Exports Sagging? Try Some Free Trade
The WALL STREET JOURNAL Opinion by Matthew J. Slaughter.
Published January 23, 2013, on page A13 in the U.S. edition of The Wall Street Journal.
The president did little to open markets during his first term. Here's hoping for the second one.
When the latest U.S. trade statistics came out this month, they conveyed one sobering message: President Obama's National Export Initiative is in danger of failing. Success can still be snatched from the jaws of defeat—but only if the president and Congress quickly and aggressively pursue freer trade and liberalize many other policies connected to the global economy.
In his 2010 State of the Union address, President Obama introduced the NEI goal of doubling U.S. exports in five years. Such an achievement would help stabilize the post-crisis global economy. It would also help unemployed workers in the U.S., where the total number of private-sector jobs remains the same as it was 12 years ago. Exporting companies compared with non-exporters tend to generate about twice as many sales, to be about 10%-15% more productive per worker and thus to pay about 10%-15% more in salaries.
U.S. real exports grew 11.1% in 2010 and 6.7% in 2011. But the most recent data showed that in 2012 they barely grew—by only about 3.5% for the 11 months through November. Indeed, November nominal exports were 1.2% lower than they were in March. On current trajectories, by 2015 America's exports will be far short of the president's five-year-doubling target.
Exports in 2010 and 2011 were boosted mainly by GDP growth among our trade partners. But that growth is fading—and trade liberalization has not been enacted to offset it. Nine of America's top 10 export partners—all but perpetually sluggish Japan—suffered slower GDP growth in 2012 than in 2011. In 2012, U.S. exports to the recessionary 27 European Union countries fell by about 1%.
Amid slow economic growth abroad and little movement in the American dollar, the key to spurring U.S. exports is aggressive policy liberalization. Yet how many new U.S. free-trade agreements were negotiated and ratified during President Obama's first term? Zero. How many new agreements look likely to be negotiated and ratified in 2013? Zero. For America to achieve the president's National Export Initiative goal, these zeros must soon be replaced with bold new trade agreements.These agreements should carefully target countries and industries. That can make a real difference. No disrespect to our 20 current free-trade-agreement partner countries, but last year they collectively accounted for only 10.5% of global GDP. China alone accounts for about the same amount. Why not negotiate a China-U.S. free-trade agreement?
Most estimates peg the U.S. as the world's single-largest exporter of services. In 2011, American exports of services—in technology and entertainment and including tourism to this country—were worth $604.9 billion. Given that America's long-standing and growing trade surplus with the rest of the world ($179 billion in 2011) reflects a comparative advantage in strengths that should be cultivated at home, including skilled labor, information technology and organizational capital, why not negotiate a global free-trade agreement in major service industries like consulting, entertainment and software?
To work, such trade agreements cannot be mercantilist: They should open U.S. borders to foreign exports as well as foreign borders to U.S. exports. Exports "made in America" increasingly hinge on creative new ways to make goods and services used in global supply networks. A June 2012 paper from the National Bureau of Economic Research by Robert C. Johnson and Guillermo Noguera estimated that the foreign content of U.S. exports has tripled in the past 40 years, rising from about 7% in 1970 to 22% in the late 2000s. In 2011, fully 62% of America's $2.2 trillion of goods imports were intermediate inputs—components and parts—used in America by American workers.
The National Export Initiative risks becoming a sad example of America's current policy mess: diaphanous words left hanging, without any tangible follow-through. Amid the many continuing fiscal fights, American companies and their workers could use some good policy news. Mr. President, how about surprising everyone in your second term with a renewed effort regarding trade? Don't let your NEI be DOA.
Mr. Slaughter, professor and associate dean at Dartmouth's Tuck School of Business, served as a member of the president's Council of Economic Advisers from 2005 to 2007.
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