President Obama’s National Export Initiative Term Paper

Introduction

The World Bank defines globalization as “the growing interdependence of countries resulting from increasing integration of trade, people and ideas in one global market place” (The World Bank, 2001 p. 66). Accordingly, participating countries are able to access foreign markets more freely, thus enabling them to produce goods and services not only from their domestic markets but also the foreign markets.

The World Bank (2001) argues that globalization offers consumers more product or service choices since they can choose from a wide variety or imported or domestically produced products. Manufacturers on the other hand learn the art of efficient production especially for purposes of beating international competitors.

The national export initiative proposed by President Obama is meant to boost export trade by a double margin in a five year period and is also expected to create approximately 2 million jobs in two years. The sectors that the president and his team of advisors target to make this initiative a reality are renewable energy, biotechnology, health care and environmental good/services.

In relation to globalization, it is evident that president Obama was intending to create a channel through which the US can benefit more from globalization and international trade (Radush & Ali, 2010).

As evident in other parts of the paper however, the President’s intentions may have been noble, but the timing and the expectations that he and his team have on the initiative are unrealistic especially considering there exist pending trade agreements and currency exchange issues that are yet to be solved between the United States and some of the promising export market countries (Haufbaeur, 2010).

This paper ends with an observation that the National Export Initiative is neither realistic in the short term, but neither is it fatuous.

Overview

This paper will have a discussion part that creates an overall picture of the existing US export market, the factors affecting it and why the president choose to focus on exports as one way of creating jobs and strengthening the GDP.

The paper will also look at the connection between GDP and net exports. Apart from the credible literature that this paper will use to provide a knowledgeable argument, it will also analyze three critics of NEI and later discuss if their criticism are valid or not. The conclusion will offer the author’s own opinion about the export initiative

The strategy

The proposed strategy that the National Exports Initiative is expected to follow has the following steps: 1) The government is to provide the necessary funding to promote and coordinate the initiative among different agencies; 2) Government support for commercial-advocacy objectives, which includes encouraging interaction of US business people with the international business community; 3) the creation of a special cabinet that promotes exports.

The urgent action plans that were identified by the MITI (2009) that would be undertaken by the US government include expanding trade advocacy in the domestic market by educating and creating awareness about export opportunities to the US companies; helping the companies create trading relationships with buyers; and empowering the companies to advocate for their interest with more force.

Another strategy involves improving credit access to US Company. According to MITI (2009), the government hopes to do this by providing the finances needed for export companies to promote their products in foreign markets through the Export-Import Bank; increase financing to small and medium enterprises from $ 4 billion to $ 6 billion; and channel $30 billion to the SME sector from the Troubled Asset Relief Program (TARP).

The third strategy under NEI intends to intensify US actions to other countries for purposes of decreasing trade barriers facing US exports. It also intends to speed up the opening of new market frontiers in Asia. The strategy also intends to use USTR for purposes of enforcing the existing trade agreements between countries for purposes of reducing unfair tariffs, and non-tariff barriers posed on US exports (Roxana, 2007).

US exports: An overview

The United States has historically faced trade deficits that favor importers than exporters. This has been the case with the major trading partners like Japan, Europe and Asia. The country’s immediate neighbours (i.e. Canada and Mexico) are incidentally the primary market for its exports. Japan and Europe are also major markets for the US export products.

“The main exports to Japan include electronic products, machinery, computers, transportation equipments, electrical components, marine products, beverages, tobacco products, agricultural products and chemicals. Services export to the same country includes financial services, information technology and insurance” (MasterSeek, 2010).

The European market on the other hand is considered the main international trading partner to the US, with US exports accounting for 24 percent of all foreign imports that the European market take in. still MasterSeek (2010) states that, “The main export commodities to the European market include telecommunication and medical equipments, automotive parts, consumer goods and tourism-related services”.

The US exports to Mexico are mainly for value addition purposes. This means that the same exports are brought back to the country, only as finished products ready for domestic or export markets.

According to the International Trade Association (2010), exports are measured by considering the total movement of goods and services sold to the international market. The exports can either be from the custom territory of the US, or foreign-trade zones. Another option is the bonded warehouses where stocks of US goods are kept.

With the exception of exports to the Canadian market, all exporters to other countries must sign the Shipper’s Export Declarations (SEDs), which are then used to compile the export statistics. To measure export to Canada, government agencies rely of import statistic filed by Canada (International Trade Association, 2010).

Exports by the US falls into two categories: 1) domestic exports, which comprise of locally produced and manufactured commodities; and 2) foreign exports, which are mainly re-exports, which initially enter the United States as imports but are latter exported.

Dynamics affecting exports include the change in the target export market, the fluctuation of the dollar exchange rates and international environmental factors affecting international markets. Competitiveness from countries that manufacture products that are similar to what the US produces also affects the demand for US export products.

