The United States is capable of becoming an exporting juggernaut if
if follows the right policies. This paper discusses what goals the
United States should pursue and how it should go about reaching them.
The goals should be ambitious--more ambitious than current policy
suggests. Gross exports should increase to about 20 percent of GDP,
whereas the current account deficit should decline to about 2 percent.
The most important instruments to achieve these goals are liberalization
of export controls, aggressive pursuit of trade agreements, and exchange
rate correction--particularly with China. The paper gives estimates of
what can be achieved by these instruments.
Business Economics (2011) 46, 154-158.
Keywords: trade policy, export growth, current account, exchange
Can the United States become an exporting juggernaut? My answer is
yes, if the policy framework is right. I have a lot of confidence in the
underlying competitiveness of American industry. Over the last 15 years,
U.S. aggregate productivity growth has increased by an average of 2.5
percent a year. In manufacturing, productivity has increased by an
average of 4 percent a year. That is not bad in terms of improving the
United States' underlying competitive position. It suggests that
American industry can hack it internationally. But only if the policy
framework is right.
I want to talk about the policy framework mainly in two respects:
one, what should be our goal; and second, how should we achieve it?
1. U.S. Export Goals
The goal has been set by the president--double exports over 5
years. To me, that is fine. It is a good start but it is grossly
inadequate. It means that exports would have to increase by about 14
percent a year over a 5-year period from a low base--the 2009 recession
year base--so it is easier to achieve. Still, annual growth of 14
percent would about double the 30-year average. Exports have grown 7 to
8 percent per year over that period, so meeting the president's
objective would require a growth path that would be about twice the
30-year average. On our calculations, business as usual--meaning, no
additional export push -would only achieve a growth of about 60 percent
in U.S. exports over the 5-year period as opposed to the 100 percent
growth set as a goal by the president. Thus, you are talking about a
significant increment, from 60 to 100--moving up by about two-thirds to
move the growth rate up from something like 8 to 14 percent. This would
be substantial, but I regard that only as a start. For reasons that I
will indicate, we have to have separate goals for gross exports and net
exports. Remember that the goal of the administration's
policy--double exports in 5 years--is purely on gross exports. It says
nothing about net exports, the current account balance, the trade
deficit, or the contribution of the trade sector as a whole to the
I would first of all beef up the gross export goal. My goal would
be to raise it from where it was--10 percent of GDP in 2010--to 20
percent of GDP in 2020. Now, that has a nice marketing ring, but it also
substantively indicates a more lasting commitment, a more fundamental
enhancement of the share of exports in the national economy; and I think
we should set our goal on gross exports beyond doubling over 5 years.
But that is not enough, because the impact of trade on the economy
comes from net exports, the current account balance, the trade
balance--whichever way you want to put it. Therefore, I would set a
second goal, which would be to reduce our current account deficit from
where it is now down to about 2 percent of GDP, at most.
The current account deficit had a recent peak of 6 percent of GDP
in 2007. It was cut in half--basically by the recession but also by the
decline of the dollar. It is now rising again--quite sharply, in fact,
through the middle of 2010--and is now about back to 4 percent. On most
projections, it is headed back up to 5 or 6 percent. I think it is
imperative for a variety of reasons that we cut that back to a maximum
of 2 percent. This would reduce our net foreign debt to GDP ratio to a
level of about 50 percent, which would not be too risky from a financial
Reducing the goal of a current account deficit to 2 percent of GDP
would require reaching the first goal: a pace of growth of exports well
over 10 percent for the decade as a whole. It would mean doing about 25
percent better than we have done historically in export markets for a
sustained period of time. These goals are ambitious but achievable and
should be the underlying conceptual construct for where we would like to
see our trade position go over the coming decade.
When I focus on the net imbalance, remember that what I am trying
to do is to quantify a U.S. national target that would be consistent
with the agreed international strategy of the G20 for rebalancing the
world economy. Remember that coming out of the great recession, it has
been widely agreed--by the G20, IMF, and others--that one needs not only
a strong recovery from the recession but a sustainable recovery, meaning
one that is reshaped. This means one that is not susceptible to growing
international imbalances--notably the big Chinese surplus and the big
U.S. deficit--because those lead to unsustainabilities of their own over
time that must be avoided in the future.
