EX-2X

President Obama’s promise to double exports in five years was a big idea. Maybe too big. Here’s where we’re really headed—and why. [By Will Swaim]

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This Just In It turns out that presidents of the United States don’t control the global economy.

 

Even now, reliving the moment online through the magic of YouTube, you’re struck by the Bigness of his Big Idea: President Barack Obama’s January 2010 promise to double exports by 2015 and, so, produce two million new jobs.

Observers called it “bold,” “surprising” and “ambitious.” It had the quality of Babe Ruth’s famous (perhaps apocryphal) promise to homer in game three of the 1932 World Series. Or U.S. Gen. Douglas MacArthur’s 1942 promise that he’d retake the Philippines. Or President John F. Kennedy’s 1961 promise to send a man to the moon.

And early this year, two years after his Declaration of Export Independence, it seemed the president had delivered. A New York Times reporter noted that the president’s original “surprise” announcement was a “bold promise” that had “sent the eyebrows of economists and policy experts upward, even as they applauded its intent.” However twisted that sentence (we know “they” is supposed to refer to “economists and policy experts,” but can’t help thinking it refers to “eyebrows”), her point was otherwise clear and nearly universal among reporters: “The administration is on track — for now — to meet its ambitious goal. Growing exports have been one of the central drivers of the recovery, accounting for about half the nation’s economic growth since the recession ended.”

“Exports are running at about $180 billion a month,” the Times reported, citing Commerce Department data, “up from $140 billion a month two years ago. They are currently growing at an annual pace of about 16 percent—a percentage-point higher than necessary to double exports to $3.1 trillion by 2015.”

But since January, European economies have collapsed, recovered and collapsed again. The U.S. jobs market has stalled. China—inexorable China—is wobbly. And while U.S. monthly exports hit $184 billion in March, they backed down to about $182 billion in April, the last month for which information is available.

Projections suggest slower export growth ahead. But worry not: The president hasn’t done the wrong things. It’s just that when it comes to growing exports, presidents simply can’t control the things that really matter. It turns out that generating exports—and export jobs—is less a function of government action than a result of things largely outside any president’s control.

 (Read More: Thunderbird Prof Andreas Schotter May have Discovered a Secret to Real Global Success. He Calls them ‘Boundary Spanners.’ You’ll Call them ‘Essential.’)

THIS ISN’T A MATTER OF PARTISAN SPEECH but of understanding the limits of government where exports are concerned—something with which Republicans and Democrats both struggle.

You can find the root of the problem in the president’s Jan. 27, 2010, State of the Union. The passage on exports is so brief that we can quote the whole thing here, courtesy of the White House website; we’ve retained the White House’s very helpful notes on crowd response:

Third, we need to export more of our goods. (Applause.) Because the more products we make and sell to other countries, the more jobs we support right here in America. (Applause.) So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America. (Applause.) To help meet this goal, we’re launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security. (Applause.)

We have to seek new markets aggressively, just as our competitors are. If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. (Applause.) But realizing those benefits also means enforcing those agreements so our trading partners play by the rules. (Applause.) And that’s why we’ll continue to shape a Doha trade agreement that opens global markets, and why we will strengthen our trade relations in Asia and with key partners like South Korea and Panama and Colombia. (Applause.)

There are fewer applause lines in your average television sit-com, and probably fewer errors.

The president made at least two crucial mistakes. First, in creating the National Export Initiative, he suggested that what he was proposing was somehow path-breaking/remarkable/unprecedented. It wasn’t. Second, he assumed a link between job growth and exports. There isn’t.

Go to the NEI’s own website for evidence that the president’s new, bold initiative is actually neither new nor bold. You’ll notice that the government scribes who drafted content for the site work first to lower our expectations. On national television, in the State of the Union, we got standing ovations for the president’s sweeping visions of a mighty nation roused to macroeconomic action; here we get microeconomics, humility and honesty: “The decision to export is one fundamentally made by U.S. business owners, entrepreneurs and farmers.”

Translation: You’re more or less on your own.

On the other hand, they (the scribes) assure us that the government can indeed help. But the help will come in fairly conventional areas. “U.S. companies, particularly small and medium-sized enterprises, often face hurdles when trying to close an export sale including lack of readily available information about exporting and market research, challenges obtaining export financing, strong competition from foreign companies and obstacles thrown up by foreign governments,” the website reads. “This suggests an important role for the federal government.”

Important? Maybe. But not new.

