Let the populist political fires rise

Happy Sunday to each of you!

On Thursday U.S. President Barack Obama gave a speech to the U.S. Export-Import Bank.  Specifically he talked about a plan entitled, “National Export Initiative.”  In short, its primary goal is to double U.S. exports by 2015.  A secondary goal is to create 2 million U.S. jobs.  The tactics employed to accomplish this are to create an “Export Promotion Cabinet” that has, in the main, representatives from the Departments of Agriculture, Commerce, State and Treasury.  Additionally, he plans to add executives from Boeing and Xerox, two of the United States’ biggest exporters, to his Export Council.  The Initiative also is going to send more important political officials on trade missions to encourage greater access to foreign markets by U.S. companies.  The only dollar figure attached to the plan in terms of support is the creation of a $2 billion per year trade finance facility designed to support small and medium sized businesses that want to export.

Why the push now?

Analysis: In my opinion the big push is happening now because it is an election year.  After all, the goals of the National Export Initiative (NEI) reach a full flowering three years after Obama’s official last year in office – unless he is re-elected, of course.  But this initiative, full of the language of hope and promise, is clearly a populist message for a President that has lost the faith of the population.  I note with tremendous interest that the Plan does not set out a specific monetary budget.  Instead, the bulk of the NEI proposal takes the form of reorganizing.  That is a sure-fire sign that this plan is mostly about the mid-term elections where Democrats look poised to lose dominance in Congress.

A doubling of U.S. exports would increase GDP by approximately $1.5 trillion.  The Chamber of Commerce feels that this is possible and says that it has happened several times in recent history, in the 1970s, early 1980s and just about happened in the five year period ending in 2008.  However, the Initiative’s success is dependent on some factors outside of the control of the Administration.  For example, policy support from Congress, the economic growth of businesses with export-appeal products, and the value of the U.S. dollar relative to other countries.

From where would that $1.5 trillion growth come?  It could represent actual economic growth, or it could simply be gains in market share for U.S. companies taking business from foreign producers of goods.  Real economic growth is very difficult to achieve on such a large scale.  After all, if it were easy to create $1.5 trillion of new exportable goods, then why hasn’t it happened already?  Most likely then the growth that the Obama Administration is looking for is expected to come from U.S. businesses taking business away from foreign competitors.  However, this has certain obstacles to success, too.

Primarily, the success of this plan rests on the willingness of foreign countries opening themselves up to U.S. competition.  In other words, we are asking for sacrifices from these governments on behalf of the U.S. What could the U.S. offer in return?  Well access to U.S. markets from foreign competitors.  However, the U.S. is actually one of the most open markets in the world already.  It would be difficult to open them up more without reducing all trade barriers.  In other words, this is not much of an incentive for a foreign government.  The U.S. could also allow other countries to begin importing goods considered strategic, such as computer or weapons technologies.  But that would permanently reduce U.S. power, so that isn’t likely either.

But what if the NEI actually succeeds?  Displacing $1.5 trillion of economy from other nations is not something that other nations are going to take lying down.  In other words, I consider this plan to be something whose goals are highly unlikely to succeed.  However, it will be interesting to see how Obama touts this plan in the lead up to the mid-term elections.  I am certain that the NEI is one of many populist messages that we will soon be hearing from the President and his Democratic cohorts.

Importance grade: 2; this plan will certainly be touted as an important initiative, however there are is practically no dollar support for this plan, only words.  Additionally, its goals are only achievable with the cooperation of foreign governments who have very little incentive to comply.  This plan is a classic “all show, no go” plan.  The U.S. Administration is expecting a $1.5 trillion return in 2015 from a $10 billion investment ($2 billion per year in the export facility from now until 2015).  That is a 350% average annual return on investment.  Clearly, such returns are nearly impossible to achieve.  Furthermore, it begs the question, if this is so damned easy then why hasn’t it been done before?  The National Export Initiative is a hollow plan.

Jason