Wall Street Journal: Obama Trade Goals Face Doubts

Businesses Say They Have Seen Few Results Since Unveiling of Push to Double Exports

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Washington, D.C., Apr 28, 2010 | comments

By Sudeep Reddy, Wall Street Journal

President Barack Obama's goal of doubling U.S. exports over the next five years will be difficult to meet, business leaders and economists say, because of the lack of momentum on demolishing trade barriers and the shift by more American companies toward producing overseas.

U.S. exporters want Washington to put more pressure on trading partners to eliminate tariffs, crack down on intellectual-property violations and take a harder line on trading partners' currency policies. American firms say stronger action by the federal government could substantially boost prospects for U.S. exports.

D'Addario's Farmingdale, N.Y., factory makes guitar strings and musical accessories sold in the U.S. and abroad.
D'Addario & Co., a Farmingdale, N.Y., firm that employs 1,100 workers making guitar strings and other music accessories, says the government hasn't done enough to fight taxes it faces in exporting to big markets: Europe imposes a 2.7% tariff on imported U.S. strings, China, 17.5%. The U.S. doesn't put tariffs on strings coming from those places. "We're just playing a game without the same rules," said the firm's chief executive, Jim D'Addario.

Since Mr. Obama declared his exports objective three months ago, the administration has moved to ease export restrictions on certain industries, such as defense products. It also has pledged to push countries—especially China—toward market-based exchange rates for their currencies. But businesses say they have seen few results.

Thomas Duesterberg, president of the Manufacturers Alliance/MAPI, an Arlington, Va., public-policy group, said the goal of doubling U.S. exports was ambitious, but "I just don't see the trench-level work being done to make it happen."

Some recent trends do support the Obama administration's goal. While exports improved into mid-2008 due partly to a weak dollar, they plunged with the financial crisis later that year. That put exports at a low starting point, allowing them to rebound 18% since spring 2009. In addition, foreign producers, such as those in Asia, are seeing their prices rise due to strengthening economies, while the U.S. is experiencing historically low inflation. That makes U.S. exports less expensive, on a relative basis.

Christina Romer, chair of the White House Council of Economic Advisers, calls the administration's export target "an ambitious but reasonable goal."

 "Going up 100% over a five-year period is not such a radical idea when you think about historical experience," she said, noting that exports increased more than 75% between 2003 and 2008. "It is going to be a gradual process. We are just starting the concrete steps in terms of what we can do to lower the fixed costs associated with exporting through trade promotion and commercial diplomacy."

White House officials are counting on trade and business investment to fuel the economic recovery because American consumers aren't likely to resume their free-spending ways of the past decade.

But the shift by more U.S. companies toward producing goods overseas is one of the factors that makes doubling exports tougher. These firms have built more factories in fast-growing foreign countries to serve emerging markets, so they often supply the goods and services from an overseas arm—not by loading shipping containers in the U.S.

Matthew Slaughter, an economist at Dartmouth's Tuck School of Business, says the majority of U.S. exports come from multinational firms and U.S. affiliates of foreign firms that tend to produce capital-intensive, high-value products. That could limit the employment gains from an export boom. "I could imagine that the employment increase coming from those firms, because they're so productive, would be smaller for a given dollar value of exports" than employment gains from smaller firms, said Mr. Slaughter, who served in the administration of President George W. Bush and is now on a State Department economic advisory panel.

American businesses say they must contend with a long list of disadvantages, from higher tax rates than in many countries to rising costs for benefits such as health care. U.S. producers also say an artificially low Chinese currency makes Chinese goods especially cheap in foreign markets and therefore tougher competitors for American goods.

D'Addario, the guitar-string maker, is already is a big exporter: Almost half of the company's $111 million in revenue last year came from exports to 110 countries. But rather than focusing on expanding those sales, says Mr. D'Addario, he spends much of his time fighting Chinese counterfeits. He has sought help from U.S. officials in Beijing to pressure China on his intellectual-property concerns, without success, and frequently finds poorly made counterfeit strings using his firm's name in countries that import his strings. "Our government needs to take a stronger stand and put our foot down," he said.

Todd Teske, chief executive of Briggs & Stratton Corp., a Wauwatosa, Wis.-based small-engine maker, says he is partly counting on more exports to rebuild his sales after the recent downturn. Briggs & Stratton already receives about a fifth of its $2 billion in revenue from sales abroad, particularly in Europe. Mr. Teske calls the U.S. goal of doubling exports a "lofty goal" and one worth pursuing. But he's realistic. "It seems like every country or region wants to fuel their recovery plan with exports," he said.



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