U.S. exports to Asia are growing much more slowly than for the rest of the world while trade deficits with that region are skyrocketing, according to a new report from the MAPI Foundation.
From 2009 to 2013, exports from the U.S. to 13 Asian nations grew by 37%, while U.S. exports to the rest of the world increased by 52%, writes Ernest Preeg, a senior advisor for international trade and finance, in “U.S. Exports Pivot Away from Asian Markets.”
But Chinese exports to these Asian markets for the same period grew by 85%, more than twice as fast as U.S. exports. By 2013, Preeg points out, Chinese exports to the 13 Asian nations were $707 billion, compared to $259 billion for U.S. exports.
“Chinese exports to Japan, South Korea and India were about 2.5 times larger than U.S. exports, to Malaysia and Indonesia at least 4 times larger and to Vietnam 10 times larger,” Preeg states.
While U.S. exports are lagging in the region, its trade deficits with the 13 markets are growing rapidly. From 2009 to 2013, deficits with the 13 Asian countries grew from a total of $98.3 billion to $160 billion, an increase of 63%.
U.S. exports to China have been growing but the nation is not closing its trade gap. In 2013, U.S. exports to China were $122 billion, but imports were $440 billion, resulting in a deficit of $318 billion.
“The progressive loss of U.S. export competitiveness across the Pacific centers on the technology-intensive manufacturing sector, and is the result of radically different trade strategies by Asians compared with the United States,” Preeg writes. The majority of these nations are pursuing “export-oriented growth, centered on the manufacturing sector, including an ever-larger trade surplus.” By contrast, he says, U.S. economic strategy has “focused far more on domestic objectives, often with adverse impact on export competitiveness for manufactures.”
In the report, Preeg called for greater attention to currency manipulation. Calling it “the ultimate mercantilist policy instrument,” Preeg noted that if “China manipulates its currency 30% below its market level, the result is an across-the-board 30% surcharge on imports and a 30% subsidy for all of its exports.”
He noted that IMF Article IV bars currency manipulation, which it defines as “protracted, large-scale official purchases of foreign exchange, which have the direct and immediate effect of lowering the currency.” Preeg said if $4 trillion of official Chinese purchases over the past 12 years are not “protracted and large scale, IMF Article IV is a travesty rather than a meaningful anti-mercantilist obligation.” And he said other Asian nations have pegged their currencies to China’s currency, becoming manipulators in turn.
“The U.S. response to this unprecedented scope of currency manipulation in violation of IMF obligations has been total denial,” Preeg charged. “Twice each year, the secretary of the treasury is required to report to the Senate Banking Committee on currency manipulation, and for years, he has stated that no nation, including China, has been manipulating its currency in violation of its IMF obligations.
While Preeg said the proposed Trans-Pacific Partnership (TPP) free trade agreement would “help the United States regain market share in some Asian markets,” he warned that a failure to effectively address currency manipulation could result in an “acceleration of the growing U.S. deficit thanks to free trade.”
But Preeg warned that U.S. will find it “almost impossible” to pursue a currency manipulation provision in the trade accord:
“How could the U.S. trade representative insist on a currency manipulation commitment in the TPP when the secretary of the treasury, twice each year, states that currency manipulation does not exist? The prospect for a TPP agreement, therefore, is exceedingly dim for 2014 and highly problematic for 2015.”