May 3, 2010
Someone Has to Run a Trade Deficit
It turns out that exporting our way out of this recession may not be as easy as we’d like to believe. The Obama administration announced three months ago their goal to double US exports to the rest of the world in the next five years.
No doubt one of the reasons they chose that goal and that timeframe was due to the trend in that direction supported by a weakening dollar and economies in Asia that are growing consumption faster than we are. There’s historical precedent too for this goal being achievable.
But even with a stiff wind at their backs, this goal may be difficult to achieve. After all, we’re not the only country committed to running a trade surplus to “export our way out of this recession.” Can you name a European or Asian country that isn’t trying mightily to run a trade surplus? Yeah, I can’t either.
The trouble is that the way accounting works, everyone can’t run a trade surplus at the same time. Trade worldwide balances on net. For every incremental dollar of trade surplus that shows up on the US books, an incremental dollar of trade deficit needs to be debited to some other countries current accounts.
And that’s not the only problem. Last week, the Wall Street Journal reported on other barriers to that objective. What barriers are these? US companies manufacturing abroad, undervalued Chinese currency, counterfeiters, already high penetration rates for large exporters, and more. Here’s a sample:
the shift by more U.S. companies toward producing goods overseas is one of the factors that makes doubling exports tougher. These firms have built more factories in fast-growing foreign countries to serve emerging markets, so they often supply the goods and services from an overseas arm—not by loading shipping containers in the U.S.
We’ll see if the US can actually meet its export targets. I just hope that we’re not spending today while counting on these gains tomorrow. Don’t hold your breath.