James Srodes Credibility gap

JAMESSRODES | Veteran commentator on Washington & Wall Street

Credibility gap

The President pledges to boost US exports – but how?

The late President Richard Nixon’s enemies used to jibe at his image of shifty untrustworthiness with the quip, “Would you buy a used car from that man?”

President Barack Obama has none of the questionable record of personal ethics, yet he has run into a similar credibility problem with his recent pledge to restore the United States economy to its manufacturing preeminence in the world marketplace in just four years.

Both in his State of the Union address to the Congress and in campaign appearances more recently, Mr Obama has specifically pledged to double US exports of manufactured goods to the rest of the world by 2015. The implications are clear: more exports mean more new jobs at home. The pledge invariably wins him applause from the audience.

As he told workers at a Boeing aircraft plant near Seattle recently, “If we want an economy that’s built to last, we have to do everything we can to strengthen American manufacturing and make it easier for companies like Boeing to create jobs at home and sell their products abroad.”

Lost in the applause are some important questions. Not the least of the questions is who will be buying the estimated six trillion dollars worth of additional US products over the next four years in a global marketplace where America’s main customers (China, 19.5 per cent; Canada, 14.2 per cent; Mexico, 11.8 per cent; Japan, 6.3 per cent; and Germany, 4.3 per cent) already are glutted and facing problems of their own.

More pressing perhaps is how the President plans to reverse a gap between what America already exports and the products it imports. The latest trade data show that as of the end of 2011 the US trade deficit rose to its highest annual level since before the global recession shrank the marketplace in 2008. Year over year, the trade gap rose 11.6 per cent to $558 billion.

Surely that gap has to be closed before any positive gains from increased export sales will begin to create economic lift and that means potentially adding another two trillion dollars worth of new sales to the four-year Obama export programme’s goals.

Even though US exports did expand during 2011, the yearly gain was 14.7 per cent, slightly off the 15 per cent per year gain Mr Obama needs each year to reach his goal. And for December, the expansion was an anaemic 0.7 per cent.

There is a broader long-range problem with the ambitions the President has for US manufacturing as an export driver. The economists of the Federal Reserve Bank of New York recently issued a study that argues that “the changing composition of the products traded internationally and the diminished share of US gross domestic product (GDP) in global output” stand in the way of that revival.

“The US market share of world merchandise exports has declined sharply over the past decade. Throughout the 1980s and 1990s, approximately 12 per cent of the value of goods shipped globally originated in the United States. By 2010 the share had dropped to only 8.5 per cent,” the Fed economists noted.

Nor are these losses being offset by dollar sales of US service industry sales, as is commonly assumed. While the manufacturing sector was losing approximately one third of its global market share, exports of services fell from its initial value of about 25 per cent of exports to just above 5 per cent.

Hi-tech decline

While Mr Obama was being cheered at the Boeing aircraft plant for his pledge, at least part of the dilemma was at that very factory. The president has repeatedly stressed his emphasis on boosting both the American aircraft and computer industries – the high-tech employers which are supposed to be the future.

The Fed economists noted that while every export sector lost ground, “The sector that contributed the most to the overall decline in share was machinery and transportation equipment, which alone accounted for half of the decrease in US export share over that period. This large contribution in part reflects the fact that machinery and transportation-related products represent almost half of US exports. Within that sector, the declines in the US share of office machine and computer exports are particularly striking, dropping from about a third of world total sales to just under one-tenth.”

Perhaps the most fatal flaw in Mr Obama’s export-boosting agenda is his personal conviction that he can better pick those manufacturers who are going to lead an export boom than can the global marketplace itself. There have been a series of embarrassments over the last two years where the Administration has funneled millions of dollars into high tech and ‘green technology’ ventures that sank without a trace.

Another political cloud on the President’s horizon is that some American corporations are starting to object to the government boosting one sector of the economy without considering the impact on other sectors.

The huge ($52 billion) export subsidies provided to Boeing may help foreign airlines buy the big new jetliners but major US air carriers have begun to protest that those subsidies then put them at a loss in the international market. Some critics have rather unkindly pointed to the coincidence that Boeing’s CEO W. James McNerney Jr. also chairs Mr Obama’s White House export advisory panel.

So far, Mr Obama has managed to avoid his export plan turning into an election year issue for his opponents. Time will tell, however. n