Made in America
- 25 Nov 07, 09:30 AM
Having arrived here a couple of days ago full of thoughts about the falling dollar and the improving state of American trade, it is fascinating to observe at first hand that perceptions of low quality in Chinese products are the issue that seems to be driving consumers away from imports.
Recent recalls of badly designed toys and toxic toothpaste seem to have driven a surge of interest in the "Made in America" label. Websites such as usmadetoys.com offer lists of US products that don't
bite or poison you. offers an eco-friendly four tips on buying lead-free toys made in the US. Or look at the poll on Chinese goods on the , a presidential candidate.
The mass media is talking the issue up. I was surprised to hear advice offered this morning that one advantage of buying goods online is that if they are recalled, you will automatically get an e-mail telling you, without you having had to register your purchase.
Does that really happen so often?
It's fascinating that fear of foreign goods is taking hold just as the trade position of the US has turned a long-awaited corner. In September, for example, the trade deficit in goods and services was $57 billion, (or "a lot" as we say in English).
But it was still 12% smaller than the September before.
Something is changing. Imports were up by 5%. But exports were up by 14%.
This is of course exactly what the US economy needs. If the country is going to avoid recession while hard-pressed consumers save more now their houses are not increasing in value any more, exports have to be part of the answer. And reduced imports will help as well.
What is good for the US may not feel good to the rest of the world of course. In many respects we have become more used to the US as a customer not a competitor. Suddenly the US bites back, lets its
currency fall and starts improving its trade balance, by worsening everyone else's. But it is only fair - the US needs to improve its position more than anyone else. Its deficit last year was over 5% of its whole GDP.
So how far can improving the net trade position, help the US sort out its difficulties?
I've been speaking to several economists on this. One thing they all agree on is that the US does not do enough trade for it to be the piece of GDP that underpins the rest of the economy. Big countries do not need to trade as much as small countries, because residents have more choice from within their own jurisdiction to choose to trade with.
But that being said, trade is a small but volatile portion of GDP. It can grow or contract more than the personal consumption typically does, for example. (Those exports growing at 14% for example). So let's not diminish the role for trade too quickly.
I think there are two other challenges for the US in trying to improve its trading position.
First is the idea the problem of oil. As that gets more expensive, the US deficit has to export more just to stand still, and pay for its oil.
Secondly, does the country have the capacity to export? Once you have stopped making things, and have learned how to source them elsewhere, it takes quite a bit of time to re-build that capacity. Growing exports at 15% per year, year after year, will be no mean feat.
I spoke to yesterday (pictured). He's well known as the former (and controversial) chief economist of the World Bank, a Nobel prize winner and author of Making Globalisation Work. He is sceptical of the idea that the falling dollar will improve the trade position and bail out the economy, and he uses the interesting argument that America's "new economy" exports, in sectors like software are ones where the falling dollar will do nothing to improve things.
The argument goes like this – Microsoft have already priced their software as profitably as they can in each overseas market. And selling intellectual property is not like selling automobiles: the cost structure of software is far less sensitive to the level of the currency. Microsoft won't be stealing market share from the Europeans because the dollar has made it more competitive.
It's an interesting argument. The new economy is not about toys made in America; and the new economy may not respond in the old ways to the traditional price signal of the exchange rate.
If Professor Stiglitz is right, growing exports won't be helping out much. It'll have to be shrinking imports if anything, that will sort out the trade deficit.
Which I suppose is where the Made in America fad comes in. When the exchange rate fails to solve a problem, you can always rely on fear of badly made foreign products to help.