For the United States, that, of course, means relying much more for
future growth on net export growth and underlying investment rather than
on debt financing, consumer demand, and government budget deficits. That
is an essential rebalancing of our internal economy as part of the
rebalanced global economy agreed by the G20 for sustainable global
growth in the future. What I am suggesting here, albeit briefly, is how
to quantify that in terms of what it would mean for U.S. trade, which is
the dominant driver of our current account position.
2. U.S. Export Policy
Given this prelude and goals, how would we do it? There are a whole
variety of policy instruments that one uses to try to expand
exports--both gross and net. I am going to focus on three that I think
are most important in terms of quantitative impact.1 One of these three,
as we will see, dominates everything else.
The first--not the most dominant one--is to seriously liberalize
our export controls. We did a study over 10 years ago at our institute
that showed that U.S. export controls were cutting off our own foreign
sales by $30 to $50 billion per year--not a massive amount, but not
trivial. The export controls had been liberalized a little. But they
have been retightened with China in mind. A whole new review is going on
within the government--with very modest progress to date. Export
controls are one policy area within the purview of the government where
substantial liberalization could be achieved.
It is interesting that when we talk to our biggest, newest trading
partners--China, India, and others--the main thing they ask for is that
we liberalize our export controls so they can buy more from us in
sectors where they want to buy. There are legitimate national security
reasons not to sell some things, and I do not suggest a blanket
elimination of controls on everything. However, the controls have been
far too restrictive and far too ignoring of the economic consequences
for the kinds of things we're talking about today. Therefore, I
would suggest that substantial gains could be achieved from significant
liberalization of the export controls.
The second dominant policy instrument is trade agreements. It is
clear that we need to open many foreign markets to U.S. sales. We need
to do so in part as a defensive measure because all the other major
trading countries in the world--from China to Germany to India--are
signing trade deals with each other, whereas the United States sits on
the sideline. The United States is losing big time. Therefore, at a
minimum, for defensive purposes, we need to be aggressively signing
trade agreements with Asian countries and the European Union--especially
big countries like India and Japan.
In concrete terms, I would make sure that the current Trans-Pacific
Partnership initiative expands to bring in big Asian traders, such as
Japan and South Korea, and then liberalize as far as we can with those
countries. And more bilateral agreements. India would be at the top of
my list. Egypt, if it reforms and moves toward free markets as well as
democracy, would be another candidate. In fact, we came very close to
launching an FTA negotiation with Egypt 5 years ago.
A whole variety of countries are candidates for trade agreements.
We have estimated that the South Korea agreement is worth more than $10
billion in exports. A deal with India or Japan would be worth much more
than that on the export side as well. The Doha Round of multilateral
negotiations--in terms of what has been negotiated so far--is a mouse.
We have studied it in detail. It would expand U.S. exports only by S7
billion--less than the South Korea agreement and not even clearly more
than the Colombia or Panama agreement.
However, if the Doha Round were expanded to seriously include
services, some trade facilitation steps, and some big sectoral
agreements, its impact could multiply fivefold; and we could expand our
exports by $40 billion, according to a series of estimates we have made.
Thus, trade agreements should be an important part of the equation.
The third instrument, and by far the most important which swamps
everything else and works on both the import and export sides--is the
exchange rate of the dollar. Our models show that every 1 percent
depreciation of the exchange rate of the dollar on a trade-weighted
basis strengthens the U.S. current account balance by $20 to $25 billion
per year, with a 2-year lag. If the dollar is overvalued by a mere 10
percent, which is our latest calculation of where it is about now, its
correction would improve the U.S. trade balance--our net export
position--by something like $200 to $250 billion per year once that
correction was phased in over a 2-year period. That swamps everything
We know empirically that those relationships work. The impact of
depreciation that I mentioned is derived from a practical reading of the
changes in exchange rates and subsequent changes in U.S. trade and
current account positions over the last 40 years. At the moment, the
reason that the dollar is still overvalued on average by about 10
percent is pure and simple: the undervaluation of the Chinese renminbi
(RMB) and several currencies around it in East Asia.
By our calculations, the exchange rate of the dollar is about right
with respect to the euro, the Canadian dollar, the peso in Mexico, and
most of the currencies of our other big trading partners. That was not
true a decade ago. The dollar at that time was overvalued by 30 percent
or more. It came down by a trade-weighted 25 percent between 2002 and
That exchange rate adjustment was the second big reason, in
addition to the great recession, that our current account and trade
deficits came down so sharply between 2006 and 2009. The imbalance was
cut in half. But now, with the continued large undervaluation in China
and other Asian countries around it, the external imbalance of the
United States is rising again.
