On the Road : Three Factors Supporting US Exports

  • by itradmin - Wed, 01/10/2018 - 13:00

Exports are important to economic growth in the US. Exports of goods and services for the 12 months ending September 2017 were 11.8% of GDP (nominal dollars) — $2.295 trillion (US Census Bureau). Goods comprise 66.1% of the total. Most people seem to think we are a minor exporter compared to China and other countries. The reality is that we are the second largest exporter of goods and services in the world measured in USD (see the table below). We sell capital goods like aircraft, automobiles, and machinery to a host of nations. Thanks to fracking, we now export oil, too (see this month’s ITR Trends Report for more on oil).

Country Exports in USD
China $2,098 bn
USA $1,455 bn
Germany $1,340 bn
Japan $645 bn

(Source: Statista, for 2016, billions of USD. The US Census Bureau and Statista use different methodologies, thus the difference in numbers.)

Country Exports in USD
Europe $279.0 bn
Canada $270.0 bn
Mexico $240.2 bn
China $127.7 bn

(Source: US Census Bureau, data through October 2017, billions of USD.)

We can ill afford to alienate our North American trading partners given their importance to our domestic economy via exports. This is why we do not believe there will be major, injurious changes to NAFTA; doing so would be illogical. We also cannot afford to alienate Europe as a trading partner. We will have to adjust our forecasts if there are major changes in our trade agreements with these regions.

Three factors supporting exports through at least the near term:

  • 1) We make goods other nations want to buy. The quality of US products is evident given the nature of the goods purchased. Automobiles are a good example. There is a plethora of auto manufacturers around the world, yet cars made in the US are in demand elsewhere.

  • 2) The economies of Europe, Canada, Mexico, China, and others are expanding as the world enjoys economic growth. We project that this growth will extend through 2018, albeit at a slower rate of rise in the latter half of the year. Economic growth abroad makes it possible for others to buy US goods and services.

  • 3) The value of the USD is favorable for exports. The chart below shows that exports do well when the USD 12/12 rate-of-change, as measured by the Trade Weighted Exchange Rate Index, goes up. (A rising 12/12 on the chart is actually downward pressure on the USD; notice the inverse scale on the right.) The more sensitive quarterly rate-of-change (3/12) is 5.3% below the year-ago level, producing the most favorable 3/12 value in six years. The cyclical pressure favors exports through at least the near term.

US Trade in Goods with World: Exports to Trade Weighted Exchange Rate Index Chart

Do not buy into the myth that the US cannot compete globally and we do not sell goods to other countries. It is simply not true. Instead, we encourage you to strategize on how to do business with the companies that make these exported products or become an exporter yourself. Use ITR Methodology to determine business-cycle pressures and turning points and maximize your profit potential by country and type of export.

Alan Beaulieu