Business Beyond the Reef

I was pleased to hear President Obama bring up exports in his State of the Union address Wednesday night.  Let’s take a look at what he had to say:

Asking For Exports (Official White House Photo by Pete Souza)

“… we need to export more of our goods.  (Applause.)  Because the more products we make and sell to other countries, the more jobs we support right here in America.  (Applause.)  So tonight, we set a new goal:  We will double our exports over the next five years, an increase that will support two million jobs in America.  (Applause.)  To help meet this goal, we’re launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security.  (Applause.)

We have to seek new markets aggressively, just as our competitors are.  If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores.  (Applause.)  But realizing those benefits also means enforcing those agreements so our trading partners play by the rules.  (Applause.)  And that’s why we’ll continue to shape a Doha trade agreement that opens global markets, and why we will strengthen our trade relations in Asia and with key partners like South Korea and Panama and Colombia.  (Applause.)”

It is encouraging that the President (or his speechwriters) understand that exports and jobs are positively correlated.  And his goal of doubling U.S. exports within five years is certainly something to aim for, though I fail to see how Obama can deliver it.  State of the Union addresses are always short on details, so we will have to wait to see what is in the National Export Initiative.  Obama’s mention of reforming export controls is consistent with Secretary of Commerce Gary Locke’s proposals that I reported on a couple months back.

So how is President Obama going to increase exports by small business and farmers?  Traditionally, farm exports have been prodded by subsidies (disguised or otherwise) and assisted by the promotion efforts of the Foreign Agricultural Service.  Similarly, the chief export promotion agency for non-agricultural products has been the U.S. Commercial Service, always afflicted with inadequate budgets and too few staff.  Introducing new subsidies has no future, and adequate resources for the export promotion agencies seem ruled out by the President’s proposal to put a three-year moratorium on increasing discretionary spending.  Neither Service is strong enough within their own Departments (Agriculture and Commerce) to increase their resources in the face of a zero-sum budget game.

So, again, how is he going to increase exports?  Perhaps he has negotiations in mind, since he mentioned the Doha Round.  But even if poor Doha should become a magnificent success, that won’t double exports in five years.  Passing the free trade agreements in the pipeline would help, but would they double exports?  No.  Perhaps Obama anticipates talking the dollar down, or even a devaluation.  I don’t think so.  A massive loosening of credit for export sales?  That raises the subsidy issue again.  Export education?  Absolutely necessary, but that won’t double sales in five years.  That pretty much leaves jawboning and we know how effective that is.

Obama played the export enforcement card in his second paragraph.  Always popular with members of Congress who think that other countries are nefarious and that America does no wrong on trade.  Sorry to disillusion them, but the United States is just as vulnerable if other countries want to step up their enforcement of trade agreements.  That is a ticket to trade war unless we restrict ourselves to using the dispute settlement mechanisms in the World Trade Organization.  The WTO, which populists love to villify, has a good record of solving trade disputes – and is a far better option than doing it the old-fashioned way.

My pulse quickened when the President said he wants to strengthen trade relations with South Korea, Colombia and Panama.  I thought he was about to ask Congress to implement the long-stillborn free trade agreements with those countries.  But he stopped short.   These FTAs could mean hundreds of thousands of jobs for Americans, and could – with other future agreements – help meet the five-year goal.  But no, he stayed on the fence – and Congress is not likely to act unless Obama clearly says he wants them to do so.  Disappointing.

But the unthinking Democratic applause for every sentence was amusing.

This entry was posted on Friday, January 29th, 2010 at 7:24 am and is filed under Economics, Exporting, Trade Policy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.