EconoMonitor

Ed Dolan's Econ Blog

Latest Data Show US Export Drive is Faltering

The latest international trade data for the United States show that the country’s export drive, which has been a bright spot in an otherwise weak recovery, is now faltering. Nominal exports of goods grew a modest 1.6 percent in Q1 2012; a broader measure of exports that includes goods, services, and income receipts grew just 0.7 percent.

These data will come as a particular disappointment to the White House. In his 2010 State of the Union address, President Barack Obama promised a doubling of U.S. exports over a five-year period. The promise was couched in general terms, but many observers have taken it to mean a doubling of nominal exports of goods. There was considerable skepticism about the promise at the time, but for the first two years, exports moved close to the doubling track, as this chart shows.

Now even by the favorable measure of nominal goods exports, the actual data are dropping below the doubling path. It is hard to fault administration policy for the shortfall. The White House has worked hard to promote U.S. exports. Winning Congressional approval of long-delayed free-trade pacts with South Korea, Colombia, and Panama was one of the president’s few major legislative victories. Instead, forces outside U.S. control appear to be to blame for faltering export performance.

One of those factors is a strengthening dollar, caused in part by the euro’s troubles. At the same time, the Chinese yuan, which had been strengthening gradually but steadily against the dollar for the past two years, has begun to weaken again as the Chinese economy slows and capital flows reverse. The following chart shows the broadest measure of the strength of the dollar, the real effective exchange rate (REER)—a measure of the exchange rate that is adjusted for differences in inflation among countries and weighted by each country’s share of U.S. trade. After falling steadily for more than a decade, the REER has now begun to appreciate.

At the same time, world economic growth is slowing. The latest World Economic Outlook from the IMF shows slower growth in both advanced and emerging market economies, as summarized in the next chart. In fact, many observers think the IMF projections for 2012 may be overly optimistic. The data underlying the chart project only a mild recession, -0.3 percent change in GDP, for the euro area; the outcome could well be worse. Similarly, the chart assumes 8.2 percent growth for the Chinese economy, an outcome that now seems at the top of the range projected by China-watchers.

No doubt the slowing export data will become a topic of debate during the Presidential campaign. The incumbent will point to the recently ratified trade pacts as evidence that it has pulled out all stops to boost trade. The challenger has already promised to strike a harder line with China beginning his first day in office. The fact of the matter is, though, there is little the United States can do unilaterally to get export growth back on the doubling track.

2 Responses to “Latest Data Show US Export Drive is Faltering”

ThomasGrennesJune 27th, 2012 at 3:45 pm

Manmohan Manu and EdDolan:
Interesting and informative article. Politicians of both parties continue to be consistent
Mecantilists; exports are good, but imports are either unmentionable or bad. On the finalized free trade agreements, weren't all of them negotiated by the previous administration? Also why has the President not requested new fast-track negotiating authority from the Congress? It is interesting to see how political support for freer trade follows comparative advantage. In the past when the US had a comparative advantage in steel and automobiles, labor unions and Democrats supported free trade. The Kennedy Round of GATT was named for President Kennedy. Now that the U.S. has lost its comparative advantage in those products, labor unions and Democrats
have changed their support for trade.