Feb 05 2010

US Exports: the key to job creation? Obama thinks so…

Obamas Efforts To Boost Exports Face Hurdles : NPR

President Obama thinks the key to recovering the millions of American jobs lost during the recession lies in boosting exports to the rest of the world:

The plan sounds great. As we learn in AP and IB Economics, free trade leads to benefits for nations that choose to participate in it. Of course, promoting free trade will harm some industries and workers whose jobs end up being “off-shored” or “out-sourced” to countries with cheaper or more qualified labor; but Obama’s hope is that promoting free trade will result in a net gain of 2 million American jobs.

The goal of doubling US exports in 5 years, however, may be overly ambitious. According to the CIA World Factbook, the US is currently the fourth largest exporter in the world, sending just around $1 trillion worth of goods and services abroad in 2009, behind the EU with $1.9 trillion, China with $1.2 trillion and Germany with $1.18 trillion of exports. Obama’s goal to double US exports would propel the US to the single largest exporting nation in the world, putting it right around where the 27 nations of the European Union are today.

To achieve his goal, Obama proposals include three strategies for boosting demand and supply of US exports.

  • On the supply side he suggests continuing recent guarantees for payment by foreign buyers. Essentially such a scheme reduces the risks that often accompany international commerce, reducing the “costs” of exporting firms, which in essence increases the supply of exports from the US.
  • On the demand side the US must pressure China to revalue its currency. A stronger RMB (and a weaker dollar) will increase China’s demand for US goods and services.
  • Also on the demand side, the US should push through free trade agreements with South Korea, Panama and Columbia, which have encountered obstacles among US lawmakers who fear that more free trade may actually mean a loss of US jobs.

Free trade agreements, export payment guarantees and a weaker US dollar in China will help Obama reach his goal. Chances are, however, that it will ultimately be unattainable. Doubling US exports would propel the US to the top of the list of exporting countries, surpassing even China, today’s current leader, by $700 billion more than the country exported last year. The impact on US GDP would undoubtedly be enormous, adding upwards of  $1 trillion to the US economy.

Creating jobs through trade is controversial, as many Americans still believe trade is partially to blame for the loss of American jobs in recent years.

“The average voter in the U.S. has been pretty on the fence about whether they want more trade coming into the United States,” Slaughter says. “The income pressures that a lot of households have faced in recent years have sort of shifted that balance where more voters now are a lot more wary of globalization than they used to be.”

While his goal is lofty, Obama is on the right track towards growing the US economy and promoting job creation. Trade benefits Americans not just because it will increase demand for our goods and services abroad, but because it will lead to lower prices for many of the things we enjoy consuming at home, ultimately increasing real incomes in America while also creating jobs.

The graph below presents a simple explanation of how the above strategies can result in more jobs in US export industries.

Discussion Questions:

  1. How does China manipulate the value of its currency? Why is such manipulation harmful to US exporters?
  2. How does a government payment guarantee for exporters actually reduce the costs of doing business for US exporting firms?
  3. Do you believe that more free trade agreements with countries like South Korea and Panama will create jobs or destroy jobs in the United States? Explain.

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

3 responses so far

3 Responses to “US Exports: the key to job creation? Obama thinks so…”

  1. Bjorn Kvaaleon 23 Feb 2010 at 11:48 pm

    China can manipulate the value of its currency by making it weak, which helps China because it exports more goods due to the weak currency. It can do this by printing more Chinese RMB, thereby weakening the currency. USA, on the other hand, wants China to strengthen its currency, so the US currency is cheaper in comparison to now, so more Chinese will buy US goods. This would strengthen US exports.

    More free trade agreements with countries like Panama and South Korea could create jobs in the long run because USA can outsource many jobs to these countries and create more jobs that required university degrees. This way, Panama and South Korea are better off because more people are employed, and USA is better off because it can be more productive with these new jobs.

  2. Yadiraon 13 Apr 2010 at 9:16 pm

    Has any other president in the United States tried to promote more exporting to fix the economy? If they did, did it have positive outcomes? Will the employment of more people by exporting be a greter increase than the decrease of people that would lose their jobs over seas?

  3. Manuelon 05 May 2010 at 1:00 am

    I agree with president Obama, but it may not be the key factor in creating jobs. With unemployment still close to 10 percent, trading oversea may increase our GDP, but we need to focus on crreating jobs here in the U.S. Perhaps by using more aggressive goverment fiscal policy.