I mentioned before that the G20 has agreed on rebalancing. That
needs to be part of the recovery of the world economy. At the moment,
the imbalances are going in the wrong direction. The Chinese surplus is
going back up, as is the U.S. deficit.
The Chinese imbalance is driven, in important part, by massive
Chinese intervention in the currency markets. For the last 5 years,
China has been intervening in the currency markets at an average of $1
billion per day--buying dollars and selling RMB to keep the dollar price
up and the RMB price down and therefore keeping China's currency
undervalued and the dollar overvalued. This is a huge factor in
competitiveness worldwide, given the fact that China is now the
world's biggest trading economy and second-largest economy, maybe
getting close to the United States in purchasing power parity terms. It
will certainly over time become by far the dominant trading country in
When the biggest trading country in the world is intervening
massively to keep its currency undervalued--we estimate by over 20
percent--what you have is the equivalent on its part of a subsidy for
all of its exports of 20 percent and an additional tariff of at least 20
percent on all of its imports. This is the largest protectionist measure
in the history of mankind and therefore needs to be dealt with
There are ways to deal with it. The United States could respond
with what I call countervailing currency intervention. The Chinese buy
dollars and sell RMB. The United States could buy RMB and sell dollars
to counter it directly in the currency markets. We have countervailing
import duties as a normal component of our trade policy arsenal. Why not
do the same thing on the currency side with countervailing currency
intervention? You could retaliate on trade, but I think it would be much
neater to do so directly on the currency side. I had an op-ed in the
Financial Times recently explaining that concept: I think that would be
a natural way to go.
I am encouraged that the sweet reason that we have been trying on
the Chinese for at least 5 years is beginning to prevail. Over the last
6 months, the Chinese have let the RMB go up at a real annualized rate
of 10 to 12 percent against the dollar. If they let that continue for
another couple of years, it would achieve the 20- to 30-percent
adjustment that is needed and go a long way to achieve the export
objectives that I have laid out for the United States. But we would have
to be vigilant to make sure that the dollar does not again become
overvalued against other currencies, as it has done all too frequently
over the last 30 years.
The United States could again become a major exporting power.
However, it does need to have in mind both a sustained goal for gross
export expansion and an additional goal for bringing our net export
deficit down sharply as part of the global rebalancing exercise.
The way to remedy our export position is primarily through easing
our own export restrictions, aggressively pursuing market opening in the
rapidly growing emerging markets of the world that still have trade
barriers, and making sure that the exchange rate of the
dollar--particularly against our top competitors in Asia--avoids
overvaluation and gives our firms an equal opportunity in world markets.
Questions and Answers (Edited)
Q: "With U.S. natural gas prices trading at an all-time record
discount to oil prices, what are the opportunities to boost manufactured
exports of gas-intensive products? What can or should policy do to
Mr. Bergsten: Many of our competitors subsidize the price of energy
inputs to their products. This is particularly true with the big oil and
gas exporters in the Middle East in petrochemicals and some other
products. There has been an effort over the years--with mixed
success--to get them to cease and desist by bringing those practices
under the WTO or otherwise go after them. The improved competitiveness
of our position now ought to simply make us redouble those efforts to,
at a minimum, get the others to desist from distortive subsidies so that
our competitive advantage would be permitted to play out through the
lower prices that obtain in the market.
Q: "To get a current account deficit of 2 percent of GDP,
given an investment goal of roughly 10 percent of GDP, the national
saving rate would need to be about 8 percent of GDP. Since the fiscal
deficit is about 10 percent, how can we obtain the necessary personal
saving rate of 18 percent?"
Mr. Bergsten; To obtain an adequate national saving rate, I would
eliminate the federal budget deficit. In fact, I'd move it to a
small surplus. That will take some time, but we're talking here of
a 5 - to 10-year horizon. Bring the federal budget deficit down by a
percent of GDP per year for a decade.
That may sound outlandish but it's what happened in the 1990s.
In 1993, we had a budget deficit of 6 percent of GDP. At the end of the
decade, we had a surplus of 2 percent of GDP. The budget position
improved by one percentage point of GDP per year for 8 years. That is
what we need now. We need it even more desperately now because our
starting position is so much worse. For a whole variety of reasons, even
unrelated to the international side, we need that. That is the way you
equate the math.