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Comments Post your comment
With no intention whatsoever of being disrespectful to Professor Stiglitz this sounds like a nobrainer. It seems strange to hear most economists applying old world maxims of trade and currency movements to hold out a glimmer of hope on the horizon due to rebalancing of trade deficits. There has been a paradigm shift mostly in the US but not very far behind in the rest of the world. Manufacturing output is on an uninterrupted downward slope , software and certain services are already oligopolistic , service outsourcing to India is a torrent and following the manufacturing story and the internet and telecommunication revolution enable most of the remaining services jobs to vanish virtually overnight. The political backlash has been remarkable in its absence but the dam my well be about to burst. Can global warming and the consequent opportunities to grow more food in North America really help the US? Does the mighty industrial American economy really have to look at agriculture for survival? But all that is in the long term. In the short term maybe a hard recession is really good for us Americans. It will help us to consume less , focus on education rather than on the 50 inch LC TV, create the willingness for our voters to demand to be protected the same way European laws protect their citizens and force our politicians to be servants of the people than being the handmaiden of corporations big or small as they are today. Maybe it will force our people to realize that we are in an undeclared war where the American consumer is the one left holding the bag when the music stops. Enough!
The crux of the trade deficit problem lies in the lack of balance between spending growth and materials and energy demands by consumers. Few seem to remember that the US is currently populace nation number 3 on the planet, with a population growth rate comparable to that of Asia in the last 50 years, primarily due to booming immigration. Immigrants held jobs first in agriculture and food processing, moving into the general labor market - with an emphasis in the recent past in the housing market.
The US consumption rate is slowing, but consumers seem to be oblivious to the environmental and economic consequences of bloated materials and energy consumption of the recent past. Call it passive avoidance of reality. They still want to drive their overly large vehicles and heat their expansive homes on a shrinking dollar and income that no longer keeps pace with inflation, while contending with steady increase in food, energy and health care costs.
Something has to give, but it won't be because the American Consumer has suddenly regained sensibility and reigned in flagrant consumption habits.
There is no pleasure here in seeing the Dollar fall and ordinary folk suffering as shown on the ´óÏó´«Ã½. The problem is, in a word oil.
China, Japan and the oil producing countries are waking up to the fact that they hold an awful lot of Dollar that are falling in value and that nobody wants to buy. If these supplier refuse Dollars and insist on other currencies the U.S. will have to buy those currencies at the going rate. So where will the dollar fall to? My guess is- oil $ 200 a barrel, dollar at 4 € and £ 5. Don't say it can't happen - it can.
I'm not worried about eating Chinese toys but it's the food I bring home from the grocery and the butcher shop that has caused the most worry.
One of the few things that I learned in economics was that "rational people think at the margin." This would be consistent with people purchasing the newest Windows Office (2007), simple because it's cheap; pay for a Google Earth Subscription; or perchance, you want to upgrade to the latest Adobe Photoshop, carpe diem.
Not to mention that Apple may become affordable for more people. Most people love all iThings (read iPhone, iPod, Macbook Pro), yet they don't want to pay the Apple premium.
What about pharmaceuticals? It seems that governments who actually provide health care for their citizens would prefer drugs from Merck or Pfizer instead of GlaxoSmithKline or AstraZeneca.
I'll be envious when the Brits that could own It's only be 66.000 Euros!!!
Final thought, with the weak publishers are making more money with books sold in Canada. They still charge the higher rate (usually 2 Canadian dollars) even though the Canadian dollar is worth more than the US dollar.
It may be correct that US exports are already at an upper limit. What the rest of the world wants or needs from the US it already buys. We buy software from US companies because of a near monopoly position of US in that area so price changes won't increase purchases of "windows". Items that are made outside the US eg in Asia will stay cheaper than US (partly because yuan is semi linked to dollar) so why buy US? Besides as you pointed out the US no longer has the manufacturing capacity to churn out running shoes etc. Where US exports might increase is in exporting to Asia in competion with Europeans who may be hit by relatively high euro and sterling.
The software business still has its costs, and these have different prices in different countries. My understanding is that a developer is double the price in London, compared to New York. Devaluing the dollar will/should mean that more US resources are used to produce the software, as the resources become more competitive. (In other words there is a supply side advantage, rather than a demand side one).
