In the State of the Union, President Obama pledge to "double our exports over the next five years." A week ago, Commerce Secretary Locke announced the details of the National Exports Initiative. The trade data released earlier this week showed exports in 2009 totaled $1.55 trillion. Doubling exports would take it to $3.1 trillion (based on the 2009 export level -- $3.6 trillion based on 2008 export levels).
How do we get to the level of $3.1 trillion exports in 2014? Goods exports were about $1 trillion in 2009. All services export were about $500 billion. Business services are about $230 billion. Travel and passenger fees (essentially tourism) are about $125 billion combined. Royalties are $83 billion. Other transportation services (essentially freight transportation) are $45 billion. Government payments and military contracts are just over $27 billion.
Increasing exports of goods is the key. For example, if you have only a 50% increase in goods exports to $1.5 trillion, you would have to increase services exports 3 times to gain the other $1.5 trillion. And of those services, it would be mainly business services and tourism that would have to provide the bulk of the increase. Transportation services will grow only as fast as export and imports of goods increase. To get to $1.5 trillion in services exports would require a 4 fold increase in business services and tourism.
In its best year in the last two decades, tourism grew by a little over 16%. If it would match that rate, total exports from tourism would reach over $260 billion by 2014. Far short of a 4 fold increase - but more than doubling. However, the average before the recession was closer to 4.5%. Reaching the goal of doubling this export would require matching the largest growth rate in recent years - an unlikely prospect.
Between 2004 and 2008, goods exports increased about 12% a year. At that rate over the next few years, exports of goods would increase to just under $1.9 trillion - short of a doubling. But the average for the decade and half before the recession was under 7%. Maintaining that average rate would leave us well short of the goal of doubling the level of goods exports by 2014.
Before the recession, growth in intangibles -- business services exports and royalty payments received -- was about 10%. That would take us up to $370 billion of business services and $135 billion in royalties by 2014 - well short of doubling. So, while exports of intangibles have been the fastest growing area in the past decade and half, they are not enough to reach the goal of $3.1 trillion in 2014.
Thus, meeting Obama's goal of doubling exports by 2014 will require a sustained push to increase our exports even beyond the recent high rates found for a few years in the mid part of the last decade. Every category will have to grow at about 15% per year.
The chart below shows what would be needed (military contracts and transfers are assumed not to increase).
Exports of intangibles can play a role in meeting that overall goal. But the real contribution of intangibles will be to strengthen manufacturing and the export of goods. As I have noted before, intellectual capital and intangible assets are just as important for manufacturing as for any other sector. Baking IC and intangibles into a manufacturing strategy (see earlier posting) is absolutely critical to reaching the trade and exports goals the President has set of our nation.
By the way, doubling the level of exports could eliminate the trade deficit. Imports are currently around 17% of GDP (has grown over the past two decades from around 10% in the 1980s). OMB forecasts GDP in 2014 in current dollars is about $18.5 trillion. Assume that ratio holds steady, imports in 2014 will be $3.1 trillion. Thus, a combined a policy of holding imports at the current level of GDP with a growth of exports might make economic sense. Such an import policy, however, would require a policy to reduce oil imports, i.e. an energy policy. But that is a discussion for another time.
How do we get to the level of $3.1 trillion exports in 2014? Goods exports were about $1 trillion in 2009. All services export were about $500 billion. Business services are about $230 billion. Travel and passenger fees (essentially tourism) are about $125 billion combined. Royalties are $83 billion. Other transportation services (essentially freight transportation) are $45 billion. Government payments and military contracts are just over $27 billion.
Increasing exports of goods is the key. For example, if you have only a 50% increase in goods exports to $1.5 trillion, you would have to increase services exports 3 times to gain the other $1.5 trillion. And of those services, it would be mainly business services and tourism that would have to provide the bulk of the increase. Transportation services will grow only as fast as export and imports of goods increase. To get to $1.5 trillion in services exports would require a 4 fold increase in business services and tourism.
In its best year in the last two decades, tourism grew by a little over 16%. If it would match that rate, total exports from tourism would reach over $260 billion by 2014. Far short of a 4 fold increase - but more than doubling. However, the average before the recession was closer to 4.5%. Reaching the goal of doubling this export would require matching the largest growth rate in recent years - an unlikely prospect.
Between 2004 and 2008, goods exports increased about 12% a year. At that rate over the next few years, exports of goods would increase to just under $1.9 trillion - short of a doubling. But the average for the decade and half before the recession was under 7%. Maintaining that average rate would leave us well short of the goal of doubling the level of goods exports by 2014.
Before the recession, growth in intangibles -- business services exports and royalty payments received -- was about 10%. That would take us up to $370 billion of business services and $135 billion in royalties by 2014 - well short of doubling. So, while exports of intangibles have been the fastest growing area in the past decade and half, they are not enough to reach the goal of $3.1 trillion in 2014.
Thus, meeting Obama's goal of doubling exports by 2014 will require a sustained push to increase our exports even beyond the recent high rates found for a few years in the mid part of the last decade. Every category will have to grow at about 15% per year.
The chart below shows what would be needed (military contracts and transfers are assumed not to increase).
Exports of intangibles can play a role in meeting that overall goal. But the real contribution of intangibles will be to strengthen manufacturing and the export of goods. As I have noted before, intellectual capital and intangible assets are just as important for manufacturing as for any other sector. Baking IC and intangibles into a manufacturing strategy (see earlier posting) is absolutely critical to reaching the trade and exports goals the President has set of our nation. By the way, doubling the level of exports could eliminate the trade deficit. Imports are currently around 17% of GDP (has grown over the past two decades from around 10% in the 1980s). OMB forecasts GDP in 2014 in current dollars is about $18.5 trillion. Assume that ratio holds steady, imports in 2014 will be $3.1 trillion. Thus, a combined a policy of holding imports at the current level of GDP with a growth of exports might make economic sense. Such an import policy, however, would require a policy to reduce oil imports, i.e. an energy policy. But that is a discussion for another time.
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