall trade account was in deficit by about $800 billion. Thus, if “exports minus imports” is the measure by which we judge the benefits of trade, then America should shun trade entirely. That sales approach doesn’t seem to be in short- or long-run equilibrium. Mercantilist arguments only ensure that every step forward on trade requires a full-fledged battle. We need better–that is, more comprehensive–salesmanship of trade for the new Congress.

In 2002, then-USTR Robert Zoellick said of his new Doha Round proposal for zero tariffs on industrial goods by 2015 that it would “turn every corner store into a duty-free shop.” That was the right message—although apparently not for the timid White House at the time, which adhered to the sweep-imports-under-the-rug model.  In 2011, we should remember, embrace, and revive Ambassador Zoellick’s words in our advocacy of trade liberalization. In that spirit, I return to John Murphy’s top ten list and introduce a few tweaks (in bold).

  1. The United States is the number one manufacturing nation in the world, and that success depends on exports.  And since over half of the total value of U.S. imports consists of “intermediate goods” (products that are used as inputs for further value-added activity), manufacturing success also depends on imports.
  2. The United States is the world’s number one services exporter and has been since services trade data have been tracked.  And one of the reasons that foreigners are able to purchase American services is because they have been able to earn dollars by selling goods to American businesses and consumers.
  3. U.S. agricultural exports support nearly a million jobs in the United States.  And, agricultural and manufactured imports have made life’s necessities and conveniences more affordable to hundreds of millions of Americans.
  4. 95 percent of the world’s consumers lives outside the United States…as do 95 percent of the world’s workers, who produce many of the goods Americans consume as imports less expensively than Americans can, freeing up U.S. resources for investment, innovation, and consumption of the higher value products and services that Americans produce.
  5. FTA countries purchased more than 40 percent of U.S. exports in 2009. And imports from those countries have helped extend families’ budgets and reduced the costs of production for U.S. business relying on inputs from those countries.
  6. Since the creation of the WTO in 1994, U.S. exports of goods and services have doubled to more than $1.5 trillion. And real U.S. GDP has increased by 50 percent.
  7. Imports support millions of U.S. jobs in retail, research, design, sourcing, transportation, warehousing, marketing and sales…and in manufacturing. 
  8. U.S. exports to China have quadrupled over the past 15 years, and China is now the 3rd largest market for U.S. exports.  And U.S. imports from China, too often wrongly portrayed as evidence of U.S. profligacy or decline, have enabled U.S. industries that require access to lower-cost labor for economic viability to be born, to blossom, and to spark the advent of new products and industries.
  9. U.S. companies with overseas investments account for 45 percent of all U.S. exports.  And foreign companies operating in the United States employ 5.6 million Americans, support a payroll of $408.5 billion, provide compensation that is 33% higher than the U.S. average, account for 18% of U.S. exports,   pay U.S. taxes, support local charities, and act as investment magnets in communities across the country.
  10. Trade supports 38 million jobs in the United States–more than one in five American jobs.  And most Americans enjoy the fruits of international trade and globalization every day: driving to work in vehicles containing at least some foreign content; talking on foreign-made mobile telephones; having extra disposable income because retailers like Wal-Mart, Best Buy, and Home Depot are able to pass on cost savings made possible by their own access to thousands of foreign producers; eating healthier because they now can enjoy fresh imported produce that was once unavailable out-of-season, etc.

Of course, all of these selling points are economic in nature.  There is an even stronger moral argument for free trade, which is what all Americans – indeed all earthlings – should embrace.

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The Rumors of Manufacturing’s Death Have Been Greatly Exaggerated

“US manufacturing grows for 13th straight month” is the headline of an AP newswire story posted around noon today.  This statistic doesn’t surprise me, since I’ve been following developments in U.S. manufacturing for many years now, and have published analyses of public data that refute the myth of deindustrialization and manufacturing decline

With the exception of the recession of 08-09, when all U.S. economic sectors took a hit, U.S. manufacturing has been breaking its own record, year after year, with respect to output, value-added, profits, returns on investment, exports, and imports. U.S. factories are the world’s most prolific, accounting for 21.4% of global manufacturing value added in 2008 (China accounted for 13.4%).

But I bring the AP headline to your attention for one reason: so that you can judge for yourself who has any credibility on Capitol Hill, within the executive branch, in the media, among organized labor, in industry, in the think tank world, and within the international trade bar, as Nancy Pelosi tries to stuff a ruinous anti-China trade bill down our throats in the name of supporting our floundering manufacturing base.  Look for the columns, the op-eds, the press releases, and the floor statements between next week and November.

Who among them will continue to cite our suffering manufacturing sector as the justification for protectionism?  They should never again have any credibility.