Practical Economics


Can U.S. Trade Its Way Out of a Slump?

Art Pine

Obama’s plan to double exports over five years to help create jobs is off to a slow start.



Exports are rising, but the impact on job-creation has been minimal, and doesn’t seem likely to grow.

In his 2010 State of the Union address, President Obama set a goal of doubling U.S. exports by 2015, saying the increase would support two million jobs in the U.S. and help bring down the unemployment rate.

Now, 15 months later, exports have risen 33% from their 2009 lows, and rapid growth in big emerging-market countries such as Brazil, India, and Russia is boosting profits of U.S. multinational corporations. But the impact on job growth in the U.S. has been modest, and is likely to remain so.

Meeting Obama’s five-year goal for expanding exports isn’t out of the question, but it’s “very ambitious,” says Robert Z. Lawrence, a Harvard University economist. “We’ve never done it before.”

Hit hard by the 2008-2009 recession, exports were at a depressed level when the president set his five-year goal. Exports usually rise rapidly once a recovery gets under way, “so it looks like you’re on track,” Lawrence says, “but [2010] was an easy year.” Bigger gains will be harder to come by.

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While demand is rising rapidly in big developing countries, U.S. exports there traditionally have been modest at best, so even if they doubled, it wouldn’t amount to an export boom. The economies in several big European and Asian countries are slowing. Even if global demand were high, the U.S. has lost some of its export capability. Many exporters here went bust during the recession.

The prospect that rising exports will create large numbers of new jobs is even more doubtful.

There are some fundamental reasons that America doesn’t export more, and they aren’t apt to disappear soon. The domestic market is so large that relatively few U.S. firms are interested in exporting at all. There’s little incentive to sell overseas, which involves higher costs and more effort.

Unlike their counterparts from Europe and Asia, American multinationals often prefer to set up factories in other countries rather than export from their plants at home. Wages and taxes are lower abroad, and it’s cheaper to serve overseas markets. What U.S. firms want most is better treatment by the host country for their overseas offices and factories.

U.S. trade policy has been designed to support that objective. For the past 30 years, American officials have prodded other governments to welcome U.S. multinationals as if they were home-grown companies, so they’re able to set up factories and distribution networks in those countries with fewer barriers or prohibitions.

By contrast, there’s been little to spur U.S. firms to keep their production facilities at home, where they would employ more American workers, and then send their products abroad. The U.S. corporate tax rate of 35 percent is well above that of most other large and medium-sized industrialized countries. And subsidies to business here are relatively small.

As a result, while many of America’s biggest companies keep their corporate headquarters in the U.S., many manufacture most or all of their products overseas, including Apple Inc., Hewlett-Packard Co., and Dell Inc. Even Caterpillar Inc., traditionally a big U.S. exporter, shifted much of its production abroad after a lengthy strike in the late 1980s.

What’s more, most of the goods that America does ship abroad are either commodities or high-end manufactured products, neither of which requires a lot of workers to produce. The bulk of the low-end goods that Americans use are imported from other countries. So increasing exports has a relatively small impact on the job market.

Spurring more export-related jobs at home will take a major effort by government, business, and labor unions.

Some economists say Washington should revamp its trade and tax policies to provide more incentives for manufacturing firms to keep production in the U.S. Cutting the top corporate income tax rate might help. So would weakening the dollar further and eliminating U.S. export restrictions on security-sensitive products that already are available from Europe and China.

By contrast, the policy prescriptions that Obama proposed early last year are relatively tame. His new National Export Initiative called for stepping up government efforts to promote U.S. exports and for providing advice and federal subsidies to help small and medium-sized firms sell more abroad.

It’s not likely to produce a job machine.



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