Global Slowdown Creates Tensions

Threats to the export community in the United States come from many directions. In the past, the exporter has dealt with all of them, but they rarely came all at once. Today, the onslaught of problems has been nearly overwhelming. What’s worse is that there is no recognition on the part of Congress that its policies are not helping and are actually adding to the crisis. The issue with the Export-Import Bank is just one example.

There has not been a new trade deal signed since Obama came to power, and it is not for lack of effort on the part of the White House. The push to get the Trans-Pacific Partnership (TPP) signed has been intense and was to be the centerpiece of the president’s trade policy. It would be easy enough to assert that its failure was due to the enmity felt between the Republican Party and the president, but in this case the opposition to TPP is coming from the president’s own Democrats, while many members of the GOP would support it. The new pact with the European Union is even further off. The fact is that nothing has emerged from Congress to promote trade and exports in the years since the recession, and many inhibitors have appeared that have only made export expansion harder.

This might not have been enough to throttle exports were it not for other factors. The truth is the U.S. has never been good at promoting itself as an export nation. The majority of the business community does quite well with just the U.S. market. After all, the country is really made up of states that are as big as nations when it comes to their GDP. California compares to France and Texas to Canada. Dallas all by itself has a GDP comparable to Argentina. The U.S. market is nearly $18 trillion and is clearly the largest in the world. It is entirely possible for the U.S. business community to thrive without that global connection, but there will be many companies that can’t rest on the U.S. system alone.

The biggest challenge of late has been the strength of the dollar as compared to other major world currencies. The fact is the U.S. should be seeing a weaker currency given all the effort to stimulate the economy through low interest rates. The problem is the rest of the world is employing the same tactic and their currencies are weaker than is the U.S. dollar. The fear within the export community is that eventually the interest rate will rise, and when that happens, the dollar will respond swiftly. Nobody is expecting the debacle of the 1980s when very sharp hikes in the interest rate were employed to take on inflation. This was the Volcker policy; it worked as far as inflation was concerned, but in the process of beating back these higher prices with a radically higher interest rate, the dollar became immensely strong and for several years the U.S. manufacturer could not sell a thing outside the U.S. This was the period that nearly killed off the U.S. industrial community and there are some who worry we might repeat that crisis.

The U.S. has been able to hang on to some of its recent growth, but it is clearly the last man standing in the world today. Europe was just starting to figure out what life after the Greek mess would be like when it was hammered by the exodus from the Middle East and North Africa. On top of that, the Greeks elected Syriza again, so that issue is far from solved. The Chinese slowdown is not new, but many assumed that by now the Chinese government would have taken steps to start that growth again. The reluctance to pull out all the stops is related to its concern over inflation, but it comes as a disappointment to those who assumed that China could pull the growth trigger anytime it wanted to. Japan is still struggling and the saga of the emerging market is truly over, as Brazil and Russia are hanging on for dear life. The upshot is a slowing of U.S. overseas trade. Even if there were not all of these other issues, the fact that global growth has slowed to a crawl would have been enough to slow U.S. exports. Add in politics and the dollar value and you have a very serious issue emerging.

-- Chris Kuehl, NACM economist

To read more of Chris Kuehl’s commentaries, visit FCIB’s Knowledge and Resource Center.

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