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Tyler Cowen on American Exports

All those who think the U.S. is declining for the next however-many-years should give Tyler Cowen’s latest TAI essay a close read. Writes Cowen:

American manufacturing employment has been badly hurt by the mobility of capital seeking lower production costs abroad, but the growing wealth of foreign populations in rising economies is creating new demand for imports, including imports U.S. workers can supply. As is well known, America was the world’s leading exporter virtually every year during the latter half of the 20th century, losing that title to Germany only in 2003, and later falling behind China. New circumstances thus prompt the question: Might we someday regain that honor? If so, how will this shape American foreign policy, jobs, education, politics and poverty? […]

In the early stages of growth in developing nations, importers buy timber, copper, nickel and resources linked to construction and infrastructure development. Those have not been U.S. export specialties, and so a lot of the gains from these countries’ growth so far have gone to Canada, Australia and Chile. Usually American outputs are geared toward wealthier consumers and higher-quality outputs, which is what you would expect from the world’s wealthiest and most technologically advanced home market. To put it simply, the closer other nations come to our economic level, the more they will want to buy our stuff. Indeed most of those nations are growing rapidly, so we can expect their attentions to shift toward American exporters. The leading categories of American exports today—civilian aircraft, semiconductors, cars, pharmaceuticals, machinery and equipment, automobile accessories, and entertainment—are going to be in the sweet spot of growing demand in what we now call the developing world.

Indeed, of the wealthy nations, the United States probably will do the best at capturing those growing markets. Japan already has moved to trade-deficit status for the first time in three decades. This status may not persist, but the country is no longer the export powerhouse it once was, and companies like Toyota and Sony are no longer global innovation leaders. As for Europe, significant parts of the common currency area may lose a decade or more as they sort out the current financial mess. Both Europe and Japan are shrinking in population, too, while that of the United States is growing.

Read the whole thing.

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  • Luke Lea

    “To put it simply, the closer other nations come to our economic level, the more they will want to buy our stuff.”

    I would put that a little differently: the closer other nations come to our economic level the less trading with them will hurt American wages — a process that will take decades if not a couple of generations.

    OTH, there should generally be a balance of trade (value of exports = value of imports) all along. The fact that there hasn’t been is — in Chana’s case, which is the biggy — because of the Communist Party’s artificially depressing their currency. They are playing us for chumps and we are letting them.

    Did anybody see this video:

  • Anthony

    “The more the world relies on smart machines the more domestic wage rates become irrelevant for export prowess…A lot of people complain about this deal from both sides of the political spectrum, but few observers are willing to countenance a truly open, competitive set of educational, governmental and health care institutions as a remedy.”

    “We had not thought through seriously enough the possibility that the world’s most technologically advanced economy would over time develop persistent and indeed growing productivity differentials across sectors. It clearly has, and the social and political frictions this has caused now dominate our politics – or soon will.” WRM, Tyler Cowen’s exposition ought to be companion reading to your A Crisis of Civilization – content is certainly both related and reinforcing.

  • Jacksonian Libertarian

    The US has encouraged our foreign trading partners to manipulate their currencies to gain a price advantage for their businesses. This has had the effect of putting US businesses at a price disadvantage and suppressing US exports. The American Strategy in doing this is to uplift billions of people out of abject poverty, and create a huge efficient global market that will benefit all mankind.
    The foreign central banks manipulated their currency by taking the dollars their exports earned and buying US Treasuries, in the process they overpay for the dollars. The foreign currency market is just like any other market and is subject to the Law of Supply and Demand. As the Supply of US Treasuries in foreign central banks grows (now $4.5 Trillion), the level of supply forces the value of the Dollar down and the larger this supply grows the heavier the weight forcing the value down becomes. Eventually foreign manipulation of the Dollar becomes impossible without damaging their own currency, and all of that excess supply of Dollars will have to be rebalanced by returning to the US. When it does the US will experience an export boom the likes of which the world has never seen.
    I don’t believe the US should let things get to that extreme, and the US should pay off all foreign held Treasuries all $4.5 Trillion now. This would produce an export driven recovery, an end to the deflation in housing, and a recovery of the American Family nest egg of equity in their home. Small businesses would once again have their major source of capital restored (home equity), jobs will be created in export industries and small businesses, and the US will be back in business as the world’s economic engine.

