By now, the catalysts behind the shift are fairly well known. Rapid import growth, fueled by U.S. consumer and business spending, has been dampened by recent Federal Reserve interest-rate hikes. Japan, Germany and other European economies, enjoying a healthy new economic momentum, are now growing faster than the United States. Recent structural improvements in these countries have lifted their potential growth rates. Along with the weaker U.S. dollar, these trends will continue to dampen demand for foreign imports to the United States and increase the appetite for U.S. exports.
The trend debunks one of the most common misperceptions about international trade: the notion that the United States has lost its competitive edge, and that there is shrinking demand for American exports. Not true. In the past three years, U.S. exports have grown more than 8 percent per year—more than double U.S. real GDP growth—and the United States remains the world’s largest exporter of goods and services.
An analysis of what the United States exports—and who buys those exports—explains why American companies will stay competitive, and supports my favorable view that the U.S. economy will rebound and resume 3 percent growth.
Nearly half of all U.S. exports—about $750 billion—are capital goods and industrial supplies, like machinery, computers and a wide array of durable goods and materials used in production processes around the world. As global economies build out their infrastructures and expand productive capacities, demand for these products will remain dominant.
The United States also is the world’s largest exporter of business services, particularly financial services. I expect that U.S. financial institutions will remain on the leading edge of global technological innovation and product development. Also, the weakness in the dollar can be expected to boost the U.S. travel industries.
Strong growth prospects in the countries and regions that purchase U.S. exports will fuel the trend. Nearly one quarter of all American exports go to Asia, where economic growth far exceeds the global average. Asian demand for U.S. exports is predominantly in production-oriented goods, but as consumer spending becomes more important, the United States is well positioned to “export” services in merchandising and distribution, particularly in areas like retail. Another quarter of U.S. exports go to Europe, where core European nations are growing above 2.5 percent, and many in Eastern Europe are growing faster than5 percent. Canada, the United States’ largest trading partner, continues to enjoy healthy economic growth, while key Latin American nations like Brazil and Mexico are experiencing solid expansion.
Stronger demand for U.S. exports will mean more and better jobs in areas like traditional manufacturing (excluding motor vehicles) and the business-services industries, offsetting weaker job gains in select domestic service sectors such as wholesale and retail trade, which tends to be lower-paid. The result could be a much-needed boost to beleaguered rust-belt industries. Still, the shift won’t alter a dominant trend in labor markets: the demand for skilled jobs will continue to rise, while an excess supply of semiskilled labor is likely to persist, resulting in wider wage differentials.
The shift in the global trade picture will be associated with a narrowing of the U.S. current-account deficit and less reliance on foreign capital. This could make borrowing more expensive for the United States—as foreign accumulation of U.S. dollar-denominated assets slows, real interest rates will likely rise. The upside: a smoothly declining trajectory of trade and current-account imbalances reduces the probability of a jarring, disorderly decline in the U.S. dollar.
I would like to believe that the mounting calls for protectionism among U.S. politicians would be dampened by a declining U.S. trade deficit and an increase in higher-paying production jobs. Unfortunately, these favorable trends won’t likely cause a change of heart, since the most menacing protectionist legislation brewing in Congress is focused toward China, whose bilateral trade surplus with the United States continues to grow. Even as U.S. trade turns the corner, the politics of globalization do not.
