Export USA

By Mohamed Mounir - October 8, 2012 | Tickers: F, ISRG, SI, BA, TM | 0 Comments

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How many times have you heard that "Nothing is made in America anymore." I'm guessing a bunch of times. Considering that US manufacturing is $1.8 trillion per annum, we can confidently label the above statement as a myth. In fact the US is number two in the world in terms of manufacturing output value right behind China, but not by much, with 19.4% of worldwide manufacturing output compared to China's 19.8%. What the US doesn't do is manufacture a lot of small ticket items that people can read on "made in the USA" which causes the perceived misconception. 

However, one thing which is very real is the United States trade deficit. The United states imports much more than it exports to other countries. Now that's not an entirely bad thing because it shows that domestic consumption in the Untied States is stronger than in many other parts of the world due to the higher standard of living, but by having exports as a small percentage of the overall economy represents an opportunity cost for the US because it does not take advantage of the ever growing demand in other parts of the world and ties US GDP growth too much to the domestic economy. 

The weight of exports in the overall US Economy is not just low compared to export oriented emerging markets such as China, but also to other developed countries as well. The US has the lowest exports-to-GDP ratio (14%) of any OECD country, half of the OECD average (28%) and just over a quarter of export powerhouse Germany (50.15%).

Nothing stays the same forever though, The US economy has been breaking record after record when it comes to exports. Last year in 2011 exports reached $2.1 trillion in Goods and Services shattering the previous annual record of $1.8 Trillion set in 2008. This year exports in February topped $181 billion, a new monthly record. Since the so called Great Recession ended, exports have accounted for half of US economic growth.

This growth is not limited to one industry. In 2011, capital goods which are the USA's largest export class was up by 10%. Auto exports have skyrocketed by 19%. Food and energy exports have increased along with medical equipment and pharmaceuticals and of course the US is second to none when it comes to civilian aircraft exports which stood at $75 Billion for the year compared with $67 Billion for 2010. What's also intriguing is that exports of goods in which the US has a considerable deficit grew faster at 16% than exports of services in which the US boasts a surplus which grew at 10% for the year.

Going forward two things will enforce the role of the US as a major exporter

1. The Re-shoring of Capital Intensive Manufacturing to the US
2. Growing affluence around the world

The Re-shoring of Manufacturing jobs to the US is something very real, for instance, in one manufacturing survey from November 2011, one in five of North American manufacturers claimed to have brought production back from a “low-cost” country to North America. The corresponding number from early 2010 was one in ten of those companies,

The primary reasons for re-shoring are

•  The Diminishing cost advantage for Capital Intensive Manufacturing in China 
•  The Natural Gas and Oil Boom in the US 
•  The Automation of Industry

Many companies have started opening more plants in the US due to more favorable local conditions. For example, Ford (NYSE: F) plans to add 12,000 jobs by 2015, a portion of which will be in-sourced from Mexico, China and Japan. The cause was a favorable contract between Ford Motor and the United Auto Workers which allows the company to hire entry-level workers for $15.78 an hour.  

This trend is not just simply limited to US companies only, but foreign companies as well. The US is known to be the largest recipient of Foreign Direct Investment (FDI) in the world, but now other companies are considering using the US as a base to export to other countries. Japanese Toyota (NYSE: TM) plans to assemble its Camry sedans in Kentucky and Sienna minivans in Indiana for export to South Korea, German Siemens (NYSE: SI) is building gas turbines for export to Saudi Arabia for construction of a 4-gigawatt power plant, and British Rolls-Royce began producing aircraft engine parts in Virginia.

Which bring us to the second issue which will help US exports around the world and that is rising global affluence.

Currently the top 5 destinations for US exports are

1. Canada       $298 Billion               population 34M
2. Mexico           $198 Billion             population 112M
3. China               $104 Billion           Population 1.3B
4. Japan                 $66 Billion           Population 127M
5. UK                          $56 Billion       Population  62M 

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