The U.S. economy needs an exports-led boost

November 26, 2013

A recent visit by President Obama to an Ohio steel mill underscored his promise to create 1 million manufacturing jobs. On the same day, Commerce Secretary Penny Pritzker announced her department’s commitment to exports, saying “Trade must become a bigger part of the DNA of our economy.”

These two impulses — to reinvigorate manufacturing and to emphasize exports — are, or should be, joined at the hip. The U.S. needs an export strategy led by research and development, and it needs it now. A serious federal commitment to R&D would help arrest the long-term decline in manufacturing, and return America to its preeminent and competitive positions in high tech. At the same time, increasing sales of these once-key exports abroad would improve our also-declining balance of trade.

It’s the best shot the U.S. has to energize its weak economic recovery. R&D investment in products sold in foreign markets would yield a greater contribution to economic growth than any other feasible approach today. It would raise GDP, lower unemployment, and rehabilitate production operations in ways that would reverberate worldwide.

The Obama administration is proud of the 2012 increase of 4.4 percent in overall exports over 2011. But that rise hasn’t provided a major jolt to employment and growth rates, because our net exports — that is, exports minus imports — are languishing. Significantly, the U.S. is losing ground in the job-rich arena of exported manufactured goods with high-technology content. Once the world leader, we’ve now been surpassed by Germany.

America’s economic health won’t be strong while its trade deficit stands close to a problematically high 3 percent of GDP (and widening). Up until the Reagan administration, we ran trade surpluses. Then, manufacturing and net exports began to shrink almost in tandem.

Our past performance proves that we have plenty of room to grow crucial manufacturing exports, and even eliminate the trade gap. The rehabilitation should begin with a national commitment to basic research, which in turn boosts private sector technology investment. The resulting rise in GDP would be an important counterbalance to a slightly higher federal deficit.

Just-completed Levy Economics Institute simulations measured how a change in the target of government spending could influence its effectiveness. The best outcomes came about when funds were used to stoke innovation specifically in those export-oriented industries that might yield new products or cost-saving production techniques. When a relatively small stimulus was directed towards, for example, R&D at high tech manufacturing exporters, its effects multiplied. The gains were even better than the projections for a lift to badly needed infrastructure, which was also considered.

Economists haven’t yet pinpointed a percentage figure that reflects the added value of R&D, but there’s a strong consensus that it is significant. Despite the riskiness of each research-inspired experiment, R&D overall has proven to be a safe bet. Government-supported research tends to be pure rather than applied, but, even so, when aimed to complement manufacturing advances, small doses have a good track record.

Recognition that R&D outlays bring quantifiable returns partly explains why the federal National Income and Product Accounts have recently been altered to conform with international standards. NIPA will now treat R&D spending as a form of fixed investment. This will be a powerful tool to help reliably gauge its aftermath.

Private sector-based innovation has also proved to be far more likely to occur when it is catalyzed by a high level of public finance. (For amazing examples, check out this just-released Science Coalition report.) Contractors spend more once government has kicked in; productivity rises and prices drop.

The prospect of a worldwide positive-sum game is far more realistic than the “currency wars” dynamic so often raised by the media. Overseas buyers experience lower prices and the advantages of novel products. Domestic consumers, meanwhile, enjoy higher incomes and more employment, with some of the earnings spent on imports.

An export-oriented approach faces multiple barriers. Anemic economies across the globe could spell insufficient demand. Another challenge lies in the small absolute size of the U.S. export sector.

But the range of strategic policy options for the U.S. is limited. A rapid increase in research-based exports is the only way we see to simultaneously comply with today’s politically imposed budget restrictions and still promote strong job and GDP growth.

Instead of stimulating tech-dependent producers, though, we’ve been allowing manufacturing to stagnate and competitiveness to erode. Public R&D spending as a percentage of GDP has dropped, and is scheduled for drastic cuts under the sequester.

Sticking with the current plan means being caught up in weak growth and low employment for years. Jobs are being created at a snail’s pace, with falling unemployment rates largely a reflection of a shrinking workforce.

For our R&D/export model, we posited a modest infusion of $160 billion per year — about 1 percent of GDP — until 2016. We saw unemployment fall to less than 5 percent by 2016, compared with CBO forecasts that unemployment will remain over 7 percent. Real GDP growth — instead of hovering around 3.5 percent, by CBO estimates, on the current path — gradually rose to near 5.5 percent by the end of the period.