In national income accounting terms, you have to get the savings
minus investment imbalance on the domestic side to correspond to the
exports minus imports imbalance on the international side. If we can, in
addition, induce a higher private saving rate, we give ourselves a
little more flexibility on the budget side. It may make rebalancing a
I think we can do that. There are a variety of
measures--particularly as we have to increase taxation in the
country--to make sure we increase national savings by raising
consumption taxes, not income taxes. We would thereby deliberately
deflect the composition of domestic income from consumption to saving. I
think we can do that too. Even just limiting ourselves to a necessary
fiscal correction, I think we get the counterpart domestic change that
the question had in mind.
Ed Gresser (panelist): May I make one additional point? On our
current account imbalance and our trade deficit, a large factor that is
difficult to control is the price of oil. We began the 2000s at S100
billion in oil imports and got to almost $500 billion in 2008. By
contrast, our imports from China rose from about $100 billion to $300
billion. If there were a way to make the U.S. less oil-intensive, then
one of the very big factors that has driven our deficit would diminish,
and one of the big potential shocks to the U.S. economy would become
less of a danger.
Mr. Bergsten: It also takes us back to using more domestic natural
Q: "Doubling exports seems to require an industrial/ trade
policy. Does this leave room for a national 'infrastructure
build' as another source of growth or would export growth preclude
it and take its place. There are many people who think that a lot of
investment needs to be made in infrastructure?"
Mr. Bergsten: I think infrastructure investment and export
expansion are mutually supportive. Improvements in infrastructure,
whatever their primary motive, could certainly be oriented in a
direction to strengthen our international competitiveness--ports,
airports, road transport feeding into export terminals. If you had a
serious effort to pursue a multimodal national transportation strategy
with export expansion as one component, you could importantly help the
export expansion effort as well as deal with a dire domestic problem.
Q: A 10 percent depreciation of the dollar against the RMB would
not improve U.S. productivity or technology. It is a short-term and
provocative trade enhancement that would be a beggar-thy-neighbor move
that could possibly lead to protectionism. Why should we be in favor of
Mr. Bergsten: How could anybody call a deprecation of the dollar
competitive devaluation or protectionist when the United States is
running the biggest trade deficit in the history of mankind? How could
anybody say it's protectionist to try to get China to let its
exchange rate appreciate when they have deliberately held it down by
intervening to the tune of SI billion per day in the currency market for
5 years in order to keep the dollar price up and the price of their
As I pointed out, that is the biggest protectionist step in human
history, since it amounts to an across-the-board export subsidy of 20 to
30 percent and an additional import barrier of 20 to 30 percent on every
product. With those two facts in mind, tell me how it is that the United
States could be called protectionist or a '"competitive
devaluer" from trying to get its exchange rate back to an
equilibrium level that would still have us running a trade deficit of 2
percent of GDP--a deficit that very few countries in the world are
willing to countenance.
Q: "Germany became the world's largest exporter with a
vastly overvalued currency."
Mr. Bergsten: I disagree. You tell me how you define a currency as
overvalued in a country that runs a massive trade surplus. If you raise
the issue of purchasing power parity, I will tell you that it is
irrelevant for international trade competitiveness purposes. For most of
the post-war period, the deutschmark, and more recently the euro, has
been substantially undervalued on any kind of trade comparison.
(1.) These exclude the many useful things that can be done with the
Export-Import Bank and the export promotion programs at the Department
of Commerce. These are useful, should be done, and should be supported;
but I think they are small in terms of their quantitative impact.
Remarks presented at the 27th Annual NABE Economic Policy
Conference, March 7, 2011.
* C. Fred Bergsten has been director of the Peterson Institute for
International Economics since its creation in 1981. He was assistant
secretary for international affairs of the U.S. Treasury during 1977-81
and functioned as undersecretary for monetary affairs during 1980 81,
representing the United States on the G5 Deputies and in preparing G7
summits. During 1969-71, he coordinated U.S. foreign economic policy as
assistant for international economic affairs to Henry Kissinger at the
National Security Council. He has been a senior fellow at the Brookings
Institution, Carnegie Endowment for International Peace, and the Council
on Foreign Relations. He has been a chairman, co-chairman, or member of
a number of prominent commissions dealing with international economic
relations. He has received a number of awards for his contributions. He
received MA, MALD. and Ph.D. degrees from the Fletcher School of Law and
Diplomacy and a BA magna cum laude and honorary doctor of Humane Letters
from Central Methodist University.