President Obama in his State of the Union Address announced a program to double
Of all the “job programs” undertaken or contemplated by our government, the President’s plan to double exports in five years seems to me the most fatuous.
How his program could accomplish this is incomprehensible to me. The increase in loan guaranties by the Export-Import Bank would reduce exporters’ interest costs by reducing their risk of losing money by extending credit to a foreign purchaser, but that would be a minor boon to exporters. Likewise, anti-dumping enforcement and other efforts to prevent “unfair” pricing by foreign companies importing to the
That leaves the negotiation of trade agreements with foreign countries. The problem with them, from a job-creation or deficit-reduction standpoint, is that they increase bilateral trade—imports as well as exports—and so have no average tendency to increase exports. Moreover, they are difficult to negotiate because of opposition by producers and workers, in both countries (if it is a bilateral agreement), to allowing increased imports; the opposition to increased imports is based on the fact that they can result in reduced domestic production and employment. At the same time, increased imports benefit consumers and some producers (imports are often inputs into domestically manufactured goods), but generally these effects are more diffuse than the losses of sales and employment caused by imports, and so do not have as much political weight. A Democratic Administration is apt to be particularly sensitive to union opposition to free-trade agreements.
Increasing exports is a standard and perfectly sensible response to an economic downturn. Exports are by definition domestically produced goods or services, so an increase in exports increases production and hence employment. But the usual way of stimulating exports is by devaluation, which increases the amount of a nation’s goods and services that foreigners can obtain with their foreign currency. Moreover, devaluation increases the domestic price of imports, which in turn stimulates domestic production to replace some of these now more expensive imported goods.
Our government has been trying to create a modest inflation, primarily in order to reduce debt burdens, reduce real wages (in order to reduce layoffs), and reduce hoarding (since inflation has the effect of a tax on cash balances) and thus stimulate consumption. Inflation increases the price of exports, but, especially if it is modest, is likely to be offset by a fall in the value of the dollar relative to foreign currencies. A high rate of inflation, however, which is a looming possibility because of the Federal Reserve’s "easy money" monetary policy, would probably have a significant negative effect on exports.
We have large trade deficits with
An improvement in our trade balance would be a good thing because it would reduce the federal deficit as well as making us less dependent on the goodwill of foreign countries, but increased exports offset by increased imports would not affect the balance.
Finally and most questionably, the proposal to double our exports assumes that foreign export-oriented countries like