More to this, trade agreements, tariffs, and non-tariff barriers all affect the US export market. In an example of how competition affects the export market, Canavan et al (2002) notes that though the US had been a major producer and exporter of IT related products in the 1991-2000 periods, the emergence of new producers of the same in East Asia affected US shipments to the international market.

In 1994-95, the Mexican currency (peso) was devalued, while Asia faced a financial crisis in 1997-98. The first half of the 1990s saw to the steady appreciation of Japan’s currency (yen). The combination of monetary factors affected the competitiveness of US products in the international market.

According to Canavan et al (2002), the devaluation of currencies in some of US target markets led to a reduction in consumption therefore leading to reduced US exports. In relation to IT development, the US had established a name for itself as one of the leading sources of IT components. A rise in IT global consumption thus meant that the export of the same to the international market increased.

Canavan et al (2002) for example notes that IT exports to Japan, Canada and the EU markets accounted for approximately 60 percent of all US exports in 1991. The verdict of this paper is that US exports can either weaken or strengthen depending on a combination of external and external influences.

In calculating the Gross Domestic product (GDP), net exports are included among four other category of expenditures by a country, which include consumption, government purchases and investments. As such, the expenditure approach to GDP calculation happens as follows: GDP = (consumption + Trade (exports [-] imports) +government purchases +investments) (Contessi, 2008).

The net exports are attained when the value of exports in a given period of time are deducted the value of imports that came into the country within the same period. This then means that the higher foreign demand for US made products or services there is in any given time, the better it is for GDP growth.

According Dadush & Ali (2010), net exports had adopted a pretty predictable trend in the 1990s where they would deduct at least 0.5 percent from the gross domestic demand every year. However, this changed in the past recession whereby starting 2007 to 2009; the net imports added at least 1 percent contribution to GDP growth. Exports further marked a 2.1 percent increase in GDP growth in the 10 year period between 1998 and 2008 (Dadush & Ali, 2010).

The main export products by the US are mainly IT products, automobiles, electronics, weapons, airplanes and steel. Service exports are mainly concentrated in financial services, insurance and IT. The main countries which the United States targets with its products and services include Canada, Mexico, Japan, the European market and china.

Major factors affecting US exports

According to Dadush and Ali (2010), a depreciated dollar and the heightened foreign demand for US products are the two main factors that influence the rate of US exports. A weak dollar means that people in foreign countries are able to purchase US products more affordably, which invariably raises demand.

The demand in the export markets is also spurred by the expansion in the same markets thus leading to an increased consumption capacity. A stronger dollar however has the opposite effect because it makes the US-made good more costly in the international market (International Trade Administration, 2010). Competition from other developing producers also poses a threat to the US exports, especially when the competitors are more competitive in terms of pricing.

The recent economic crises that hit the world markets had reduced the demand for US goods and services in the international market thus leading to the recent decline of the exports. In addition, the WTO (2009) argues that the resumption of some market protectionist measures as observed during the recession may have led to the volume of US export trade.

According to statistics provided by the World Trade Organization in 2009, the United States ranked in third position having exported goods and services worth $ 1,057, 700 millions. Countries that had exported more than the US are China and Germany.

Why exports?

According to Dadush & Ali (2010), president Obama’s focus on the National Export Initiative was informed by the fact that encouraging growth in US exports would balance the slow demand of goods and services in the domestic market. More to this, enhancing exports would ensure that the financial deficit created by slow spending in the domestic markets is manageable.

With consumer spending estimates projecting a growth of 2 percent and 2.4 percent in years 2010 and 2011 respectively, the export market looks like the best bet in GDP growth. This is because investments will remain low and could even be worse when the stimulus package is withdrawn (Dadush & Ali, 2010).

The president’s action could also have been informed by the fact that export trade has been a major contributor to GDP growth even in the midst of the recession. As stated elsewhere in this paper, between 2007 and 2009, net exports contributed at least one percent to the growth in GDP. In 2009, exports boosted the ailing economy through 2 percent point contribution to the GDP (Dadush & Ali, 2010).

In the 3rd and 4th quarters of 2009, Dadush & Ali (2010) notes that exports grew by almost 18 percent. Though it is hard to imagine a situation where such an export rate of growth is maintained, this served to prove that exports could indeed play a crucial role in rebounding the economy.

In addition to enhancing GDP growth, it is expected that export growth will lead to job creation and hence encourage spending. Job creation remains one of the Obama government agenda to economic recovery.

Mission impossible?

One critic of Obama’s export initiative is Gary Hufbauer, who is a senior fellow at the Institute if International economics. In an interview published by CFR.org, Hufbaeur states that although doubling exports is not such a far fetched idea, it would take extra ordinary economic times for the same to happen within five years.

More so, Hauberk, (2010) is pretty convinced that Obama misjudges the connection between exports and job creation. Notably, one of the proposed measures that the president and his team seek to use in order to encourage growth is by encouraging the domestic market to buy American.