  • Walter Grumpius

    You’re forgetting about Asian mercantilism, ethnocentrism, hypernationalism, intellectual property rights theft, and general sharp elbows relative to our own. You think these traits are just gonna fall away?

    You’re also forgetting that Asian elites these days are rather more clear-eyed about the nature of the world than the ideologically deluded (and spitefully motivated) hostile elites of the West.

    Huh. To paraphrase Chuang Tzu, a dog dreamed it was a tick, and then awoke to wonder: am I a dog dreaming I was a tick? Or am I a tick dreaming I was a dog?

    The funny thing is, there exist some cultures which will not hesitate to answer the question forthrightly… At least amongst themselves.

  • bob sykes

    Over at Carpe Diem, Mark Perry occasionally posts data on American manufacturing. The bottom line is that just our manufacturing economy is larger than Germany’s whole economy.

    Over the last 20 to 30 years our manufacturing output has doubled in constant dollars. But, manufacturing productivity has tripled. And that is the main reason we have lost manufacturing jobs. The “great sucking sound” is an illusion.

    The Chinese have also lost manufacturing jobs as they have closed their appallingly inefficient Maoist enterprises and replaced them with newer facilities.

    The energy cost differentials between the US and the rest of the world are substantial. Oil is 20% more expensive in Europe than the US. The recent development of fracking for gas and Bakken and Elm Coulee oil fields has caused a major reduction in natural gas prices and substantially reduced net oil imports to only half of total consumption (from over 60%). In Ohio, steel mills of the old kind (limestone and iron ore) are poised for expansion fed by cheap, clean natural gas rather than expensive, dirty coke. Expect an expansion in total steel production and a drop in price.

    If we can prevent the Obama lunatics from destroying our energy resources, our natural advantages in energy and manufacturing efficiency will lead to an expansion of our already enormous manufacturing base.

    We might even get back some manufacturing jobs.

  • Mark Michael

    Economist Michael Mandel has a relatively new post on how BLS incorrectly measures labor productivity growth and job loss due to imports. See:

    It doesn’t change the basic free-market, free trade correctness, it just tells us that low-cost imports have a bigger impact on American manufacturing jobs than macroeconomists think. We have not have the amazing gains in manufacturing labor productivity that the BLS’s data would suggest over the last 15 or so years.

    It does no good to enact mercantilist trade protectionist measures, though. That just penalizes Americans who buy those imports. Both the overseas manufacturer and the American consumer who pays higher prices for those imports suffer. (The political class and the few Americans who manufacture the local version benefit. The political class collects the tariff & pockets it.)

    We should keep hectoring our overseas trading partners to open their borders to our exports, of course. We can’t force them to do that, but at some point, their central banks will hold so many dollars they’ll (finally!) figure out that not only can we Americans never pay them back, but we won’t even be able to pay the interest on their debt. That’s when it’s “come to jesus time” for the world financial system. Something has to give. “An unsustainable trend -will not be sustained” (Herb Stein).

    As WRM likes to say, “It’s just arithmetic.”

    Hmm. Does anyone have a crystal ball – and can “see” how it will turn out? One can only speculate, since we’re talking about human behavior and its impossible-to-reliably-predict nature.

    So far, the only country with a serious substantial “adult” grass roots response has been America with our Tea Parties. We have a large irresponsible “tantrum-throwing” faction, too: our “blue” state government worker bees.

    Actually, that’s not quite true. Little Ireland has had amazingly adult citizen-level response to their financial crisis. Their politicians did not match the quality of that behavior in their handling of the crisis, unfortunately. They failed to require their banks’ creditors to “take a haircut” as part of their resolution of the crisis. They put the entire burden on their citizenry and paid off the creditors euro-for-euro.

    German citizenry seem to be behaving responsibly also for the most part. (It’s their pols that are “weak and wobbly.”)

    What about the Asian countries – with the mercantilist policies and “enabling” central banks?

    S. Korea just signed a FTA with us – that’s a big positive on their part. Whether they will actually import a lot more American goods remains to be seen. They have had one of the most militant mercantilist outlooks going in the past. Japan ran a trade deficit last year. What about China? The crystal ball is cloudy, I’m afraid.

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