We need this boost. It’s urgent that we bring down joblessness and grow the economy. A change in fiscal policy biased towards R&D shows real promise as a viable way to help rescue the recovery.

PHOTO: U.S. President Barack Obama arrives to speak about the economy during a visit to ArcelorMittal steel mill in Cleveland, Ohio November 14, 2013. REUTERS/Kevin Lamarque


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You really think that just government money directed at R&D will do the trick? The majority of corporate America has already moved it’s R&D centers off shore. Those that remain are just administrative fronts for off-shore engineers. What we need to do is change the way corporate America works. Right now it is designed to further it’s own interests only. We have designed a form of government and corporations that works to generate maximum profit with any other consideration, like the needs of society, second. Now that the world economy has gone global it is working against us. We are no longer the USA with the worlds leading corporations, we are the USCA (United States of Corporate America) with global corporations leading the way and government left to fend for it self. Government is merely a joint venture of the corporations. One that they really don’t even want to maintain as it’s not profitable for all, just the defense contractors.
When we change our implementation of capitalism, we will be able to strengthen the country again. Otherwise you better hope the Chinese don’t decide to economically destroy us to quickly.

Posted by tmc | Report as abusive

“…manufactured goods with high-technology content.”

It appeared it was not the U.S. business strategy.
High-technology – yes.
Manufacturing goods – I am not sure.

The decreasing share of the industrial sector makes me think that – for years – the plan was to keep R&D; to hold patents; to develop financial sphere. The rest – services of various kinds.

You may ask: what the government was thinking about governing a 320 million nation? It relied on the market. And providence. Apparently.

Posted by OUTPOST2012.NET | Report as abusive

Free trade means building new plants using the R&D is opff shored. The graduate schools of US universities including the public ones, have become diploma and green card factories for citizens of other nations who will more at home overseas and therefore will tend to go back if their origin nation grows or go to what ever nation cuts them the best deal. The professors prefer the desperate non-citizen students who will work harder for them for less pay.

Posted by Samrch | Report as abusive

A couple of years ago, Boeing CEO McNerney said there was a terrible demand in 10,000 engineers in the United States.
What has been done since then?
I just don’t see how America can deal the issue with its expensive education?

Say, Russia is not the wealthiest country in the world. However, we had 450,000 budget-paid places for freshmen (they are called “budget places” in Russian) in our universities and institutes.
More resources (and the “seats”) – in the spheres required by the economy. And less – for teaching lawyers or economists.

Posted by OUTPOST2012.NET | Report as abusive

Mr. Papadimitriou is a stereotypical economist and academic. He is decades behind understanding where the private sector is. Global corporations are a new entity that his vision of the world does not include, nor understand. They believe they are just bigger corporations just like the ones discussed in the late 20th century. Unfortunately going to academic and corporate parties and events will just keep him and his peers safely in the dark about the real workings of the world.

Posted by tmc | Report as abusive

Raise the tariffs. America was built on a 20 -40% import tariff. In recent years, it has been piddled down to 1.5% by the likes of the ‘American’ chamber of commerce and other international business lobbies, posing as U.S. interests. China still charges us 20%. Why is that?

We have a very strong and desirable market for goods. We should be charging for access to it.

Posted by AlkalineState | Report as abusive

What we have today is the direct result of the old understanding of economic growth. Import tariff will lead to higher prices; less revenue; smaller GDP based on the revenue. It would require the change of the consumerism ideology.

Nevertheless, it is an option that is being considered in many places.
Just imagine what would it take: to go against the corporations, to change WTO, to modify globalization as we know it.
It would be a counter-revolutionary change. I already hear what the Pauls, father and son, would say.

Posted by OUTPOST2012.NET | Report as abusive

@AlkalineState, you’re recommending a 20th century (and older actually) answer to a 21st century problem. Tariffs seem to be such an easy answer, but will start trade wars that the world cannot afford. We have a global economy now whether we all like it or not. The WTO or some other global organization should be strengthened to handle international trade imbalances. Just forcing higher prices for things by applying tariffs will just cause higher prices that no can afford. Besides, the United States does not have high tech manufacturing capability. We never did, so it’s not a matter of bring it back. Apple made this quite clear a few months ago.