According to Hufbaeur (2010) however, such a protectionist policy would no doubt to emulation and retaliation by foreign countries where the export initiative hopes to target for the American products.

Notably, Haufbauer (2010) observes that seeking to double exports in just five years is an uphill task that would include currency exchange rate negotiation with Americas trading partners if it was to be successful.

More to this, Haufbauer (2010) notes that the Export-import bank would also have to participate more actively in the process in order to bankroll the initiative to such magnitude that manufacturers and other exporters will be able to double (if at all) the exports by the stipulated time.

Similar sentiments are expressed by Superville (2010), an economic analyst with the Washington Post. In his analysis however, he chooses to focus more on the probability that job creation (if it should occur as a result of the national export initiative) will be negated by the continuing loss of jobs by Americans mainly because of overreliance by Americans on products made elsewhere but the domestic market.

Superville (2010) further blames the president’s political party for leading the opposition that stalled the trade negotiations with Panama, Colombia and South Korea.

The same opinion is shared by Schneider (2010) who believes that manufacturers and exporters will generally try to attain maximum production without necessarily hiring new staff members.

They would do this by improving the productivity of their existing workers, restoring working weeks as they used to be before the recession and utilizing some of the underutilized production lines that exist in most companies. When such happens, the President’s focus on job creation will be negated.

More to this however, Schneider (2010) sees more realistic challenges that the government has to overcome before even thinking of doubling the export. Top on these challenges is settling trade disputes that the US has with other countries. According to Schneider (2010), failing to address the immediate trade disputes will most likely threaten and even crimp the American exports abroad.

In addition, Weekly bulletin (2010) observes that without taking tougher action on China for its alleged currency manipulation, and negotiating better and less restrictive markets with countries like South Korea and Brazil, then the exports may not double in the five years as the president and his team would have liked to see.

The arguments by the three people mentioned above sets the basis for this paper’s analysis. Pertinent issues raised by all three lead to the same conclusion; that the president and his men misjudged the connection between increased exports and job creation.

Further, it is also apparent that doubling US exports would take more than just the will and financing by the federal government to local manufacturers; but would also involve negotiating trade agreements with other countries. The probability of the negotiations taking place within the five years and affecting the US exports within the same period is almost impossible.

Conclusion

Though improving net exports by the US would no doubt have a positive effect on the country’s GDP, it looks like a far-fetched idea that the government would seek and succeed in doubling exports in a span of five years. Still harder as evident in the discussion section of this paper is the target of creating 2 million jobs through increased exports in just two years.

In the event that the US exports are doubled, there are still misgivings held by economists that this would spur job creation in a great magnitude as envisaged by the president especially in the first two years.

Considering that most manufacturers would seek to fully utilize their existing staff and other forms of resources before finally taking in more employees, it is more practical estimating that jobs would only be created once the local manufacturers and producers stabilize and reestablish internal confidence about a stable market for their products.

Because of the above factors, this paper concludes that Obama’s initiative needs more preparation and negotiation with key trading partners before being initialized. Otherwise, trying to enact it in the current economic and trade conditions in the domestic and international markets will only lead to failure nut also lost hope for the American people.

The job creation aim may be misguided and it may require government to come up with other job creation strategies for the economy.

Overall however, this paper acknowledges that enhancing exports may be advantageous to the economy in the long term, and even appreciates the fact that such benefits may lead to job creation albeit not in the so-near future as the president would have wished. As such, the initiative is neither realistic in the short term, nor fatuous.

References

Canavan, T. H., Carr, R. & Johnson, C. (2002). Factors affecting US trade and Shipments of information Technology products: Computer Equipment, Telecommunications Equipment, and semiconductors. Office of Industries working paper: US International Trade Commission. Pp. 1-42. Web.

Contessi, S. (2008). Net Exports’ Recent (and Surprising?) contribution to GDP Growth. International Economic trends. Web.

Haufbaeur, G. C. (2010). Obama’s Flawed Export Plan. Interview on CFR.org. Web.

International Trade Administration. (2010). Industry Trade data Analysis: Trade data basics. Web.

MasterSeek. (2010). Important Markets for US export. Web.

Radush, U. & Ali, S. (2010). Can the United States Double Exports in Five Years? International Economic Bulletin: Carnegie Endowment for International peace. Web.

Roxana, N. G. (2007). Freedom for Whom? Globalization and Trade from the Standpoint of Garment workers. Canadian Woman Studies 21/22 (4/1), pp. 74-82.

Schneider, H. (2010). Obama’s export Plan won’t necessarily create jobs. Washington Post Foreign Office. Web.

Superville, D. (2010). Obama Pushes new export initiative. Associated Press. Web.

The World Bank (2001). Globalization and International Trade. Pp. 66-73. Web.

Weekly bulletin (2010). USA’s national Export initiative. Web.

WTO (2010). International Trade Statistics: Trade to expand by 9.5 percent in 2010 after a dismal 2009. WTO reports. Press/598. Web.