HSBC Report: US Business Optimistic About Trade Despite Global Outlook

HSBC Report: US Business Optimistic About Trade Despite Global Outlook

U.S. exports remain constrained by sluggish global demand and the strong U.S. dollar, HSBC points out, but the bank expects the medium-term outlook for U.S. exports to improve as emerging markets recover from a cyclical slowdown.

Even though world merchandise trade is expected to rise just 1% through the end of 2015, U.S. businesses are optimistic about trade over the next six months, buoyed by the prospect of new trade pacts and momentum in the U.S. economy, according to the latest findings from the US HSBC Global Connections Trade Forecast.

HSBC found 77% of U.S. business leaders expect trade volumes to increase in the short term, well above the global average of 64%. This reflects optimism over a preliminary agreement on the Trans-Pacific Partnership, the largest new trade agreement in 20 years, covering 40% of the global economy. With weakness in emerging markets, some 30% of U.S. business leaders see Asia as the best market for trade growth, down from 49% six months ago. Another 21% cite Europe as the best market, up from 13%, followed by 15% choosing Latin America.

U.S. manufacturing production appears poised to take advantage of the expected recovery in foreign demand over the next five years, HSBC found, with petroleum products and chemicals expected to lead the expansion as they benefit from the development of shale oil.

While domestic momentum in the U.S. economy appears robust, helping to drive continued growth in imports, U.S. exports remain constrained by sluggish global demand and the strong U.S. dollar. Much of the recent weakness in foreign demand stems from a cyclical slowdown in emerging markets, HSBC noted, adding it remained confident that the medium-term outlook for U.S. exports is brighter.

“The trade outlook for the U.S. looks strong, as a positive trade policy environment and stable domestic economy favor continued growth in imports, particularly from China, the leading country of origin for U.S. imports," ‎said Inwha Huh, head of Global Trade and Receivables Finance for HSBC in the U.S. and Canada.  “Although the near-term outlook for U.S. exports is forecast to be lower in the next few years, constrained by weakness of foreign demand and a strong dollar, U.S. businesses are well positioned to take advantage of the emerging markets recovery with 6% export growth expected by 2020."

Globally, the HSBC Trade Forecast points to the Chinese slowdown as a key contributor to the drop off in world trade. The forecast sees the developed markets continuing to lead on international trade growth to 2019-2020, with strong performance from the U.S. and Eurozone (5% to 6%) before the emerging markets recover, led by an upturn in China as domestic policy stimulus gains traction.

The forecast points to five global trends that will be key drivers for the recovery of trade around the world:

  • The stabilization of China’s economy
  • Stronger investment spending supporting solid growth of import demand in the developed markets
  • Cyclical recovery in key sectors
  • Trade liberalization gaining traction
  • Growth beyond merchandise goods into trade of services

The U.S. will retain its competitive advantage as a top three trading nation well into 2050, as a third wave of globalization marked by new technologies and increasing economic integration continues to take hold, according to HSBC. By 2050, the U.S. could see more than $4.78 trillion in export revenue, and control almost 7% of total exports, including technology-intensive exports, ranking it as the second largest global exporter after China. The bank forecast that the total volume of goods traded should quadruple to $68.5 trillion by 2050.

US Exports to China Expected to Grow by 9% a Year to 2030

Over the longer term, the trade forecast shows global economic growth to be strongest among the economies of East and South Asia. Two-way trade flows between the U.S. and Asia are expected to grow in importance relative to slower-growing but more established trade ties with industrialized economies. U.S. exports to China are expected to grow by 9% a year on average in the decade to 2030. By the end of this period, China will have surpassed Mexico as the second largest market for U.S. exporters.

“Increased trade with Asia, particularly China, represents a major business opportunity for U.S. businesses,” said HSBC’s Huh. “And with the recent IMF decision to include China’s currency in its SDR basket, U.S. companies may want to consider how to make renminbi part of their business strategy."

Other longer term findings from the forecast include:

  • Machinery and transport equipment are set to play the biggest role in driving long-term growth in the nation’s exports, contributing close to 45% of the projected increase in the decade to 2030, and reflecting the U.S. expertise in high-end manufacturing and continued investments in technological innovation.
  • Another major contributor to growth in trade is the chemicals sector, which accounts for 13% of the forecast increase in merchandise exports in the decade to 2030.
  • Canada will remain the top destination for U.S. exports through 2030, although faster-growing Asian economies will gradually steal the spotlight for expansion opportunities.
  • U.S. imports are expected to closely mirror exports, with industrial machinery to increase by close to 20% by 2030, followed by transport equipment and information, communications and technology equipment, which are each expected to rise by 13% by 2030.

The economic outlook for the U.S. appears positive, as it benefits from solid labor market gains, strengthening domestic demand and a revitalized financial sector, HSBC stated. Although the recent weakness of foreign demand and the strength of the U.S. dollar will act as a drag on exports in the near term, the economy remains well positioned to benefit from a faster expansion of global activity over the medium term.

In the longer term, HSBC noted, the U.S. will benefit from an abundance of cheap domestic energy supplies, a flexible labor force and continued expansion of its working age population through 2030. With high ongoing levels of investment in R&D, the U.S. is expected to retain its competitive advantage in the production of high value-added and research-intensive goods.

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