Big Export Dynamo

by: Gregor Macdonald

I too used to laugh at the export prospects of the United States. No more. A weaker dollar, a shift in policy, and a world hungry for natural resources has boosted U.S. exports to 14% of GDP in 2011. It also helps that the U.S. now has some of the cheapest electricity rates in the developed world, and even cheaper natural gas. Two common components in manufacturing. Annie Lowrey at the New York Times echoes my recent writings on the subject, and also acknowledges the U.S. has a new industrial policy: exports, and a resurrection of manufacturing.

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But many in the senior economics establishment remain skeptical. Christina Romer for example recently penned an Op-Ed that forced me to ask a question: is the Romer position on the (un)importance of manufacturing a “modern” view that’s suddenly become outdated? Discussion of the synchronous, and interactive, relationship between design and manufacturing has been flourishing for several years now. See this Alexis Madrigal piece from 2010: "Key Question: Can the U.S. Innovate Without Manufacturing?" The bottom line: in new industries such as greentech, power grid development, and other technology, crucial innovation now emanates from the shop floor. That suggests any new policy to bring design and manufacturing groups back together in closer physical proximity, is hardly a mistake.

My forecast has been as follows: at current rates, the U.S. will see exports as a percentage of GDP climb well above 15%. At such levels, a new set of preferences will emerge. As an economy increasingly composed of exports, the U.S. will then seek to protect that position even more. The implications for the U.S. Dollar, on a long timeline, become rather obvious.