According to economic projections, the majority of global growth in the 21st century will occur outside the U.S., particularly in the emerging markets of Brazil, India, and China. That means that looking forward, exports will be key to healthy, growing economies.
The good news is that U.S. exports have been steadily increasing for the past several years. Even better—Chattanooga is keeping pace with U.S. export growth, leading to increased employment opportunities and higher wages for local workers. With a head start in several important sectors, including manufacturing, alternative energy, and services, Chattanooga’s future export growth is promising.
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Exports: Key to a Healthy Economy
Exports grow the tradable sectors of an economy. These sectors in turn produce the ingredients for a booming economy—productivity, wealth, and growth of local industries. Export growth also contributes to increased employment opportunities and higher paying jobs.
The United States Trade Administration reports that exports supported 9.8 million U.S. jobs in 2012, up 1.3 million since 2009. According to Commerce Department research, jobs tied to exports pay wages that are typically 18% higher than those that aren’t. A 2008 Brookings Institution study showed that for every $1 billion
dollar increase in exports, workers in the exporting industries located in 94 of the top 100 metro areas earned roughly 1-2% higher wages. Even workers without high school diplomas earned an export premium, so a shift in the mix of U.S. jobs toward more export-oriented industries is good for working Americans.
U.S. Exports are Growing
The United States is the second largest exporter of goods in the world. As of 2012, the U.S. was well ahead of most other developed countries at $1.56 trillion, compared to Germany ($1.46 trillion), Japan ($776 billion), France ($567 billion), and the UK ($473 billion).
The most dramatic shift in the export market, however, has been China’s quick rise to become the number one exporter in the world. According to The Manufacturing Institute, in 2000, U.S. manufacturing exports were over three times larger than China’s, while in 2012 Chinese exports were 26% higher than that for the U.S.
Since the great recession that began in 2008, exports for the U.S. have increased at a greater rate than most other countries but still at a lower rate than developing countries such as China, Brazil and India. In the last five years, exports for the U.S. increased by 21% while exports for China increased 48%, Brazil 23%, and Russia 13%. India’s exports have nearly doubled in the last five years for which data is available (through 2012).
With this growth, exports have increased their share of the US GDP. Brookings reports that from 2009 to 2012, exports grew at an annual rate of 11.9% compared to 2.2% for GDP. And according to the U.S. Economics & Statistics Administration, exports as a share of U.S. GDP in 2012 were 14%, tying the record set in 2011 (see above graph).
Causes of Growth
Several factors have contributed to the growth of U.S. exports and are expected to favorably impact exports in the future.
Productivity: Today, U.S. manufacturers have become more efficient in the way they produce. Based on a 2012 report from the BLS (Bureau of Labor Statistics), manufacturers in the United States are the most productive in the world. According to the most recent data from the World Bank, gross domestic product (GDP) per capita in the United States was more than eight times larger than the GDP per capita in China.
Technology: Aiding the higher level of productivity is the investment of U.S. businesses in technology. In the past decade, American businesses have invested more than $26 billion in software and new technology. “Since China has so many low-wage laborers, there is no way high-wage Americans can possibly compete in products that require teams of workers,” writes journalist Michael Schuman, a specialist in Asian economics, politics, and history and Asia business correspondent for TIME magazine. “But the U.S. still is very competitive in the types of products that demand a high level of technology, engineering and capital to produce. In such industries, wages don’t matter quite as much, and the U.S. can capitalize on its clear advantage over emerging markets like China in expertise, technology and innovation.”
Quality: Another key advantage is the quality of U.S. products, which are superior to other countries. Simon Anholt, a British branding consultant and creator of the Anholt-GfK Roper Nation Brands Index, measure’s a nation’s international reputation. In a survey released in October 2012, the U.S. ranked first for the fourth year in a row. Germany placed second, the U.K. third, while China didn’t crack the top 10.
Lower Energy Costs: The cost of energy has and will continue to be a factor in the growth of exports. Energy costs have stabilized and even declined in recent years and are projected to decline in upcoming years. Stable and declining energy costs allow manufacturers to have more confidence to produce in the U.S. and to compete more successfully globally.
