White House Export Goals Require More Weapons Sales

Issue Brief

On March 11, President Obama signed an executive order establishing a “national export initiative.” The order implements his commitment in the State of the Union address to double U.S. exports over the next five years. It’s a very ambitious goal: the last time America doubled its exports in five years was during the Carter Administration, and that surge was traceable largely to inflation. U.S. exports of goods and services in 2009 totaled $1.55 trillion, which means exports must increase by an average of $300 billion every year between 2010 and 2014 to meet the administration’s goal.

The export goal cannot be achieved unless the Obama Administration begins with a realistic appraisal of where America currently stands in the global trading system. Many of its key trading partners — China, Japan, South Korea, Taiwan — are export-driven economies that historically have sought to limit imports of non-essential goods. Washington will need to work hard to tear down formal and informal trade barriers that impede the overseas sale of U.S. products. It will have to force European governments to stop giving illegal subsidies to Airbus that put Boeing — America’s biggest exporter — at a disadvantage in the commercial transport market. It will have to challenge aggressively China’s theft of intellectual property and manipulation of exchange rates.

But even if the administration follows through on promises to enforce America’s rights under trade treaties, it will be hard-pressed to double exports from an economy in which manufacturing has fallen from 25% of output to 12% over the last three decades. The U.S. is now often referred to as a “service economy,” but global trade is mostly about merchandise. U.S. exports of services last year ($509 billion) only covered about a quarter of the nation’s import bill ($1.933 trillion). Some manufacturing industries in which America once led the world, like steel and autos, barely export at all today. And when U.S. technology companies develop new overseas markets, they typically try to build factories in those markets — a strategy that undercuts any improvement in the U.S. balance of trade.

Companies might change their thinking on where to locate plants if high corporate tax rates in the U.S. were slashed, but that isn’t likely while the government is running a budget deficit of $4 billion per day. The Obama Administration will have to meet its export goals long before crumbling infrastructure is rebuilt or the energy sector is transformed into a lean, green machine. In other words, the national export initiative will largely be a “come as you are” party, where better government policies and closer coordination will have to substitute for vast federal investments in fostering the desired surge of overseas sales.

One area where there is real room for improvement is foreign military sales. America still builds the best weapons in the world, and virtually all key weapons plants are located within U.S. borders. Although the U.S. currently has a 68% share of the global arms market, there is much room for expansion as traditional allies replace aging Cold War weapons and emerging nations like India acquire the resources to afford pricey U.S. military systems. Defense secretary Robert Gates has taken the first steps to ease export regulations, but there is much more that could be done to position U.S. producers competitively in the Middle East and elsewhere. With arms production now constituting about a tenth of all U.S. manufacturing output, it isn’t likely U.S. exports can double unless defense contractors make a much bigger contribution to America’s balance of trade.