How (Not) to Double Exports
Global Emerging Markets (GEMs)


Emerginvest is a global finance portal connecting investors worldwide with high-quality investment research, data, and tools covering 125 stock markets globally.

In the wake of the current global financial crisis, not all markets have been affected the same way. Emerginvest points you to the international markets and sectors that have already begun growing, so that you can build a strong, globally diversified portfolio.


The business elite and the political classes are overjoyed by President Obama's program to double U.S. exports over the next five years.  John Castellani, President of the Business Roundtable, says, ""Our member CEOs have long believed that to enhance economic growth and create more and better-paying U.S. jobs, business and government must work together to put domestic and international policies in place for workers and companies to compete in the global marketplace. The President is doing just that by mobilizing the government's resources through the creation of his Export Promotion Cabinet and by promoting closer cooperation with the private sector through the new President's Export Council, which will be led by two of our member CEOs, Jim McNerney, President and CEO of The Boeing Company, and Ursula Burns, CEO of Xerox."

Sen. Evan Bayh, Chairman of the Senate subcommittee that oversees the U.S. Export-Import Bank, last week issued a statement that said, ""Today, our country took a meaningful step in providing an adrenaline shot to domestic businesses and the workers who depend on them. This government-wide commitment to financing export growth and opening new markets will help millions of global consumers discover what Americans already know: ´made-in-the-USA´ is an indelible stamp of excellence." Both Sen. Bayh's and Mr. Castellani's statements were in response to a speech President Obama made to the Exim Bank conference on March 11, outlining his plan.

A generation ago, a famous hamburger ad, echoed by a political campaign ad, asked, "Where's the Beef?" It's worth posing the same question in this context.

The President's scheme, though ambitious in its aims, is exceptionally modest in its means. Although the President claims that doubling exports will create two million new jobs - funny how this is the same number of jobs the stimulus package is said to have saved or created -  the new initiatives themselves don't amount to much.

President Nixon established the President's Export Council in 1973, so one of the centerpieces of Mr. Obama's plan amounts to nothing more than naming some high-profile business people to head the council, which has quietly gone about its business for nearly 40 years. No doubt this is an improvement to an organization whose membership has been drawn almost exclusively from the Legislative and Executive branches of the Federal Government, but how substantive is it likely to be? From 1970 to 1975 U.S. exports more than doubled, and from 1976 to 1981 they doubled again. More recently, exports grew by more than 60% from 2002 to 2008. These figures capture only exports of physical goods, since exports of services are much harder to measure, but even so it is a pretty impressive performance and a rebuke to those who think America doesn't manufacture anything anymore.

But who knows how much, if any, of these export surges can be attributed to the energies of the President's Export Council or how much a higher profile Export Council might contribute?

The new "Export Cabinet" is already replicated in the Export Council, whose members include the Secretaries of Labor, Commerce, Agriculture, State, Homeland Security, and Treasury, as well as the U.S. Trade Representative, the Chairman of the Exim Bank, and the Administrator of the Small Business Administration.

That leaves the third pillar of the initiative, a vaguely defined program of financing and advocacy for American businesses to "locate, set up shop and win" in new markets. The President promises to get tougher in ensuring "fair access" for U.S. companies in export markets, and to review and reduce some export controls on high-technology products.

I tend to be suspicious when business gets too cozy with the government. When I think of government policies to help business I tend to think of things like reducing red tape and unnecessary regulation and promoting a fair and transparent business tax regime with low rates and few loopholes. But in the popular - and the President's - view, helping business is mainly about special favors, incentives, financing, and tax breaks.  Giving Boeing's CEO a prominent place at the table cannot be a good thing. According to research by the Pew Charitable Trust, 65% of all loan guarantees provided by the Exim Bank already go to a single company...Boeing.

