Export USA

Mohamed is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

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 
source:  US Census
Canada & Mexico  both share a border with the US which explains why they are number one and two receptively. However if we look closer, Canada imports 50% more than Mexico even though Canada has less than 1/3 of the population of Mexico, meaning imports per capita for Canada are 5 times greater than Mexico. To put this into perspective, if Mexico imported the same from the US as Canada on a per capita basis, Mexican imports from the US would total $990 billion greater than the current top 5 combined! 
Another fact is that in 2011, the Netherlands, an advanced economy in Northern Europe with 16.6 million people imported the same amount from the US, some $42 billion worth of goods and services, as did the 196 million South American giant Brazil and twice as much as the second most populous country on the planet; India which only imported $21 billion from the US.
The Bias of US Exports to developed countries is as clear as day.
However, the fastest growing destinations for US Exports for the years 2006-2011 were:
Turkey 180%               $5.2B-$14.6B   
Brazil  124%                $18.8B-$42.1B
India 124%                  $9.6B-$21.5B
China  94%                  $53.6B- $104B
Saudi Arabia 82%        $7.6B- $13.8B
source US Census
*including only countries with over $10B in imports from the US for the year 2011
Numbers 2 to 4, Brazil, India and China are expected to form over 25% of Global GDP by 2020. These countries are increasingly buying American and as their economic development continues, it will continue to increase demand for U.S. high quality and high tech exports from US companies.
A nice example of which would be Intuitive Surgical (NASDAQ: ISRG).  More spending on Health Care in other parts of the world will benefit US Medical Technology firms such as Intuitive Surgical, maker of the Da Vinic medical robot system which can have up to 10,000 components, requiring the design skills of mechanical engineers, software programmers and ­optical-engineering experts. Currently most Installed Da Vincis are in the US which has 70% of all installed systems, but in the future this life saving technology will be more in demand in other parts of the world especially in newly rich countries who are looking to heavily modernize their health care.
Boeing (NYSE: BA) the Heavy Weight Champion of US Exports will also benefit from more people affording to Fly in countries like Brazil and India. Just recently, Boeing announced that Brazilian airline GOL bought 60 737 MAX Jets, a more efficient version of the 737 that is due out in 2015. Boeing is currently the top United States exporter and is solely responsible for 2% of total US exports.
In economics, nothing stays the same forever. Dubai used to be a desert, now it's a metropolis, Japan Inc. was supposed to take over the world, now it's been replaced by China, and the US 10 to 20 years from now may be the the new Saudi Arabia of Energy and the new Germany of Exports!

Eliteinvesting has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford and Intuitive Surgical. Motley Fool newsletter services recommend Ford and Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus