Exports: The economy's saving grace?

May 12, 2008

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California Governor Arnold Schwarzenegger and U.S. Secretary of Commerce Carlos Gutierrez made a case for free trade in today"s Wall Street Journaland they used recent export numbers to buttress their argument.



Even at a time when our economy has slowed, U.S. exports are booming. In 2007, we saw a record $1.6 trillion in exports, up 12.6 percent from the prior year. And exports are growing even faster in 2008. In the first quarter of this year, export growth is up nearly 18 percent from the same period last year.


No matter which side of the free-trade fence you sit on, no one can argue about the gains U.S. manufacturers have made from exports and the falling dollar. To be sure, importers have felt the burden, but the news is positive for many domestic manufacturers.



Vivek Gupta, managing director at Texas ProFab, Carrollton, Texas, is one of many metal fabrication shop managers who has experienced the export effect firsthand. As I posted on this blog back on March 11, Gupta had good things to say about the dollar situation. The weak dollar is good for our industry. Our customers are more competitive globally. They now ship everywhere from China to Hungary.




In recent days economic analysts have called the U.S. export trend a diamond in an otherwise rough economy. A Commerce Department fact sheet released Friday had this to report: During 2007, real exports grew 8.1 percent and now account for a larger part of our GDP than any time in history.

The same day the government reported March"s trade deficit at $58.2 billion. That"s still a big number, but it"s down 5.7 percent from February. According to an Associated Press report released Saturday, export growth will continue to cushion the drag from housing and other weak sectors.

Although the short-term benefits of a falling dollar are undeniable for U.S. manufacturers, the reasons behind the dollar"s fall make me a bit uneasy. For years the world"s central banks and sovereign wealth fundsawash with cash from oil and the American consumerhave put billions into the dollar, the world"s dominant currency. But according to Peter Goodman"s column in Sunday"s New York Times, the days of the dollar being the world"s dominant currency may be numbered.

The balance of trade has gotten so lopsided and the question marks hovering over the American economy so thick, he said, that some foreign governments are beginning to hedge their bets on the dollar.



Goodman continued: For Americans, losing that status [of having the dominant currency] could be painful, sending interest rates higher and raising the cost of buying homes and cars. A country that has been operating with essentially unlimited credit might have to learn to live within a budget.

Nevertheless, the codependence of the global economy may be a mitigating factor: The world needs the U.S. consumer to keep buying. As Goodman put it, The current flows of capital lubricate world commerce, giving the American consumer the wherewithal to keep buying; those purchases, in turn, generate business and employment from Asia to Latin America. Such an interdependent global economy may stave off any changes in the status quo for a long time to come, he said.

Between now and then, manufacturing may play an important role in getting the U.S. economy back on track. In recent months, manufacturers exporting their products overseas, according to some, have kept this country out of a full-blown recession.

The export side of the U.S. economy has been the sole saving grace in terms of avoiding recession, said economist Chris Kuehl, Ph.D., in his Business Intelligence Brief e-newsletter, produced by Lawrence, Kan.-based consultancy Armada Corporate Intelligence. But it may yet play a bigger role when the U.S. economic recovery begins.



FMA Communications Inc.

Tim Heston

Senior Editor
FMA Communications Inc.
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Rockford, IL 61107
Phone: 815-381-1314
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