³ÉÈË¿ìÊÖ

Made in America

• Evan Davis | Stars and strife |
• 25 Nov 07, 09:30 AM

Having arrived here a couple of days ago full of thoughts about the falling dollar and the improving state of American trade, it is fascinating to observe at first hand that perceptions of low quality in Chinese products are the issue that seems to be driving consumers away from imports.

Recent recalls of badly designed toys and toxic toothpaste seem to have driven a surge of interest in the "Made in America" label. Websites such as usmadetoys.com offer lists of US products that don't
bite or poison you. offers an eco-friendly four tips on buying lead-free toys made in the US. Or look at the poll on Chinese goods on the , a presidential candidate.

The mass media is talking the issue up. I was surprised to hear advice offered this morning that one advantage of buying goods online is that if they are recalled, you will automatically get an e-mail telling you, without you having had to register your purchase.

Does that really happen so often?

It's fascinating that fear of foreign goods is taking hold just as the trade position of the US has turned a long-awaited corner. In September, for example, the trade deficit in goods and services was $57 billion, (or "a lot" as we say in English).

But it was still 12% smaller than the September before.

Something is changing. Imports were up by 5%. But exports were up by 14%.

This is of course exactly what the US economy needs. If the country is going to avoid recession while hard-pressed consumers save more now their houses are not increasing in value any more, exports have to be part of the answer. And reduced imports will help as well.

What is good for the US may not feel good to the rest of the world of course. In many respects we have become more used to the US as a customer not a competitor. Suddenly the US bites back, lets its
currency fall and starts improving its trade balance, by worsening everyone else's. But it is only fair - the US needs to improve its position more than anyone else. Its deficit last year was over 5% of its whole GDP.

So how far can improving the net trade position, help the US sort out its difficulties?

I've been speaking to several economists on this. One thing they all agree on is that the US does not do enough trade for it to be the piece of GDP that underpins the rest of the economy. Big countries do not need to trade as much as small countries, because residents have more choice from within their own jurisdiction to choose to trade with.

But that being said, trade is a small but volatile portion of GDP. It can grow or contract more than the personal consumption typically does, for example. (Those exports growing at 14% for example). So let's not diminish the role for trade too quickly.

I think there are two other challenges for the US in trying to improve its trading position.

First is the idea the problem of oil. As that gets more expensive, the US deficit has to export more just to stand still, and pay for its oil.

Secondly, does the country have the capacity to export? Once you have stopped making things, and have learned how to source them elsewhere, it takes quite a bit of time to re-build that capacity. Growing exports at 15% per year, year after year, will be no mean feat.

I spoke to yesterday (pictured). He's well known as the former (and controversial) chief economist of the World Bank, a Nobel prize winner and author of Making Globalisation Work. He is sceptical of the idea that the falling dollar will improve the trade position and bail out the economy, and he uses the interesting argument that America's "new economy" exports, in sectors like software are ones where the falling dollar will do nothing to improve things.

The argument goes like this – Microsoft have already priced their software as profitably as they can in each overseas market. And selling intellectual property is not like selling automobiles: the cost structure of software is far less sensitive to the level of the currency. Microsoft won't be stealing market share from the Europeans because the dollar has made it more competitive.

It's an interesting argument. The new economy is not about toys made in America; and the new economy may not respond in the old ways to the traditional price signal of the exchange rate.

If Professor Stiglitz is right, growing exports won't be helping out much. It'll have to be shrinking imports if anything, that will sort out the trade deficit.

Which I suppose is where the Made in America fad comes in. When the exchange rate fails to solve a problem, you can always rely on fear of badly made foreign products to help.

• Permalink
• Comments (15)