Can the US grow through exports?

[touchring]

Re: Can the US grow through exports?

Except you first then have to explain how the US is going to be able to continue importing $300B+/year when debt on its interest payments keeps increasing - even as national wealth keeps decreasing.

Net foreign purchases of US Treasuries is already at a standstill.

I don't know how but my impression is that as long as China is willing to accept the dollar, the US can forever import, at least until China stops producing 20 million new job seekers a year.

[GRG55]

Re: Can the US grow through exports?

...Will China and the US "team" together against the EU in the sense that China does the lower value stuff, the US the higher value stuff with a lower valued dollar and the EU with its deflationary policy biases gets stuck in the middle?

...

That's not a model that has ever worked on an extended basis. As China's labour cost and other existing competitive advantages [cheap land & housing, access to government funded modern infrastructure, etc.] all become more costly...which is exactly what is happening right now...China will follow the same path as Japan, Korea, and other similar economic miracles. China will become more and more adept at producing higher value goods, and the low value production will move elsewhere. Japan did this through the 1960s to 80s, Korea progressed along the same path in half the time of Japan, and China will undoubtedly follow at an even faster pace than Korea.

Too many people in the USA [and Canada] spend too much time lamenting about "what we don't manufacture any more". This is the mentality that led to the idiotic bail out of Chrysler, for example. China, like Japan and Korea before it, isn't going to spend a lot of time moping over what they don't make any more...it's devoting most energy towards figuring out "what is the next thing we are going to make". [Although I am firmly in the camp that there is a cyclical bubble building in China, the secular trend is going to be difficult to derail].

...Given the euro performance of the past 5 years or so, there is no evidence whatsoever that exchange rates themselves affect exports.

The euro started at parity with the dollar, fell to 0.84, but by 2006 was over 1.30. It is now 1.35 after peaking at 1.60...

Exchange rates can have a very large influence over exports from existing producers and in the short term. As the Euro exchange rate increased during the early part of this decade [in part because of the "Bundesbank-like" policies of the ECB because of German influence] Germany had one of the most chronically moribund economies in the world...virtually no economic growth year after year, and a persistently high unemployment rate. The Euro exchange rate was not the only reason for this, of course, but it played a big part in prolonging the German deflation.

Another indicator that I like to watch is the relative new aircraft sales of the commercial aircraft duopoly Airbus and Boeing. There are lots of factors that come into this purchase decision, but you'll find a notable correlation between the Euro/USD exchange rate and relative new order volumes over the past decade. Nothing, not even the clear superiority of the B777 over any Airbus alternate, helped Boeing Commercial Airplanes recover from the pounding it was taking at the hands of Airbus S.A.S. more than the depreciation of the US Dollar.

...I don't recall EJ's view on US manufacturing/factory closure, but I personally have noted many times that China's 'miracle' wasn't a case of industrialization in the normal "build it" sense; it was industrialization in the sense of entire factories being pulled out of the US and Europe and dropped into China.

Thus unless said factories are re-uprooted and brought back to the US, manufacturing in the US must spend that much more money to literally rebuild factories - a huge barrier. Machine tools are actually one of Germany's and other parts of Europe's bigger exports - and import of machine tools runs into the spending issue noted above.

And as for the US exporting to Europe: so long as the effects of FIRE drag upon US competitiveness - not just in wages via housing costs and taxes, but also lack of a comparable health care system, it seems highly unlikely that the US can pull this off.

Throw in the EU's various barriers to competitiveness such as its agricultural subsidies, and the likelihood shrinks even more.

In the short term dropping the US Dollar exchange rate is about the only thing that the USA can do to try to boost exports. The other, more durable steps including those you describe above, will take time...and time is something that national politicians on an every-two-years election cycle never seem to have.

In the late 1970s a classmate of mine who was fluent in Japanese moved to coastal California to take a job in a design and manufacturing plant of a major Japanese electronics maker. The plant is now closed and he works for them in Japan. He told me the final tipping point was the house price inflation earlier this decade...it become impossible for them to continue to attract the specialized professionals they needed to such a high cost of living jurisdiction...nobody wanted to move there any more.

So I agree, it's going to take quite a while to restructure and rebuild the US economy after the end of FIRE v.2, and it will be all that much harder given so much policy effort and national resources are being directed to trying to create FIRE v.3 from the slag of the recent financial melt-down.

[thriftyandboringinohio]

Re: Can the US grow through exports?

...FIRE drag upon US competitiveness - not just in wages ... but also lack of a comparable health care system...

I agree completely. My last company exported about half its production to Asia and Europe, fighting against local competition. Our product was high price/high value, and our product cost was about 75% direct labor. Our health insurance cost essentially doubled our labor cost (we paid about $10/ hr in insurance premiums for a family plan, and our average wage was about $9/ hr.) Our foreign competitors didn't pay that directly.
I'll go to my grave confused about why US manufacturing won't support single payer to level the playing field.

[GRG55]

Re: Can the US grow through exports?

I agree completely. My last company exported about half its production to Asia and Europe, fighting against local competition. Our product was high price/high value, and our product cost was about 75% direct labor. Our health insurance cost essentially doubled our labor cost (we paid about $10/ hr in insurance premiums for a family plan, and our average wage was about $9/ hr.) Our foreign competitors didn't pay that directly.
I'll go to my grave confused about why US manufacturing won't support single payer to level the playing field.

Because most of the owners of US manufacturing don't need to. They can get it by moving the production to somewhere else, as your last employer did...

[thriftyandboringinohio]

Re: Can the US grow through exports?

.. They can get it by moving the production to somewhere else, as your last employer did...

Actually, they are still operating right in Ohio and paying those insurance premiums, though they continue to explore a plant in Vietnam and get intense pressure from their biggest customers to move offshore to lower costs.

Despite this one case, your point still holds in general.