Posted by tmc | Report as abusive

@TMC: “Tariffs seem to be such an easy answer, but will start trade wars that the world cannot afford.”

So what? A trade war is the best kind of war. It’s called competition. America did its best under high import tariffs. The Constitution talks all about them. Every dollar made in tariffs is a dollar you don’t have to make by taxing your own population. If imported goods cost more, that incentivizes domestic production of goods.

Posted by AlkalineState | Report as abusive

“The rich alone use imported articles, and on these alone the whole taxes of the General Government are levied… Our revenues liberated by the discharge of the public debt, and its surplus applied to canals, roads, schools, etc., the farmer will see his government supported, his children educated, and the face of his country made a paradise by the contributions of the rich alone, without his being called on to spend a cent from his earnings.”
-Thomas Jefferson

While I think Mr. Jefferson got a little overjoyed on the merits of high tariffs….. you get his point. Remember that from 1777 – 1960, we averaged a 35% tariff on imported goods. We are currently at 1.5%. How has that been working out for us?

Posted by AlkalineState | Report as abusive

I guess you’ve never really understood what a global supply chain is? TJ is my all time favorite president, but the one statement of his you quote is so outdated….
Just look around the average home. It’ the middle and lower classes that use imported goods now. Virtually everything in the house is now made in a foreign country, notably China and Mexico.

Posted by tmc | Report as abusive

tmc, what are countries for? Don’t they just get in the way of the perfect global supply chain? Should we give up and eliminate borders altogether because well…. “people already have Samsung TV’s, so what’s the point of it all…”

Things don’t have to remain the same as they are now. When the engineers and laborers built Hoover Dam, do you suppose they said…. “This will never work. If there was supposed to be a dam here, there would already be one.”

Wake up, step up. The global supply chain’ wants our markets. Charge for access to them. It’s revenue.

Posted by AlkalineState | Report as abusive

Since each notion must in time pay of imports by exports. trade agreements that do not allow nation that import more than they can pay for to tax imports they do not need and subsidize exports to extent that their trade is in balance is foolish. Such trade rules have to die or result in hardships. They mean nations who out law old people and children and other non-workers, and other wise in many ways like pollution destroy the future of man, for a time attract investment.

Posted by Samrch | Report as abusive

Balanced trade should be the goal of WTO. That means rule that require nations with low exports be required by taxes or imports to pay export subsidies. By same token nations with low imports be required to tax exports and give import subsidies.

Unbalanced trade will cause hardships.

Posted by Samrch | Report as abusive

Actually @AlkalineState, the global corporations want the huge Chinese market far more than our little saturated one. We’ve been working towards that goal since the Nixon administration. Also the Indian markets, but since they are a democracy with a caste system, it’s a much more difficult market. Thanks for the conversation though. I always look for your posts.

Posted by tmc | Report as abusive

The concept of free trade, rooted in the principle of comparative advantage – a sacred cow of economics – is fatally flawed because it fails to account for the inverse relationship between population density and per capita consumption. When two nations grossly disparate in population density attempt to trade freely with each other, the work of manufacturing is spread evenly across the combined labor force. But the disparity in per capita consumption remains. The result is a shift in manufacturing jobs to the more densely populated country whose bloated labor force is hungry for manufacturing jobs due to its own low per capita consumption.

Almost without exception, badly overpopulated nations (like Japan, Germany, China, Korea and a host of others) are either heavily dependent on manufacturing for export to less densely populated nations (like the U.S.), or they exist in abject poverty. Free trade with badly overpopulated nations is a sure-fire loser for the U.S. The only remedy is a return to the use of tariffs to prevent the shift of manufacturing to countries incapable of consuming their own production.

Pete Murphy
Author, “Five Short Blasts”

Posted by Pete_Murphy | Report as abusive

@Pete_Murphy, I still don’t understand your theory. Is it population density (people per sq kilometer) or population size? So people that live closer together use less? Or more? So, India would be the largest consumer? Or the smallest?

Posted by tmc | Report as abusive

Okey-dokey – need more manufacturing and more exports – BUT manufacturing has taken a big hit with the corporations on the stock market outsourcing their labor and building plants and factories in other countries – PLUS getting big tax breaks in the US.