A study done by the Boston Consulting Group shows the U.S. is steadily becoming one of the lowest-cost countries for manufacturing in the developed world. Notes the BCG, “We estimate that by 2015, average manufacturing costs in the five major advanced export economies that we studied —Germany, Japan, France, Italy, and the U.K.— will be eight to 18 percent higher than in the U.S. Among the biggest drivers of this advantage will be the costs of labor (adjusted for productivity), natural gas, and electricity. As a result, the U.S. could capture up to five percent of total exports from these developed countries by the end of the decade.”
Today, electricity costs are much cheaper than the rest of the world and it is expected that they will continue to be lower than other countries. In a study conducted in 2011, the price per kilowatt hour was 12 cents compared to 35 cents for Germany. China was eight cents.
A contributing factor to lower electricity costs is and will be lower costs for natural gas. Today and moving forward, the cost for natural gas will be dramatically lower in the U.S. than for other countries. Says BCG, “Thanks to the recovery of vast U.S. underground gas deposits of shale, by 2015 prices for natural gas are projected to be 60-70% lower in the U.S. than in Europe and Japan. Subsequently, electricity is projected to be 40-70% cheaper for fuel used to power industrial plants, and for feedstock used across many industrial processes.”
Also supporting a stronger export industry is the stabilization of oil prices, which in turn has provided manufacturers with a greater level of confidence to invest in manufacturing in the U.S. The average price for a barrel of oil in the U.S. was $93.33 in 2008. In 2011, it increased to $102.92 and has since declined/stabilized at $97. Retail gas prices are cheaper in the U.S. than most of the developed world. Today, for perspective, the average price of a gallon of gas in the U.S. has been $3.66 versus $4.67 in China.
Return to America: With these advantages, U.S. business is beginning to move production back to America, which in turn has shortened the supply chain and provided for greater flexibility. In an era in which innovation and technological advances bring new products to market daily, and consumers’ tastes are constantly changing, this is a significant advantage for manufacturers to be able to adjust production and get to market quickly.
Value of the Dollar – Short Term: Aiding the growth of exports has been the decline in the value of the U.S. dollar. When the value of the dollar declines relative to other currencies, buying exports is more expensive in the U.S. On the other hand, it also means U.S. exports are more competitive around the world.
But while a weak currency can bolster a country’s economy in the short run, a robust economy is typically accompanied by a strong currency over the longer term. Writes financial analyst Michael Sivy in TIME magazine, “A currency rises in value when more foreign money is flowing in than is flowing out. These inflows occur not only because of export sales, but also because foreigners see investment opportunities or are seeking safe places to put their cash.”
Exports in Chattanooga
In 2012, Chattanooga exported $3.5 billion in goods and services, which accounted for 14.1% of metro output. From 2009 to 2012, according to the Brookings Institution, Chattanooga’s exports grew at a rate of 9.5% annually, and the city ranked 20th among the top 100 metros in the U.S. for export growth.
Exports Have Supported Higher Wages
New businesses such as Volkswagen and existing manufacturers such as Astec Industries and Miller Industries are selling more products outside of the U.S. Says senior researcher Nick Marchio of the Brookings Institution, “A lot of your overall economic growth is coming from exports. Using our 1-2% higher wages per $1 billion in export rule, exporting industries in Chattanooga likely pay wages 3.5% to 7% higher than non-exporting industries.”
The Future of Exports
Looking to the future, competing globally will be important for the U.S. economy and all of its metropolitan areas. The vast majority of global growth in the 21st century is projected to occur outside the United States, particularly in emerging markets such as Brazil, India, China, and Russia. Certain sectors, or industries, will offer real growth opportunities for different economies. To put it simply: certain markets will grow more than others.
Transportation-Related Manufacturing: One important area where Chattanooga already has a lead is manufacturing of transportation equipment. A study conducted by the University of Tennessee shows that the new Volkswagen plant has led to over 12,400 indirect and direct jobs from its opening. Cars manufactured at the Chattanooga Assembly Plant have been exported to Mexico, Canada, South Korea, and the Middle East. According to VW, in the application for a duty-free zone in Chattanooga, 86% of goods used to produce the car are bought in North America and 20% of Chattanooga-made vehicles are expected to be exported.
