U.S. exports rise but are likely to fall short of Obama’s goal

Medill News ServiceDecember 30, 2013 

— Employees still pack pretzels by hand at the Herr Foods Inc. plant in Nottingham, Pa., to ensure that the fragile snacks don’t break. Some of the pretzels ship east to nearby Philadelphia, but others go much farther, perhaps to the Philippines, the snack maker’s fastest-growing market.

Herr Foods, better known as Herr’s, exports to 47 countries, and every potato chip, pretzel and cheese curl that goes overseas is made at the Pennsylvania plant, which employs 400 people.

The U.S. is in the midst of a push to increase exports, one that began in January of 2010 when President Barack Obama announced the National Export Initiative in his State of the Union address.

“The more products we make and sell to other countries, the more jobs we support right here in America,” Obama said.

The executive order called for doubling exports from 2009 levels within five years as a way to boost the nation’s sluggish post-recession economic recovery. Obama outlined a strategy of assisting small businesses with exports, ramping up export promotion and opening new markets to U.S. goods and services.

Exports have increased each year since the initiative launched, and so have jobs. Exports of goods and services supported 9.7 million jobs in the U.S. in 2011, an increase of 1.2 million since 2009, according to the Obama administration.

But current trends indicate that the country isn’t increasing exports fast enough to meet the administration’s target or to narrow a trade deficit that’s widened fivefold over the past two decades.

“How realistic the goal is even from its outset was probably a little too ambitious,” Wells Fargo economist Tim Quinlan said.

Reaching the initiative’s export goal requires annual growth of about 15 percent, economists projected. The current growth rate falls short, according to Ryan Donahue, a Brookings Institution researcher.

If growth continues at the 11.9 percent average rate seen during the initiative’s first three years, total annual exports at the end of 2014 will be $2.77 trillion, about $390 billion short of the target, Donahue said. That means they would have risen only about 75 percent.

And that’s based on full-year data through 2012. Based on early 2013 projections, even that growth rate is optimistic, Donahue said, since export growth slowed in 2013.

“We have more work to do to build on our success,” said Michael Masserman, a top official in the Department of Commerce’s International Trade Administration.

“The NEI is about a whole-of-government effort to increase exports and American competitiveness, and to better integrate trade into the DNA of American businesses so that they are thinking about exporting their goods and services to the 95 percent of consumers who live outside the United States,” he said.

Despite the challenges, Donahue said export growth had been a bright spot for the economy since 2009, playing a major role in the country’s post-recession recovery. Sluggish economic conditions abroad, over which U.S. policymakers have little control, have slowed export growth, according to a report in October by Wells Fargo economists.

The goal remains worthwhile, experts said. For example, Donahue said increasing exports was the most effective way to create jobs. For local areas, it can be more important than attracting new companies.

“If you look at sources of job creation in a metro area, the overwhelming focus has been trying to attract new companies,” Donahue said. “But in reality, that creates relatively few jobs.”

EFFORTS TO BOOST TRADE

Brookings has advised several cities, including Los Angeles and Portland, Ore., on crafting export strategies. “What we’re trying to do is make exporting an integrated part of everything they do in economic development,” he said.

Governments at every level are working to boost trade. Cities such as Miami and Philadelphia, with Charleston, S.C., soon to follow suit, have kicked off major port-expansion projects. Governors from Texas, Florida and other states regularly embark on trade missions across the globe.

In Charleston, the effort will be evident below the surface.

At its current depth of 45 feet, the Charleston Harbor can accommodate the largest shipping vessels only during twice-daily high tides. But with the deepening of the Panama Canal, which will be completed in 2015, the nation’s fourth-largest container port plans to dredge its harbor to 50 feet. A bigger canal means that East Coast ports such as Miami, Norfolk, Va., and Charleston all must prepare their harbors for larger ships.

“It’s a game changer for the Southeast,” said Julie Scott, the associate vice president of communications at the South Carolina Chamber of Commerce. “It’s huge for economic and workforce development.”

South Carolina, home to Michelin North America Inc. and Bridgestone Americas Inc., is the country’s biggest tire-making state. Other manufacturers, such as Spartanburg’s BMW Manufacturing Co. plant and Charleston’s Boeing Co. facility, also will benefit from access to the bigger vessels, which lower shipping costs.

That’s part of the export initiative’s goal of removing barriers to overseas trade – improving infrastructure to ensure that goods make their way quickly and efficiently to international trade partners.

The U.S. Department of Transportation provides funding for rail, highway and port improvements, and over the last several years it’s directed $417 million to projects at 33 U.S. ports, both inland and coastal.

“As a result, U.S. exports will be more competitive – and that’s a win for the American economy,” Transportation Secretary Anthony Foxx said in a November speech in New Orleans.

Policymakers also are looking to stimulate trade growth on the local level. In Florida, for example, Gov. Rick Scott, a former CEO who campaigned to run the state like a business, has worked to inject state money into infrastructure developments and to implement tax breaks in order to attract businesses.

In Texas, federal and state governments collaborated in November to host a mission in Houston among 30 Pakistani companies and leading U.S. energy companies that are looking for business opportunities.

Texas also is making efforts to support small businesses, such as San Antonio’s SANA International, a strategy that experts point to as a good way to boost exports.

Accelerated export growth could come from small and medium-sized firms, which have fewer than 500 employees.

“What’s more important than doubling exports is increasing the number of firms that export,” Brookings’ Donahue said.

SANA International ships oil and gas products, renewable energy, marine equipment, industrial products and food products from manufacturers to foreign destinations, all with just 69 employees. The company, which won the Small Business Administration’s 2011 Small Business Exporter award, has tried to adapt to whatever the market needs since its founding in 1994, said Rossie Ortiz, SANA’s general manager.

