2nd Quarter 2010

(Click on graph for larger view.)

tennessee's major imports, 2009


source of tennessee's imports, 2009

Expanding Exports I

Can Tennessee Double Its Exports?

by Steven G. Livingston

In this year's State of the Union Address, President Obama announced a National Export Initiative to double American exports over the next five years. He claimed that this could add two million jobs to the American economy. The President appointed an Export Council, headed by the CEOs of Boeing and Xerox, to advise him on meeting this goal. Its first progress report was filed this summer. From a Tennessee perspective, could this state actually double its exports over this period? And what would be the impact if it did?

In 2009, Tennessee exported goods valued at $20.461 billion. If it could export $40.92 billion by 2015, what would be the effect on the state's economy? The impact of trade is already significant. The International Trade Administration (ITA) estimates that exports generate 156,000 jobs in Tennessee. That's the 13th highest figure among the American states. State economic data for 2009 is not yet available, but in 2008 the state's exports equaled 9% of Tennessee's gross state product. If we restrict the "economy" to croplands, mining, manufacturing, and wholesaling—sectors from which the vast majority of exported goods come—that grows to over 30%.

Let's do some back-of-the-envelope calculations. Predicting economic growth is difficult under any circumstances and probably impossible right now. But the state's economy grew about 3% per year (in nominal terms) over the past decade. Using that figure, we estimate that the value of exports would equal 13.6% of the state's economy if they doubled over the next five years. The ITA estimates that each $150,000 of merchandise exports supports one job. That estimate slowly rises over time due to productivity gains, among other reasons, so we'll calculate using $160,000. At that figure, a doubling of state exports would produce an additional 128,000 jobs. If Tennessee's overall rate of job growth matches the national projections made by the Department of Labor, these new export-related jobs would equal half the number of all jobs created in the state over this period. Now this is a bit exaggerated because there would have been some export growth even absent the Obama initiative. If we subtract the jobs created by that growth (using historical export growth figures), we still get close to 60,000 new jobs in this state. Needless to say, that's a significant figure.

If it happens. What's the chance the state can double its foreign shipments by 2015? Many experts are skeptical. Exports would have to grow about 15% a year over the next five years to meet this target. World trade has grown about 10% annually over recent years, so we would have to exceed that rate by 50%. Goldman Sachs has estimated that 30% depreciation in the dollar would be needed to accomplish this, a rather dramatic figure. So the practical question is whether the policy tools exist to accelerate exports that rapidly.

Tennessee's historical experience seems to support a verdict that doubling exports over five years will be difficult, though not impossible. In three out of the past 14 years, Tennessee exports indeed grew faster than 15%. In two other years, the state was quite close. Is this half full (it can be done) or half empty (it hasn't happened all that often)? Of course, it's really more difficult than these figures suggest because we would need five consecutive years of 15% increase. This has occurred but only in the distant past. Between 1972 and 1977, for example, state exports soared by more than 120%. But this was a period during which exports began at a rather low level, the dollar was falling, and the value of exports was inflated by the substantial price increases of the period. In more recent times, Tennessee's best five-year export growth was between 2001 and 2006 (graph). Bouncing off the bottom of the tech-bubble crash, and again aided by a weakening dollar, exports rose about 90% over those five years—but not 100%. Optimists can note that nobody was trying to double exports over this period, and so a conscious effort could have put the state over the top. Pessimists would note that only a few five-year periods over the past decade (a pretty good one for global growth) came close enough to think that marginal policy changes could have made the difference.

continued on page 2 »