 

ON MARCH 11, 2010, SIX WEEKS AFTER HIS SPEECH, the president signed Executive Order 13534, creating the National Export Initiative. The order itself is more symphonic flourishes and booming bass drums than real action. It created the Export Promotion Cabinet (whose members are heads of various government departments and agencies or their designees) who “shall meet periodically and report to the President on the progress of the NEI.” Oh, and they “shall coordinate with the Trade Promotion Coordinating Committee (TPCC), established by Executive Order 12870 of September 30, 1993.”

Bottom line: One new committee shall meet with an old one.

There follow some general ideas about trade missions, commercial advocacy, expanding export credit … you can practically hear the sounds of a major recycling effort.

The reason for the recycling: American presidents have no power over the real variables affecting U.S. export growth. At least one critic, Foreign Policy’s Daniel W. Drezner, understood this. Blogging around the time of the State of Union, Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University in Massachusetts, declared, “Obama’s National Export Initiative will have no appreciable effect on export flows.”

In just a few paragraphs in a mere blog post, Drezner discounted the president’s proposals from breathtaking to merely windy. “The fundamental drivers for U.S. exports are the rate of economic growth of the rest of the world and the exchange rate value of the dollar,” Drezner noted. “If the dollar depreciates in value and the rest of the world experiences high rates of economic growth, then exports will take off. Everything else would generously be described as window dressing.”

 

AS ANYONE WHO HAS PURCHASED plantation shutters, curtain rods or drapes can tell you, never underestimate the value—or the cost—of window dressing. It blocks out harsh light, creates a sense of privacy, hides our shame.

But what this particular window dressing also blocked or hid was the reality that an export economy—even one that doubles its output—doesn’t necessarily produce jobs. And creating American jobs was the point of the president’s National Export Initiative.

Even the most optimistic observers grudgingly concede that what’s good for exporters is not necessarily good for a blue-collar worker in Ohio. In “What Export-Oriented America Means,” his brilliant essay in The American Interest, Tyler Cowen says there are three reasons to believe American businesses will, in fact, double exports in the five-year period ending 2015—and then destroys our innocence vis-à-vis job growth.

 (Read More: Thunderbird Prof Andreas Schotter May have Discovered a Secret to Real Global Success. He Calls them ‘Boundary Spanners.’ You’ll Call them ‘Essential.’)

 

FIRST, HE SAYS, AUTOMATION IS MAKING production cheaper in the U.S. “The less manufacturing has to do with labor costs and relative wage levels, the greater the comparative advantage of the United States,” he says.

Second, Cowen says, “the recent discoveries of very large shale oil and natural gas deposits in the United States” mean cheaper fuel for American industry, and exports of that fuel and associated technologies around the world.” Let’s all agree that when it comes to fracking, opportunity rocks.

Finally, because the U.S. specializes in the accouterments of middle-class life, the rise of a global middle class will boost U.S. exports. Cowen sums it up this way: “The closer other nations come to our economic level, the more they will want to buy our stuff.”

So, there you have it: “Export success will resurrect the United States as a dominant global economic power,” Cowen believes. “America will be wealthier, its products will have greater global reach, and it will largely cure its trade imbalance with China. The fear of American foreign policy being determined by Beijing, or constrained by the financial resources of the Chinese central bank, will be forgotten. No one will view the United States as the borrowing supplicant in the U.S.-China economic relationship, and, all else equal, our exports to China will increase friendly feelings toward that country.”

This model—of a resource-exporting country that manufactures high-end goods in worker-free workplaces—might not sound like a wealthy country, not in the sense of one that produces jobs in great numbers. But Cowen suspects there will be real advantages. “As a major exporter (among other strengths), the United States can be expected to maintain and even extend its investments in its Navy and Air Force,” he writes. “The current defense budget austerity won’t last very long, meaning, among other things, that it won’t be a fun time to be a pirate. Parts of the Pacific may, politically speaking, become a ‘Chinese lake,’ but the two economically dominant countries will favor both open seas for trading and some approximation of global free trade, albeit with remaining protections in China itself. The United States will solidify its relationships with Latin America, and the old dream of an economically integrated New World will largely come true. Our neighbors to the south, too, will be buying a lot more U.S.-made goods.”

And because they will have been wiped out by outsourced production or insourced-robot production, labor unions will no longer be in a position to shape this new America—either through opposition to free trade or via project-labor agreements on the massive infrastructure projects that will likely follow this boom.

And Cowen suspects Americans will still get their jobs—though at far lower rates of pay—“in health care, education, services and government, areas that are largely insulated from foreign competition and that will themselves seek out export markets.”

