13 August 2010

Overseas Suppliers to Benefit from Increased U.S. Exports

 

Will the ship carry more U.S. goods overseas? That depends, experts say.

Will the ship carry more U.S. goods overseas? That depends, experts say.

By Warner Rose
Special Correspondent

Washington — When U.S. exports increase, America’s trading partners also benefit because U.S. companies usually include imported parts in their products, supporters of free trade say.

“It’s very hard in today’s world to expand exports without expanding imports at the same time,” said William Reinsch, president of the National Foreign Trade Council.

In the new “global-supply-chain world,” U.S. companies are increasing their purchases of parts and inputs from foreign suppliers, taking advantage of reduced trade barriers, Reinsch said.

Despite a dearth of hard numbers, anecdotal evidence indicates the foreign content of U.S. exports is significant. For example, the parts for Apple’s iPod music player come from many overseas sources, including Japan, South Korea, the Philippines and Taiwan, according to a 2008 study by three University of California professors. The gadget itself is assembled in China.

While the United States continues to export large amounts of finished goods, minerals and agricultural products, it is increasingly becoming a services and innovation economy, according to economists. This means that intellectual input — such as the product design or patented software — becomes the most valuable U.S. contribution to the product, Reinsch said. An example of this again is the iPod. Apple Inc. contributed the concept, the design and the software — all patented intellectual property. The most expensive foreign-made part is a hard drive supplied by the Japanese company Toshiba at $73 each. Apple earned $80 on each $299 iPod, more than any other company involved in its production, the study said.

When President Obama announced the National Export Initiative in January with the goal of doubling U.S. exports over five years, he called the innovation, ingenuity and creativity of the American people the greatest U.S. asset. Obama said the United States needs to generate more growth from exports and rely less on domestic consumption for its economic health.

ECONOMIC GROWTH AND EXPORTS

 

U.S. companies — supported by the Obama administration — work to push the export line up.

U.S. companies — supported by the Obama administration — work to push the export line up.

Opinions vary on whether the president’s goals of doubling U.S. exports over five years and creating 2 million U.S. jobs can be achieved. It took 12 years for U.S. exports of goods and services to double to $1.64 trillion in 2007, according to the U.S. Census Bureau’s foreign trade statistics. Exports have declined slightly since, totaling $1.55 trillion in 2009.

Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers (NAM), said Obama’s goals will be difficult to achieve. Foremost, Vargo said, the administration needs to return to the policy of negotiating and enacting new free trade agreements. “Only 40 percent of our exports are covered by free trade agreements now,” he said.

Obama vowed to seek congressional approval of the Panama, Colombia and South Korean free trade accords negotiated by the Bush administration and move forcefully on the proposed Trans-Pacific Partnership, an initiative to integrate the economies of the Asia-Pacific region.

The most important factors that will determine whether the export initiative will succeed are the rate of economic growth in importing countries — the faster they grow, the better chance of success — and the exchange rate of the U.S. currency. A less expensive dollar boosts U.S. exports. But the U.S. government has little or no control over these factors. For example, Washington has pressed China to move toward a more market-oriented exchange rate and let its currency appreciate. That would make U.S. goods and services less expensive in China. Yet Beijing has adjusted its currency policy only slightly in recent years.

The U.S. government can boost U.S. sales overseas by giving full support to U.S. exporters, experts say. Obama said that is a major part of his export initiative, particularly in regard to small and medium-size firms, which often lack the resources or the experience to enter overseas markets.

In August, the president signed into law legislation that suspends import tariffs on some materials and components used by U.S. manufacturers to produce goods for sale in overseas and domestic markets. NAM said the measure will help boost U.S. firms by lowering production costs by nearly $300 million over the next three years, according to the Congressional Budget Office.

The president has called for reforming the export controls system, which restricts sales of high-tech products for national security reasons. Exporters say the cumbersome Cold War-era licensing process discourages companies from selling goods overseas and puts them at a disadvantage against their foreign rivals.

But with elections in November and other matters already on the agenda, Congress is unlikely to act on the issue before 2011, said Catherine Robinson, NAM’s director of export controls.

More information on the National Export Initiative is available in a State Department fact sheet and a White House fact sheet.

(This is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://www.america.gov)