More “service jobs” (minimum wage) and fewer manufacturing jobs. Tried to find a small alarm clock made in the US. Went to FIVE different stores – none. If we can’t make an alarm clock in the US, what the heck can we make?

Posted by AZreb | Report as abusive

We need to push for a more even trade between nations. That should be the rule of the WTO with tariffs ONLY when the other nations are not making progress in this area. It would be good to sell moe Boeing airplanes to China and India if possible.

The problem is we have gotten use to trading goods for pieces of financial paper with our trading partners. This has worked since increased trade with Japan. Our trading partners do not return profits back without causing a big change in exchange rates that hurts exports.

I agree with more R&D investments but where do you think the manufacturing is going to be placed? Most likely not in the USA.

The real problem with the imbalance of trade is where does the profit go from lower priced products? It does not cause the cost of the product to be reduced that helps everyone’s standard of living go up, but to increase corporate profits and to the few executives at the top! It use to be that Sam Walton would pass down the lower costs down to the consumer. That is not happening any more?

People need to become more like the European people and buy products made locally to keep the jobs nearby. The businesses like Wal-Mart and Target need to highlight products made in the USA to keep the jobs local. Most people would be willing to pay more for local made products to keep the jobs in the USA.

Posted by edandjan | Report as abusive

What’s good for business is not always good for nations. Exhibit A: Hospitality industry work visas.

Exhibit B: Construction industry work visas.

Exhibit C: Feedlot and meatpacking industry work visas.

Exhibit D: Textile and agricultural industry work visas.

Exhibit E: Halliburton’s milking of the Iraq boondoggle (9 years, 1 trillion dollars).

Could go on all day. Business interest is seldom aligned with national interest.

Posted by AlkalineState | Report as abusive

We’re, “between inventions” now. The past great breakthrough inventions: Watt’s steam engine, the Wright’s flying machine and the semiconductor have been endlessly iterated, refined and now, standardized such that they can be manufactured any place with a decent industrial infrastructure.

Government can help with Basic research funding in areas such as Molecular Biology and Nuclear Energy. However, any applied research, regardless of the field, is soon assimilated worldwide by the related global manufacturing infrastructure and lost as a sustainable U. S. advantage.

Electronic products, for instance, can now be manufactured and tested in many places because the hardware,(Semiconductor)platforms are widely known,rock-solid and so are the code platforms that animate them.

Posted by LOTOGO | Report as abusive

The author of the article as well as commenters fail to identify the major obstacle to US high-tech exports that is US foreign policy.
Ban on export of anything that can have prospective dual usage (read: nearly any high-tech product and component) to some rival countries with vast markets (read: China) at least HALVES US high-tech export.
US policy of US content and harsh sanctions for violation means that it is very dangerous and uneconomical for any manufacturing high-tech company in any country to source its components or products in United States. If there are 2 high-tech components/products: one manufactured in US and the other in Germany/South Korea/Japan any corporation would not buy in US even if US product is price competitive.
Because by sourcing in US the upper-mentioned company has to practically cease exporting to China (the largest high-tech market).
Germany, Japan and South Korea are main beneficiaries of this policy in civil technology and Russia in military one. As well as… China becasue it streamlines indigenous research.
I do not mean to bash US policy. It is a rational approach. Chinese industry is much bigger than US and eventually so will be its economy. US competitive advantage is in technology. But this sensible foreign policy has its drawbacks.
The issue of supply chain is also very important because being “the world factory” China has a lot of competitive advantage. High-tech exports jobs cannot be generated without exports. And unfortunately manufacturing jobs will never come back.
The picture, the visit. A lot of populism in Obama administration, audience is mainly at low-end of US society spectre. Steel ? In United States ? In 2013 ? Steel industry is thriving in developing countries, output of China alone is 50% of world output 780 million Mt in 2013, US about 80 million Mt. There are other very cheap producers like India, Turkey, Ukraine. Just cannot compete.

