Can Exports Save the Economy?

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Pablo Martinez Monsivais / REUTERS

President Obama made his case for exports in his State of the Union

President Obama and several policy wonks think they have come up with a solution to America’s jobs crisis: Exports. Last week, in Obama’s State of the Union he reiterated that he thinks boosting the amount of goods we ship overseas should be a top priority in the battle against unemployment:

To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 – because the more we export, the more jobs we create at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs. This agreement has unprecedented support from business and labor; Democrats and Republicans, and I ask this Congress to pass it as soon as possible.

The emphasis on exports is not in short supply these days. Last week, in Davos at the World Economic Forum, both US Treasury Secretary Tim Geithner and former President Bill Clinton said exports are the key to job growth. Geithner said emerging markets are where the growth is, so the US should be there. President Clinton cited Germany’s ability to penetrate the Chinese market as one of the reasons that country’s economy has continued to do well.

The problem is that a number of economists think boosting exports to produce jobs growth is, as one economist put it, a “mugs game.” Says Dean Baker, of the Center for Economic and Policy Research, “If we really think exports create jobs, we should just import a bunch of stuff from Mexico and then send it to China.” Problem solved.

The worry is that emphasizing exports over making goods that are consumed here will only shift employment, not boost it. Worse, exports, at least for now, produce significantly fewer jobs as the same amount of economic activity when companies are producing goods and services that will be consumed in the US. So is all this emphasis on exports misguided? Perhaps. Here’s why:

On the face of it boosting the amount of goods we ship overseas does sound like a very reasonable way to create jobs. We export relatively very little. In 2008, we exported $1.7 trillion dollars worth of goods. That sounds like a lot of stuff. But considering we have a $14 trillion economy, our exports are kind of pathetic. What’s more, boosting exports could solve another problem–our trade deficit. We import nearly $500 billion more than we export a year. The gap with China is even more striking. In the first 10 months of 2010, we bought $334 billion worth of stuff made in China. The Chinese, on the other hand, bought just $82 billion worth of American goods. Consuming more than you make forces you to borrow money to pay for all that stuff. Just another reason why we continue to have a debt problem in the US.

So boosting exports seems like the low hanging fruit and a way to get out of debt. The issue is exporting our way to job growth is harder than it appears. Here’s why: According to a recent study by the Department of Commerce, US exports have to rise $185,000 to produce one job. Our non-export economy tends to produce a new job at a rate of about $120,000 of economic activity. That means we have to produce an extra $65,000 of work to produce the same job when we go down the export route. The reason has to do with the fact that the types of goods that are exported-manufactured items-tend to be less labor intensive than the service and information jobs that drive our domestic economy these days. Few restaurants have replaced their waiters with robots.

Translate that back to this year’s predicted GDP growth and you get the picture of what the export trade off is. The International Monetary Fund recently predicted the US economy would grow 3% in 2011. That equates to a $420 billion boost in economic activity. If all that extra activity came from exports, then the economy would create 2.3 million jobs. Not bad. But if all that growth came from jobs that produced things that were consumed by US customers, and not exports, that same 3% GDP growth would produce 3.5 million jobs, putting an extra 1.2 million people back to work.

Barry Bosworth of liberal think tank Brookings, which has been pushing this emphasis on export growth, agrees that the mix will have to change. He says that as we boost our exports we will have to start producing more goods that are more labor intensive, that way as exports grow it will become a more productive engine of job growth. But that doesn’t appear to be happening so far. Two years ago, it took $165,000 worth of exports to produce a job, $20,000 less than the estimated amount today.

So what’s the answer? I’m not sure. Exports are probably part of the answer of where we will find job growth. But that doesn’t mean promoting jobs that produce things for other Americans isn’t important as well. TIME’s Joe Klein found a lot of disgust with our free-trade policies on his road trip across America last year. The feeling was that China steals American jobs. Many economists would say people don’t understand the way trade works. Maybe they understand better than those economists think.