Last week, President Barack Obama spoke with his export council to discuss the goal of doubling U.S. exports by the end of 2014. The target, first set during his 2010 State of the Union address, drew a host of skepticism, but has been largely supported by government and industry groups.
During the meeting, the president told the council that “we are well on our way to meeting this ambitious goal.” But are we? And if so, how much will it benefit American manufacturers?
Bloomberg News reports that Jim McNerney, CEO of Boeing Co. and vice chairman of the export council, claimed that the U.S. had achieved between 47 percent and 50 percent of the goal. However, the numbers tell a different story.
The president based his goal on the total exports for 2009 as a starting point, which came in at $1.57 trillion. That would mean by 2014 the U.S. would have to reach $3.14 trillion in exports. From 2010 to 2012, the U.S. exported $2.2 trillion worth of goods, an increase of $630 billion, or just 40 percent of the target amount.
To reach Obama’s goal, exports must increase by another $940 billion within the next two years, which equates to 60 percent of the growth in only 40 percent of the time.
According to the Yale Center for the Study of Globalization, U.S. exports have doubled every 10 years since WWII. In order to double exports in only five years, the U.S. would also have to double the rate of growth, from 8.3 percent on average to well over 16 percent. It turns out that this rate of growth has been reached before in the 1970s and 1980s, albeit partially as a result of rapid inflation.
“We’ll probably miss his [President Obama’s] target. But the programs he put in place are a good basis for some accelerated growth,” said Larry Turner, CEO of Hannover Fairs USA Inc., which is coordinating with a number of state agencies and manufacturing companies on their participation in Hannover Messe, an international industrial technology trade show set to take place April 8-12 in Hannover, Germany. Many of the participants in the show are U.S. companies looking to bolster their exports.
Turner may be right, but it won’t be for lack of trying on Obama’s part. After the 2010 State of the Union address, Obama launched the National Export Initiative (NEI). Several programs were started under this banner, including the State Trade and Export Promotion (STEP) program. Obama also finalized free trade agreements with South Korea, Panama, and Colombia that President George W. Bush had started efforts on.
During the next two years, U.S. exports surged, reaching $2.12 trillion by the end of 2011, representing nearly 10 percent growth. But it’s hard to determine if that growth was the direct result of NEI programs. In fact, given that the U.S. dollar was at its lowest point in years during that time, making American export goods cheaper than those of other countries, it seems unlikely. As China and Europe’s consumption of U.S. goods slowed in 2012, exports stalled, inching up just $66.7 billion year over year.
Now Obama is hashing out two new trade agreements: a Trans-Atlantic Partnership with Europe and a Trans-Pacific Partnership with a seeming miscellany of countries (Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam).
At his meeting with the export council, Obama touted the European deal, saying E.U. citizens were “hungry” for American goods. But much of Europe is struggling economically, and countries like Spain, Greece, and Ireland are still deep in recession and facing high unemployment.
“Europe’s GDP growth is going to be stagnant,” Turner noted. He insisted the U.S. would be better served by establishing trade deals with faster-growing economies, like Brazil, India, China, South Africa, and Turkey. “Even Russia is growing pretty well,” he added.
James Chan, president of Asia Marketing and Management, an international export consulting firm, said that the Obama administration’s decision to avoid creating free trade agreements with China and other fast-growing nations is a reflection of many manufacturers’ fears about selling to those countries due to intellectual property violations. “In the mind of a potential exporter, if the Chinese always copy what we sell, what’s the point?” he said.
But the real misstep, according to Chan, is ignoring the time commitment required for new exporters to establish relationships in foreign markets and build market share. “Exporting is like going to college or getting an MBA. It is a long-term investment,” he explained.
Unfortunately, the STEP program doesn’t take that into account. Managed by the Small Business Administration (SBA), STEP distributes funds to various state economic development organizations, which are then responsible for building their own specific export assistance programs for small businesses. The states must also demonstrate that exports increased as a direct result of the program.
Therein lies the challenge. While some small manufacturers might make a few isolated sales, long-term sustainable export growth is unlikely to manifest in one or two years.
The other challenge is that most small businesses are not well-equipped in manpower and resources to effectively export. “I don’t see a lot of $10 million companies that are doing a lot of exporting,” Turner said, explaining that bigger companies typically dominate international trade.
SBA defines a small business as having 500 to 1,500 employees. The majority of U.S. companies are far smaller than that, however. Turner says the “sweet spot” for a company to be able to successfully export starts at 250 employees. Chan identified 100 employees as the absolute minimum.
Even if Obama does manage to double exports by 2014, a lot of manufacturers won’t reap the benefits of such a gain – unless they are supplying to larger companies that already export.