Posted by Wantunbiasednew | Report as abusive

Yes USA became USCA but this unfortunately will not change because:
1. politicians need about 1.5 billion US dollars in donations each year for campaigns (2 billion for Presidential every 4 years, about 2 billion for Congress every 2 years), at least 1 billion is from USCA,
2. US 2 party system means that USCA is the issue of the greatest bipartisan unity among Republicans and Democrats.
Only social unrest of the great scale, like revolution or sth could change this. Because of vast internal resources, even deteriorating US economic and political situation makes it improbable in the foreseeable future.

Posted by Wantunbiasednew | Report as abusive

Quite true @Wantunbiasednew, but I fear that unrest is coming sooner than we all think. If we begin to explain it now, think about it, answer it, later the unrest may not be as bad.

Posted by tmc | Report as abusive

1. United States has very effective means to ensure citizen compliance: police is very efficient (read: brutal) for developed country, citizens are under total intelligence control, I’m sure NSA can even tell in which of your bathrooms you pee most often or did it in March of 2007, and you have dozen of agency that can just disappear people (only from that moment they are called terrorists).
2. Vast internal resources: people that are not starving or are not homeless never make good revolutionists. Frankly speaking every revolution known to me was preceded by rise in food prices.

Posted by Wantunbiasednew | Report as abusive

Again I agree with you, but times have changed. Joe or Jose six-pack is happy as long as he has his six pack, flat screen TV, cable channels & a cell phone, and a pick-up truck. Since none of those are made in the USCA, and cable/phone costs are 1/3 of a paycheck he may actually lose those (temporarily at least) if we have another more severe financial collapse. I realize that the G20 does not want that to happen, but has far to little control in stopping it once it starts. The current form of western capitalism will not work for much longer. It is inevitable that it crashes and new more modern approaches are taken. But there will be a “bad patch” for several years. How we emerge from it will determine how bad things get and for how long. We should sow the seeds now. Discuss new economic theories (Yes @OOTS, those Star Trek theories) now so we have something to draw upon and quickly present as new alternatives.
Social media in the western nations has taken root very deeply in society. It will hasten unrest just as it did in the Middle-East. The western governments have been very stealthily trying to mitigate this threat but the actual governments are so ineffective now that it has not born much fruit. Corporate America seems to not see the threat, as the profits in it cloud there judgment. So I still think it possible that unrest can occur in the USCA and other western nations. The “occupy” movements were just a test…

Posted by tmc | Report as abusive

TMC, talking about USCA you mean the oligarchy Republic; I assume. However, this is “oligarchy of open type.” The oligarchy (1 per centers) effectively recruits young talented people for their needs. And then we get 10 per cent. With families, it is the upper percentile – at least 20% of population.
Having the institutional system that is near impossible to change, it creates a relatively stable structure.

Still. The elite is never solid; it can be split; one part of it can be put in opposition to another. That’s why we used to say, “the elites.”

Any revolution is out of question. However, if you consider a society with divided members/citizens, it also applies to the elites. The elites’ only priorities are: money-power-survival.

I believe there is a ground to play. It looks ugly today. But there are opportunities for a non-revolutionary change.

I will take this USCA idea of yours for the forum.

