Double Exports in Five Years? Posner

President Obama in his State of the Union Address announced a program to double U.S. exports in the next five years and by doing so create 2 million new jobs. The program mainly involves a $2 billion increase in loan guaranties to exporters by the Export-Import Bank and greater efforts to negotiate trade agreements with foreign countries and to enforce U.S. laws against “unfair” international trade practices, such as “dumping” foreign goods in United States markets, at below-cost prices.

 

Of all the “job programs” undertaken or contemplated by our government, the President’s plan to double exports in five years seems to me the most fatuous.

 

Total U.S. exports of good and services in 2009 were $1.553 trillion, and total imports $1.934 trillion (the net trade balance was therefore a minus $380.7 billion). See U.S. Bureau of the Census, Foreign Trade Statistics, www.census.gov/indicator/www/ustrade.html.  Exports were therefore about 11 percent of Gross Domestic Product. If GDP increases by 2.5 percent a year for the next five years, and exports grow proportionately, then by 2015 they will have grown by 13 percent. The President wants them to grow by 100 percent. (If they would grow by 13 percent without any governmental effort, then the President’s 100 percent program, if it succeeded, would actually have increased exports by only 83 percent—though of course the government would take credit for all 100 percent!)

 

How his program could accomplish this is incomprehensible to me. The increase in loan guaranties by the Export-Import Bank would reduce exporters’ interest costs by reducing their risk of losing money by extending credit to a foreign purchaser, but that would be a minor boon to exporters. Likewise, anti-dumping enforcement and other efforts to prevent “unfair” pricing by foreign companies importing to the United States are likely simply to provoke retaliation--limiting our exports—as happened in our recent tiff with China over imports of tires.

 

That leaves the negotiation of trade agreements with foreign countries. The problem with them, from a job-creation or deficit-reduction standpoint, is that they increase bilateral trade—imports as well as exports—and so have no average tendency to increase exports. Moreover, they are difficult to negotiate because of opposition by producers and workers, in both countries (if it is a bilateral agreement), to allowing increased imports; the opposition to increased imports is based on the fact that they can result in reduced domestic production and employment. At the same time, increased imports benefit consumers and some producers (imports are often inputs into domestically manufactured goods), but generally these effects are more diffuse than the losses of sales and employment caused by imports, and so do not have as much political weight. A Democratic Administration is apt to be particularly sensitive to union opposition to free-trade agreements.

 

Increasing exports is a standard and perfectly sensible response to an economic downturn. Exports are by definition domestically produced goods or services, so an increase in exports increases production and hence employment. But the usual way of stimulating exports is by devaluation, which increases the amount of a nation’s goods and services that foreigners can obtain with their foreign currency. Moreover, devaluation increases the domestic price of imports, which in turn stimulates domestic production to replace some of these now more expensive imported goods.

 

Our government has been trying to create a modest inflation, primarily in order to reduce debt burdens, reduce real wages (in order to reduce layoffs), and reduce hoarding (since inflation has the effect of a tax on cash balances) and thus stimulate consumption. Inflation increases the price of exports, but, especially if it is modest, is likely to be offset by a fall in the value of the dollar relative to foreign currencies. A high rate of inflation, however, which is a looming possibility because of the Federal Reserve’s "easy money" monetary policy, would probably have a significant negative effect on exports.

 

We have large trade deficits with China and other Asian countries that pursue protectionist policies, but there doesn’t seem to be anything we can do about that. We have no leverage with those countries. They accumulate large dollar reserves as a result of running large trade surpluses with us by virtue of their policies—and we borrow the dollars, becoming these countries’ debtors. The indirect effect of our foreign debt on our exports is an illustration of the gravity of our fiscal situation, to which the government seems at last to be paying some heed—though not in its job programs.

 

An improvement in our trade balance would be a good thing because it would reduce the federal deficit as well as making us less dependent on the goodwill of foreign countries, but increased exports offset by increased imports would not affect the balance.

 

Finally and most questionably, the proposal to double our exports assumes that foreign export-oriented countries like Germany and China would stand idly by while we “stole” their export markets. Obviously they would respond—with their own export-stimulus programs, which would be likely to negate ours.

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