Cowen doesn’t point out that many of these jobs, of course, represent their own grave threat to the nation’s future: The financial burden of the defined-benefit pensions and health-care benefits associated with jobs in the public sector are already scuttling city, county and state budgets across the country.

If all of this has you feeling glum, consider the example of recent German export history—“inspiring,” Cowen says, but “sobering, too.”

“At the beginning of the last decade, Gerhard Schröder’s Social Democrat government decided to reform labor markets and revamp Germany’s export prowess,” he writes. “These policies succeeded beyond most expectations, but less well advertised is the fact that real wages in Germany’s export sectors have been stagnant or declining, depending on which measures are used.”

The alternative—no jobs at all—is too grim to contemplate.

“We will continue to cut a proverbial ‘deal with the devil,’ in which ever more jobs will be created in the relatively protected service sectors, while much of the economic dynamism and income gains will accrue to the capitalists, CEOs and managers who dare to export.”

 

SO, AN EXPORTING BOOM IS ALMOST INEVITABLE—whatever presidents do—but won’t necessarily/invariably/inevitably create jobs. Should you worry?

That depends on your political philosophy. Democrats like the president (and going back to Andrew Jackson and the urban political machines of the nineteenth century) believe the government has a responsibility to create work. That may be. But if you want an example of governments that focus on job creation, take a look at North Korea where human technology is expensive and people are cheap—and so men and women spend hours each day sweeping Pyongyang’s empty highway system with brooms like something out of your kid’s Halloween pageant or the Renaissance Pleasure Faire. Where one guy driving a machine in the U.S. can clean 40 miles of roadway in a day, thousands of North Koreans are required. Now that’s job creation.

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Job Creator In Chief Under Kim Jong Un, thousands of North Koreans can claim full employment, sweeping Pyongyang’s empty highways with brooms

The idea that creating jobs is the full measure of the president’s activity is so pervasive that Republican activists have unconsciously accepted its corollary—that the job of business is to create jobs. Hence the Republican Party’s manipulative use of the descriptor “job creators” when they really mean to say “businesses” or “investors” or even just “rich people.” You don’t have to be a Democrat to guess that “job creators” was focus-grouped by conservative pollster Frank Luntz in order to appeal to President Obama’s constituency. But if you’re a business owner, you already understand its damaging implications: Republicans want Americans to believe that the primary job of business is job-creation.

It’s not. The primary goal of business is to create profit. There’s no question that it must do that in ways that are consistent with law and, more than that, morality. But jobs? That’s what a business produces as a byproduct when it has no other way to produce a profit.

The president’s larger ambition in 2010 was arguably to rally Americans to a point of view—to see the world as a marketplace for American products. That was a reasonable, legitimate and even honorable goal. But his blueprint for doubling exports—promising that government could manage the biggest things (foreign currency and economy) as well as the little things (that he would, as he said in his 2012 address, “go anywhere in the world to open new markets for American products”) was unsound in principle. Exports do not necessarily produce jobs. The world is not, as the president’s plan assumes, a place of competing nation states involved in zero-sum/binary/export-import calculations and easy-to-manage domestic job-growth. It’s more like chaos theory or multi-level chess.

Nor can the president bash American companies for moving jobs overseas; those companies are often also—in the real world, the one that’s more like multi-level chess—America’s leading exporters. And those exporters are making investments overseas and growing their wealth without much regard for boundaries—and no honest desire to grow jobs for the sake of job growth. They are not “job creators” except by accident. Sometimes, they’ll move jobs overseas. Sometimes they’ll bring them back to the U.S.—“insourcing,” has become a buzzword as popular among Beltway economists as the English boy-band One Direction is among tween girls.

If they are smart, and if they can, manufacturers will simply reduce the labor required to produce a product or service.

“The fact of the matter is these are the firms that account for two-thirds of American exports,” Gary C. Hufbauer said of companies that sometimes move jobs offshore. A senior fellow at the Peterson Institute for International Economics, Hufbauer noted that those offshore flows of capital and jobs “are intimately related to their exports. The notion that you can punish U.S. firms for investing abroad and still see exports rise is bunk.”

Bunk. Even the president’s friends and trusted associates understand this. In February, the Daily Caller, an online news site, reported that Matthew Rubel, one of the president’s private-sector trade advisers, also sits on the board of a Minnesota-based company called Supervalu. Months before Rubel’s September 2010 appointment to the president’s Advisory Committee for Trade Policy and Negotiations, Supervalu announced that it would move “149 white-collar jobs—including numerous high-tech jobs—to an India-based info-tech firm.”