Posted by OUTPOST2012.NET | Report as abusive

I have been posting with the concept that the USA has perished and the USCA (United States of Corporate America) has risen for quite some time now.
I don’t really see the USCA as the 1%. It isn’t the people, it’s the system. The US has created a system that has create uncontrollable entities (corporations) that are superior to citizens. I don’t believe anyone controls them. They can be influenced though. Normally by many of the management level people all coming to a conclusion that something must be changed. Yes, the 1% has the greatest influence, and any one of them may have direct control over a few entities, but even they cannot significantly change the system when they want. Influencing a change in the corporate system takes time. Usually several years. The media plays a large part in it. Social media does not as that is personnel communications tool and not part of the system. In fact it is a tool and product of the system. When I say that civil unrest, or a large event, a financial collapse, etc.., are needed to change the system what I mean is it requires these types of events for enough people in corporate America to see the need for change, and start that long influencing process. I do not mean the old fashion civil uprising of mobs in the street, civil wars, mass starvation and all of those other doomsday scenarios. The financial crash of 2008 was not significant enough to cause change. It was masterfully handled by the system with the support of all political parties in virtually all nations. No one wanted a major crash. So it was basically averted. Yes, it had some noticeable effects on economies and jobs, but not severe enough that the system could not handle it. So it continued on. But the system has two flaws. 1) it is burning itself out. In very simple terms it is a game of Monopoly ( and as all games do, it ends with a winner and a bunch of losers. The game has not be “re-started” since WWII and is nearing it’s end. There are no more willing players and the majority of current players have already lost. 2) it cannot handle all of the rapid global changes that are occurring. Specifically the rise of China. The Chinese are not willing to continue the current monopoly game and will start a new game. They basically said this during the 3rd plenum a few weeks ago, and have show it by not following the demands of the current “banker” and winning players. They will “De-Americanize the world” or in other words, change the game. I don’t know if you’ve ever played the actual game of Monopoly or not, but one thing most people find out is that the game lasts longer and is more fair when the designated banker is not an actual player. Why? because all humans cheat to some degree. When the banker is a player they can’t help themselves and will cheat and undoubtedly win the game. But even without cheating, a single player will win. Always. In the current western economies the bankers are players and have been proven to cheat many, many times. So the Chinese are going to change the banker. They are going to continue to pressure until the US Dollar is no longer considered the world reserve currency. The rest the western corporations and banksters will do themselves by allowing the system they created to bankrupt their nations citizens. In other words they (large and global corporations) win the game and the rest lose. But again, this sounds like untold mayhem, but it won’t be. The stock market will crash again, some will panic, but most will listen to the system and be patient. Corporate America will this time see the need for major change as the Chinese change the game and the rules. Influences will be created and…. who knows what will come of it. Maybe a long period of struggle as the systems tries to regain itself, or maybe a short period as it finds new ways. It all depends on who is in the best position to influence it at the right times.
Gorbachev had a plan, and tried to control, but Yeltsin was in the right place, at the right time, with the right words and hence had the greater influence.
So my hope is the using social media we can increase the chance that the influences will better server the people. Real discussion among intelligent people instead of automatic responses from the system and the media. The more discussions the people of the system are exposed to, the more likely the changes will reflect them.

Posted by tmc | Report as abusive

No @OUTPOST2012.NET by talking about USCA @tmc had in mind political corruption in United States.
You live in Russia that is an authoritarian oligarchy, well latest 13 years under Putin is more like monarchy. Democratic institutions are only for show. Russians, in the last 200 years had only very short contact with real democracy, namely in the 1990’s. But unfortunately it was also time of serious economic crisis. So Russians do not know what they loose by having current system it is a real blessing. Minority: mainly young and rich, that are able to live abroad even for a short period of time, never return to Russia.
On the other hand United States has democratic traditions, so Americans (at least minority that has intellectual capability to understand the mechanism) are pissed off when laws of the country for the last 20 years are written by corporate lobbysts for corporations.

Posted by Wantunbiasednew | Report as abusive

So we should start a trade war with the Chinese to muscle our way into low margin, compete-on-price industries while endangering our higher margin, compete-on-innovation industries where we successfully compete…smart.

Posted by jambrytay | Report as abusive


I have absolutely no interest to discuss Russian matters here.
It is a completely different subject. Which needs some knowledge exceeding an ordinary MSM feed.

Posted by OUTPOST2012.NET | Report as abusive

I learned Russian for 10+ years, most of it unfortunately forgotten. I like Russian very much, because the same as my mother toungue (Polish) it has a rich world of senses and words, completely unknown for speakers of English. English is a good code for communication like C++ or Pascal, but not for literature. I read a lot about Russian history during my studies, mainly post WW2 economic history as it was interconnected with the history of my country. I did not want to offend you, but I just wanted to show you the difference between authoritarian and democratic country, the difference i know from first hand experience.

Posted by Wantunbiasednew | Report as abusive

No hard feelings. We simply disagree. Which used to be a normal thing between the Russians and the Poles :-)
I think I also have a first-hand experience. I lived in D.C. area for three years. And I have been working with Americans all my life long.
So… we simply see the things differently. It’s okay.

Posted by OUTPOST2012.NET | Report as abusive

@jambrytray, we are already in a trade war with China. And losing because people like you think we’re…. somehow not?

Again: China charge us 20% on the goods we there. We now charge them 1.5% for the goods they send here. This is the result of multi-national business groups lobbying to provide free access to our markets, but no one else’s (we’re the richest consumers). Are you surrendering?

Posted by AlkalineState | Report as abusive