Other companies that are expected to take advantage of this growing sector worldwide include: Miller Industries (manufacturer of towing and recovery equipment), and Astec Industries (leading manufacturer of equipment for asphalt road building).
“The top three gains in exports [in Chattanooga] include motor vehicles, motor vehicle parts, and aircraft production and parts,” says Marchio. “Looking at the future, there is a significant opportunity for Chattanooga to continue to capitalize on its assets. These sectors have shown themselves to be growing, and there is a lot of global demand. There is significant opportunity for these areas to grow.”
Chemicals Manufacturing: U.S. chemical companies are increasingly focused on emerging markets, recognizing their tremendous market potential. China is expected to add approximately 500 million consumers between 2005 and 2020. Equally significant market opportunities exist in India. The country is currently the second-biggest market in Asia with a population of 1.12 billion. Several companies in the Chattanooga area will have the
opportunity to compete in this expanding sector, including: AkzoNobel Surface Chemistry LLC, BASF Corporation, GEO Specialty Chemicals, Olin Corporation, Wacker Polysilicon North America, and FUJIFILM Hunt Chemicals U.S.A., Inc.
Alternative Energy-Related Manufacturing: A recent projection by the International Energy Agency shows that alternative energy sources (essentially, any source other than coal and oil) will account for as much as 58% of the world’s total energy supply by 2035. This is up almost 18 points from 40% in 2009 (based on plausible post-2012 worldwide climate policies to stabilize greenhouse gases at 450 parts-per million carbon dioxide equivalent). In response to these global trends, energy supply companies are gearing up to meet the expected demand for alternatives to coal and oil. Major companies in Chattanooga that will potentially benefit from these emerging markets will include: Alstom, EMJ Corp/Signal Energy, and Wacker Polysilicon North America.
Services: The service sector is broadly defined and covers a range of industries from retail to health care to financial services. According to the Brookings Institution, services accounted for more than half of post-recession export growth in 11 metro areas, including San Francisco, Washington D.C., and New York. Within the umbrella of “services,” certain sectors show great potential for exports. According to U.S. census data, “professional, scientific, and technical services,” and “support activities for transportation” rank in the top 10 sectors in terms of exports—and Chattanooga already has a lead in each of these.
The UTC SimCenter is one of Chattanooga’s assets with great potential for exports within the “professional, scientific, and technical services” sector, a sector that includes jobs that require a high degree of expertise and training like engineering and specialized design.
A host of start-ups inspired by Chattanooga’s 1 gigabit of broadband also show great promise for the growth of export-intensive technical services. One of these start-ups, Hutgrip, has developed a cloud-based software that monitors manufacturing processes so leaders can more effectively manage their processes and predict and prevent equipment failures.
Chattanooga—A Hub for 3PL: With companies like Kenco and Access America making their home here, Chattanooga has become somewhat of a hub for third-party logistics (3PL). It’s a good thing, too, with “support activities for transportation” taking one of the top spots on the U.S. Bureau of Labor Statistics’ rankings of export-intensive service subsectors.
“With international trade mushrooming and supply chains expanding around the world, third-party logistics (3PL) providers have taken on an increasingly important role for multinational manufacturers and retailers,” write industry experts Thomas Foster and Richard Armstrong in the 3PL trade publication, Supply Chain Brain.
As the world flattens and competition increases, manufacturers have to have reliable sources of supply and retailers have to have flexible links to suppliers and low-cost production. Retailers also need quick channels of delivery for their growing network of consumers. Notes Armstrong, “Increasingly, the linchpin for successful worldwide supply chains is a core group of global 3PLs that can provide the expertise, reach, reliability and flexibility that multinational corporations need.”
This being the case, it’s no surprise that in late September, Access America CEO Ted Alling announced the company was launching Steam Logistics to handle international air and cargo shipments. “We plan on having offices in Hong Kong, London, Toronto, all over the world,” said Alling.
Looking Ahead
In the last five years, the U.S. has seen its exports grow. Looking forward, it will be important for all economies to not only grow domestically, but internationally. The opportunities for Chattanooga-based companies and our local economy are bright.