Interesting point about the 'New Economy', but it doesn't tell us much if you don't also say how high a share of America's exports the new economy takes up. I would suggest that the 'Old Economy' still plays a pretty important role in American exports, and it will be the Boeings, GMs, Fords etc who will benefit from the weak dollar.
There is a move now to supply PC's with Linux O/S's even in the States . There is a reaction to this monopoly because of Microsoft's arrogance . However the most interesting statement was ' Once you have stopped making things, and have learned how to source them elsewhere, it takes quite a bit of time to re-build that capacity. ' This doesn't only apply to the States - you could have stayed here and written that about Britain.
Re: International Currency movements
At the risk of adding a "No brainer" to Stiglitz's wise thoughts: -
What is surely needed isn't a (further)market-driven 'dirty' float/ depreciation of the U.S$ but an institutional-inspired managed appreciation of the 'pegged' RMB('yuan') despite natural reluctance to do this (at all/ or very much) by China's political elite. A slow adjustment would all but eliminate fears of imported inflation; and/or a loss of order books from importers suddenly switching/discovering cheaper Vietnamese/Thai/Indian or indeed Brazilian/or E. European sourced products. As most good 'A' level Economics students would readily recognise!?
I had a conversation with a British friend. We agreed that, at $2.06 to the £ there must be something worth importing that we could make some money on. Cars? Motorhomes? Harleys? Boats? But we agreed that the quality was so poor that most Europeans wouldn't want them. And we were hard put to think of much else that is still actually made in America!
So no; I don't think the falling $ will generate exports and save the US from their deficit!
I'm not sure that Professor Stiglitz's comments are that well explained. Even if you are exporting as much software as you can there will be a short term improvement in your trade deficit from a declining dollar simply because exports are worth more and imports less. Presumably Professor Stiglitz is talking about long term effects. Also, the only discussion here seems to be over low cost manufacturing. I had understood that American workers' productivity far outstripped that of workers in low costs manufacturing nations, so America's competitive advantage (other than in the IT area)is in high cost complex manufacturing for example complex industrial plant (eg. General Electric), aircraft (eg Boeing), arms (eg you name it), medical equipment, pharmaceuticals etc. In these industries the weaker dollar should have a positive effect. If Stiglitz is right that would suggest that these industries have an insignificant effect on America's trade balance by comparison to cheap consumer goods, but that has not been expressly stated.
Talk about the New Economy is so 90's and bogus. The rock bottom foundation of every economy is agriculture, and biofuels are reviving an agricultural sector that has been subsidized on life support for 200 years. Higher prices for grain in Europe and America allows them to drop subsidies as demanded by third word countries. This will stimulate the development and mechanization of third world agriculture. Miami just got its first ethanol pump for Brazillian ethanol and other South American countries are ramping up. Buy stock in John Deere and International Harvester.
Also, few noticed that when Bush presented his ideas for technological fixes to energy and global warming to the representtives of rich countries in DC, they gave him a standing ovation. He has led them to the New new economy of selling things like nuclear power, clean coal, and water treatment to the third world.
For the life of me I can't figure out this constant worry over the American trade deficit. It's a sign of economic strength and not one of weakness.
Just as I run a huge trade deficit with the supermarket (about 10% of my personal GDP) because it's cheaper than growing the food myself, the US has the wealth to have many of its consumer goods produced abroad.
As for the comments that the US doesn't make anything anymore -- how is it possible then that we still produce 20% of everything made in the world?
The good professor must not be reading much about US Exports. Exports are up from 10% to 14% of the US economy in the last few years.
https://www.census.gov/foreign-trade/statistics/product/enduse/exports/c0000.html - See here that US Exports have been soaring for 5 straight years. This year which isn't in there yet is on it's way to be up 15-16%. The types of exports are vast and the great majority are going UP
3rd QTR GDP growth of 3.9% (1% of the increase was from exports) is expected to be revised to 4.9% due to stronger exports than originally thought..meaning exports in the US are soaring.