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John Tulac
John Tulac

The National Export Initiative – Success or Failure?

By John W. Tulac

In 2010 the Obama Administration announced the National Export Initiative, or NEI with the goal of doubling exports from 2009 levels by 2014. This was a tall order indeed, and would have required the United States to increase exports by nearly $1.6 trillion in just five years.

As it turned out, the United States managed to increase exports by $787 billion, an increase of just under 50%.  According to World Bank data, $518 billion of the $787 billion occurred in 2010 and 2011; only $269 billion happened in the next three years according to World Bank data. Had the pace of 2010 and 2011 continued, the United States would have been on track to increase exports by $1.3 trillion, a considerably larger increase of around 82%.

So what happened? How did such a promising start fade away?

The administration’s goal was not realistic. The only times U.S. exports have doubled in a five-year period were in fairly extraordinary circumstances for the global economy– World War I, World War II, and a period of high inflation during the 1970s.

First, the NEI was based more on vocal export promotion and coordination among executive departments, than on substantive policy changes or trade deals. In particular, the Obama Administration’s largest proposed trade deals, the Trans Pacific Partnership between the US and 11 Pacific Rim economies, and the Transatlantic Trade and Investment Partnership between the US and the European Union, were never realized during his presidency, as political gridlock and an opposition in Congress stifled the administration’s agenda.

Second, encouraging more exports can only go so far without widespread elimination of trade barriers. To illustrate how important trade agreements can be, we can look to Peru. While overall US exports only increased by around 50%, between 2009 and 2014 our exports to Peru grew by 122% over the same time period after a trade agreement went into effect in 2009. Obviously, not all of this growth is a result of that agreement, but the salient point remains that promotion of trade in not a viable substitute for real policy changes.

Third, there were also many factors that were decidedly beyond NEI control. For example, one of the most important contributors to US export growth and global trade flows is currency exchange rates, which affect the relative price of exports versus domestic goods. When the dollar is relatively strong globally, it makes US exports more expensive, meaning that people in other countries are unlikely to buy the same quantity of US goods and services. Furthermore, trade in goods is “sticky,” meaning that there is a lag time between when prices change and when volume of goods and services sold changes. This means that the dollar’s rise in 2011-2014 against the currencies of many of our chief export partners likely contributed to the slow pace of growth with those partners and indeed contraction in the case of the EU as the Euro has fallen sharply during the ongoing sovereign debt crisis.

Perhaps more important however, was the effect of ongoing currency manipulation during this time period. Currency manipulation from some of the world’s most important trading economies such as China, Saudi Arabia, Norway, Singapore, Taiwan, and Switzerland likely led to much lower exports than would have been possible, because their manipulation kept the price of US exports artificially high. Indeed, one analysis from the Economic Policy Institute in early 2014 contended that ending currency manipulation would have “slowed the growth of imports and increased goods exports alone by more than $1 trillion, enough to achieve a real doubling of exports.” The issue however, is that the United States could not (and really cannot) reasonably ensure that currency manipulation would stop. Most economists believe that going on the offensive in the currency market would lead to other forms of economic or political retaliation, and that disputes over currency are best left to the international venue of the World Trade Organization.

Fourth, many of the US chief export partners experienced sluggish growth after the global economic crisis of 2008-2009, affecting the pace of US imports as the global economy improved but remained sluggish—with significant gaps between potential and actual economic growth remaining significant to this day, nearly a decade after the financial crisis. Simply put, in the countries where the United States exported the most, there was not strong enough growth to maintain the increased pace of US export growth.

Fifth, the government could have done a more effective job of publishing its accomplishments and making U.S. businesses aware of the many forms of assistance available to them under NEI.  When I was running my blog about the NEI under “Double Exports,” my weekly reports on NEI news and developments usually ranked number one in Google searches, not the NEI website.  Indeed, the official NEI website often posted accomplishments or new benefits weeks or months after my college interns found them in various places on the websites of the twenty government agencies that were part of the NEI.

On the positive side, exports did grow significantly, especially during the first two years of the initiative.  There is nothing shabby about a 50% increase in exports in five years.  Also, the NEI showed that twenty government agencies could effectively collaborate to achieve desirable results, even if visitors to the websites couldn’t always find what they needed on their own.  If NEI was as a failure, it was a noble one.  I see the NEI as a qualified success.

John W. Tulac is an international business attorney practicing in Claremont, adjunct professor of law at University of La Verne College of Law (retired), and lecturer emeritus (retired) at Cal Poly Pomona.  He is peer recognized as preeminent in international business law and holds the highest ratings for competence and ethics from the Martindale Hubbell National Law Directory.

Thanks to Clayton Becker, my summer intern (and Claremont resident) from Columbia University for his assistance in researching and writing this article.

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