"Getting tougher" on what the President calls "fair" market access seems unlikely to benefit us in either the short or the long run. Last week 130 members of Congress sent a letter to Treasury Secretary Timothy Geithner asking him to declare China a "currency manipulator," and to file a formal complaint with the WTO. This would open the door to what in the trade jargon are called "countervailing measures," or retaliatory tariffs, on any number of products. This may produce a patriotic glow, but it is hardly likely to result in a new flood of U.S. exports to China.  China has warned that if this law passes the U.S. can expect to feel much greater pain than China, and I see no reason to doubt China's resolve or capacity.

As the new EU Trade Commissioner Karel de Gucht remarked, also last week, "It is interesting to note . . . that [the President] speaks about 'exports' and not about 'trade' . . . Trade is by definition about two directions . . . trade means also accepting that imports are doubling. I don't think it's by accident that the word export is used instead of trade."

Commissioner de Gucht has it about right. If we increase exports, imports will rise. Perhaps not by as much, but there is no chance of doubling exports while imports stay the same. Also, hammering other countries to let in more American goods, even as we impose quotas and tariffs on a wide range of imports and subsidize U.S. exports of cotton and other commodities, has so far not done much to reduce our trade deficit. The President should be aware that a huge proportion of the goods we import from places like China come from foreign subsidiaries of American companies. If we make it harder for these companies to import, it is likely to become harder for them to export as well.

So what should President Obama do? Letting the Export Council go back to being an obscure entity no one has ever heard of would be a start. We don't need Presidential sponsorship for Boeing and other corporate behemoths to plead for bigger subsidies and tax breaks. They can pay lobbyists to do that for them. Creating an "Export Cabinet" is an empty gesture.  The President can call on his Cabinet Secretaries at any time, singly or collectively, for ideas and advice. I doubt Janet Napolitano is a font of creative ideas to increase American exports, but if I'm wrong about that the President can just pick up the phone and ask for her views.

This fanfare over the export initiative serves only to obscure the real challenge, which is to maintain and increase American companies' competitiveness in both domestic and global markets. Unfortunately, many of the Obama Administration's core initiatives (including the stimulus package, the jobs bill, alternative fuels subsidies, new financial regulations, and health care reform) are likely to reduce, not increase, that competitiveness while failing to address most of the core problems they are meant to solve. There are, however, a few things the President could do without compromising his liberal ideals.

First, he could champion real immigration reform. Out of security concerns, we have made it so hard for foreigners to study and work in the U.S. that they increasingly turn to Canada, Australia, and other countries with a more sensible and welcoming attitude. If you count the number of high-profile American companies founded by immigrants and the number of patents and Nobel Prizes awarded to immigrants, we should do everything possible to encourage immigration for higher education and do everything possible to encourage foreign graduates to stay here and work once they get their degrees.

Second, he could ease up on foreign subsidiaries of U.S. companies. The President has called for stiff measures to prevent these companies from deferring payment of U.S. taxes on their foreign earnings until those funds are repatriated. The Obama Administration defends this measure as a way to discourage U.S. companies from "shipping American jobs overseas," but most of those subsidiaries are an important conduit for American exports. If you punitively tax the profits of those operations, exports are likely to decline.

Third, we should allow Americans resident overseas to shelter a healthy chunk of their foreign earnings from U.S. taxes, instead of trying to do away with a meager exemption that has hardly gone up since Jimmy Carter was President. Many of these people live in countries that have no tax treaties with the U.S., so can be subject to double taxation on their earnings. A lot of these folks are on the front lines of American export initiatives, and although I don't want to exaggerate the hardships of the expatriate life, if they have to pay higher taxes for the privilege of working overseas they may choose to stay home instead.

Finally, let's reform the corporate income tax. America has one of the highest corporate income tax rates in the world, but the tax code is so riddled with loopholes, credits, exemptions, and special incentives that it's rare for any two companies to pay the same percentage of their income in taxes.  Cut the headline tax rate by at least a third and eliminate most of the loopholes, and tax revenues, direct investment, and exports will all rise. Some lobbyists may lose their jobs, but who really cares?

There is more, of course. But if the Administration does these things it really will make a difference, and instead of loading up the national debt even further, we will have a chance to grow out of it instead.


Posted 03-23-2010 10:20 AM by Charles Krakoff