Is the United States’ Export-Led Economic Recovery in Jeopardy?

Sources:
WSJ: Export Shift Turns Rivals into Allies
WSJ: Foreign Shocks Temper America's Export-Led Rebound
ICIS.com: Outlook ’11: U.S. Chems to Grow on Recovery, Exports

Almost half of the U.S. economic growth since the recession ended in mid 2009 is export-driven, a unique development in post-World War II history. The U.S. Commerce Department estimates that exports account for 1.4 percentage points of the U.S. economy’s 3 percent expansion since the end of the recession. The Commerce Department also reports that exports now amount to 12.8 percent of the total U.S. output, the largest share on record.

Many experts deem this increase in exports a positive trend, which is also openly encouraged by the Obama administration. To spur stronger domestic economic growth, the government is aiming to double exports in the first 5 years following the end of the recession. To this end, the White House is currently working on free-trade agreements (“FTAs”) with South Korea, Colombia, and Panama. FTAs work to remove trade barriers and thus, stimulate exports. Indeed, most economists agree that the best way for the United States to prosper would be to increase its exports and rely less on domestic consumer spending, the housing industry, and borrowing.

As developed economies are growing at a slow pace, many U.S. companies turn to emerging markets for new business opportunities. Developing countries like China, India, and Brazil are demanding more and more imports, and the relatively weak U.S. dollar and rising U.S. productivity make U.S. goods very competitive. Until recently, the United States’ export-led recovery has been very successful. Unfortunately, the earthquake and the ensuing nuclear crisis in Japan, the unrest in the Middle East, the fiscal challenges in some European countries, and rising oil prices have caused economists to revise down the world’s largest economy’s 2011 growth forecast.

Some export-oriented U.S. companies are already experiencing declining sales. For example, Callaway Golf Co., a golf equipment manufacturer, saw a sharp decline in sales in the very first week following the Japan earthquake. A similar fate befell the software maker Adobe Systems, Inc., which had to reduce its first quarter revenue forecast by $50 million in the wake of Japan’s natural disaster.  Also, the luxury jewelry retailer Tiffany & Co. is expecting a 15 percent drop in sales in Japan. The unrest in the Middle East, which has led to higher shipping and insurance costs there, applies a downward pressure on agricultural exports to the region. Welch Allyn, Inc., a medical device manufacturer, reported declining sales in Ireland and Spain as those countries were forced to cut their budgets.

Despite these recent export setbacks, most economists and businesspeople expect that the U.S. economy will continue its upward trend. Experts, however, advise that export-oriented U.S. companies may have to get used to market volatility. It simply is the price to pay for the businesses’ increased global exposure.