‘Disconnect’ noted between export initiative, trade policies
Published: August 26, 2010
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The nation’s international trade deficit in goods and services increased to $49.9 billion in June from $42 billion (revised) in May, as imports increased and exports decreased.
Earlier this year, President Obama’s efforts to jumpstart the U.S. economy and combat high unemployment included launching a National Export Initiative (NEI). The initiative proposes doubling exports over the next five years, an increase estimated to support two million American jobs.
A recent progress report shows exports in the first four months of 2010 grew almost 17 percent from the same period last year, but a large trade gap persists.
“Being able to double any amount of export — even just increasing them — will benefit Pennsylvania,” says Jim Wilshire, spokesman for the Pennsylvania Chamber of Business & Industry, Harrisburg. “When it’s easier for a Pennsylvania company to be able to have their products cross borders with fewer barriers, taxes (or) any kind of regulations, it just makes it that much easier for them and it costs much less for them.”
According to Wilshire, Pennsylvania businesses export $34 billion worth of goods and services overseas. He believes increased exports will help to strengthen not only the business environment but also the state’s struggling economy by creating much-needed jobs.
Whether the initiative will meet its goals and spur job growth remains an uncertainty for some observers.
“The president and his administration have correctly identified exports as being a way to gain a foothold to help bring us up out of the economic downturn we are in,” says Robert Wilson, member of the Industry Trade Advisory Committee on Small and Minority Business of the U.S Dept. of Commerce and board member of the Mid Atlantic District Export Council. “However, one thing that the president and his administration fail to understand is that, while our export initiative is correct and on track and is the correct path of the way that our nation and business needs to go, there seems to be a disconnect between our export activities and initiatives versus legislation sitting on Capitol Hill.”
Wilson personally believes a legislative shift to support structural aspects of business will connect that broken link. He cites an 18 percent additional cost burden and price disadvantage faced by U.S. manufactures and businesses — including high costs for energy, health care, unionized labor, tort litigation and taxes — as a detriment overshadowing attempts to expand U.S. exports.
“We are pricing ourselves out of the ball park,” he says. “Since the turn of the century, we have been losing global market share, and currently the United States ranks last among the 15 major manufacturing nations in export intensity. If the U.S. exported at the world average, U.S. manufactured goods exported worldwide would double and the trade deficit would be eliminated.”
Decreasing the trade deficit remains a priority for Harrisburg’s Pennsylvania Manufacturers Association.
“The trade deficit that the U.S. runs is a real anchor dragging on domestic economic growth,” says David N. Taylor, executive director. “Ramping up exports, finding new markets for American goods overseas is the most direct way to address that problem. President Obama has identified the correct problem, but he’s proposing all of the wrong solutions.”
Taylor believes those solutions do not deal with the core issues caused by unfair trade policies and anti-business legislation that deters domestic investment and new hiring.
Those unfair trade policies include a persistently undervalued renminbi (RMB), China’s currency, which acts as both an export subsidy and trade barrier by making Chinese-produced goods less expensive than their American counterparts.
“We like to buy things from the Chinese,” says Stuart Hoffman, chief economist for PNC Financial Services Group, Pittsburgh. “The fact that their currency has been held in place is actually, in some sense, to our favor. It means if the currency rises, we need to pay more dollars to buy what we all buy at Wal-Mart. It has made the Chinese goods we import less expensive. On the export side, it’s just the opposite. It makes it harder for U.S. exporters to find markets in China.”
Statistics released in mid-August reinforce that reality, showing U.S. trade deficit with China has worsened in the last couple months, according to Hoffman.
“(The Chinese) have been effectively freezing the value of their currency rate relative to the dollar for several years in a row,” says Hoffman. “I think everyone agrees, maybe even the Chinese, that’s not a reasonable policy for good trade relations, so they are allowing their currency to go up. So far I don’t think what the Chinese have done has amounted to anything regarding allowing their currency to appreciate a little because it has been so infinitesimal.”
The Fair Currency Coalition (FCC) agrees. According to the FCC, even if China allows the RMB to rise by 3 to 5 percent over the next few months, it would come nowhere close to eliminating its estimated 35 to 40 percent undervaluation relative to the U.S. dollar.
“China certainly has grown quite dramatically as an exporter of goods to the United States and has taken enormous chunks of our market, including markets from domestic production,” says Lloyd Wood, spokesman for the Fair Currency Coalition and the American Manufacturing Trade Action Coalition (AMTAC), Washington, D.C. “If you can buy a wholesale product cheaper overseas than you can domestically, people are going to buy the overseas products. When that happens output is lowered and people lose their jobs.”
The coalition supports passage of legislation, including H.R. 2378, the Currency Reform for Fair Trade Act. The Administration’s lack of action on this and other bills to address China’s undervalued currency continues to discourage domestic investment.
“People aren’t angry about China cheating,” says Wood. “People are madder than the dickens about the refusal of the U.S. government to say, ‘We’re not going to let you do that.’ In other words, the refusal of the U.S. government to act in its own interests to make China stop cheating by using access to U.S. markets has leverage to get China to play by the rules.”
While leverage against China seems illusive, Mr. Obama’s export initiative may offer some support for small businesses.
“If the president is going to encourage more exports, he really has to help the smaller businesses, not the huge companies,” says Dr. Wagiha Taylor, professor of international business and economics at Wilkes University’s Sidhu School of Business. “It is a good idea to concentrate on them because they can give us a good start.”
Yet Taylor acknowledges a free enterprise economy leaves the decision of exporting up to the businesses.
“The other thing we have to remember is that, traditionally, businesses in this country did not look at exports as one of their major jobs,” says Taylor. “Historically, they thought of exports as leftover activity and that’s why we didn’t have as much exporting as we had importing.”
Entering the global market successfully requires a niche product or service and a savvy business acumen.
“I always take the position that there are certain goods and services that we do have comparative advantage in,” says Taylor. “It’s obvious if we charge $20 to $25 an hour and they charge $1 an hour, there is no way we can leverage that.”
Taylor believes if exporters leave the labor-intensive sectors such as textiles and shoe manufacturing to other areas, they can concentrate on other, high-tech areas if they act with speed to meet consumer demand.
“We’re going to have to act fast,” she says. “The world has been changing very fast and it will continue in that direction.”