“We always have room for improvement,” Ortiz said of her company, which exports to Latin America, Europe and the Middle East.

SMALLER COMPANIES TARGETED

Boosting exports by small and medium-sized businesses is one of the top goals of the export initiative, given that only 1 percent of America’s 30 million companies export.

Small businesses don’t have time and resources to spare, and many of them feel that they still have to tap into various parts of the domestic market, said Doug Smith, the assistant director of the International Trade Center, a San Antonio-based nongovernment trade-assistance organization that serves 79 counties in Texas

“For them, it’s a big step. It’s taking them out of their comfort zone,” he said.

The president has charged organizations such as the SBA, the Export-Import Bank and the International Trade Administration with ramping up small-business exports.

“We take it very seriously, and we will make sure we succeed in our goal of doubling exports,” said Luz Hopewell, the acting associate administrator at the SBA’s Office of International Trade.

Hopewell said efforts to increase efficiency were ongoing. She pointed to the U.S. Global Business Solutions initiative, a pilot project launched last April that involves 19 banks and leverages services from six federal agencies. By the end of 2015, SBA officials hope that at least 5,000 small and medium-size exporters will be using these programs.

“It’s a coordinated effort between all of us to ensure that we’re providing the best service to the small business,” Hopewell said.

At SANA, Ortiz’s biggest challenge remains convincing manufacturers that with a little help, their products could be everywhere. “They still don’t think globally,” she said.The U.S. Trade and Development Agency connects American manufacturers with buyers in emerging markets, countries that aren’t global powers but possess the greatest potential for growth. Spokeswoman Leila Afas said that for decades many U.S. companies had focused solely on domestic consumers.

“The financial crisis just shattered that paradigm,” Afas said. “Now you really need to export just to survive.”

Afas said that seven of the fastest-growing markets worldwide were in sub-Saharan Africa. The Commerce Department launched a “Doing Business in Africa” campaign in 2012.

U.S. companies that are attempting to compete in these rising markets face a major challenge: Because of labor expenses, American-made products often cost more than products made by Asian competitors. But that’s not necessarily a bad thing.

“There’s been a renaissance for the cachet of ‘made in the USA,’ ” Afas said.

Some foreign buyers will pay higher prices because American-made products come with greater quality assurance. Since the launch of the export initiative, U.S. trade officials have ramped up the number of “reverse trade missions,” visits by foreign officials and business leaders to American factories to see U.S. goods being made.

Such quality assurance is a key selling point, whether for a fleet of airplanes or a bag of potato chips.

American food products are in demand abroad because of U.S. food-safety regulations, said John Belmont, a spokesman for the Food Export Association of the Midwest USA.

Joe Kuehner, the vice president of distribution for Herr Foods, said foreign buyers were willing to foot the bill for shipping costs and to pay premium prices. “If you just packaged a product in the American flag, it would probably sell well,” he said.

FOOD MANUFACTURING GROWS

Food manufacturing has seen steady growth, accounting for nearly $65 billion in exports nationwide in 2012, a 45 percent increase from 2009, according to U.S. Census Bureau data.

That’s vitally important in Pennsylvania, the so-called “Snack Food Capital,” which leads the U.S. in manufacturing chocolate, potato chips and pretzels.

C. Daniel Azzara, a professor of agribusiness at Penn State University, said small and midsize food manufacturers without overseas plants were driving the growth in the state’s manufactured food exports, which saw an increase of $620 million from 2009 to 2012.

Herr’s demonstrates that a company can have a global presence without straying too far from home.

“I think we’re a big company, but compared to our competitors – Frito-Lay, for example – we’re a small company,” spokeswoman Jennifer Arrigo said, walking through the company’s main plant as freshly made potato chips slid down a conveyor belt to be salted.In 2007, Herr’s began aggressively expanding its exports, sending representatives on trade missions across the globe, including to Shanghai in November. Such sales abroad protect jobs at home, Kuehner said. Herr’s employs more than 1,500 people in its two plants and various sales offices.

Once its snacks leave the plant for shipment to markets across the world, however, they can face obstacles getting into consumers’ hands and mouths.

When tensions between Pakistan and the U.S. increased after American special forces killed Osama bin Laden in Pakistan in 2011, a shipment of snacks that was headed for a U.S. military base in Afghanistan was denied landing in Pakistan and had to be rerouted to Estonia..

Kuehner said competing Israeli and Palestinian distributors disputed who had the right to sell cheese curls in the Palestinian regions. “It caused almost a Middle East crisis with cheese curls,” Kuehner said.

Further, finalizing deals with foreign buyers can be difficult if the U.S. hasn’t signed a free trade agreement with the country.

“We have two distributors in Brazil that are dying for our product,” Kuehner said. “They want it.”

The U.S. has free trade agreements with 20 countries but not with Brazil.

“Countries that we have free trade agreements with, it’s so much easier,” said Kuehner, who’s still working to open the Brazilian market. “It’s smooth. There’s not a lot of red tape, and it goes a lot quicker.”

The Obama administration established a trade commission with Brazil in 2011, and the next year the U.S. exported a record $43.8 million goods there, data show. But relations between the U.S. and Brazil are complex, and Brazilian President Dilma Rousseff canceled a scheduled White House visit in October over reports of U.S. National Security Agency surveillance in her country.

Back in Nottingham, a forklift driver carefully loaded a heavy crate of pretzels onto a truck. Its immediate destination, a nearby warehouse, was hardly exotic, although its eventual path may take it to Chile, Japan or Bermuda. It just won’t be going to Brazil, at least for now.

Diana Blass of Medill News Service contributed to this article.

The Medill News Service is a Washington program of the Medill School of Journalism at Northwestern University.

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