What America has to sell

In response to my recent call for American ASEAN experts to be less focused on promoting a U.S.-ASEAN free trade agreement and more focused on having the ASEAN countries actually buy more from the United States, I received several queries about what exactly the United States has to sell aside from military hardware and systems.

This is an old question in the long running debate over the U.S. trade deficit and unfair trade in the Asia-Pacific region. Typically the discussion goes as follows. American commentators, business executives, and government officials claim the some market is unfairly closed or that exchange rates are being unfairly manipulated to the disadvantage of U.S. exports. This, they say, is exacerbating the already unsustainable U.S. trade deficit and will result in some dire consequence unless the offending countries stop cheating and start playing by the rules. The response from Asia is denial of any foul play and an assertion that American business doesn’t try hard enough capped by the question, "aside from weapons and airplanes, what does American make that anyone in Asia could possibly buy?"

This has been an excellent debating technique for Asian officials and commentators because it has diverted attention from Asian policies to well known and glaring American weaknesses. In effect, this question has said: "Look, why don’t you just forget about our policies and practices. The truth is that you have nothing to sell that we want to buy, and, therefore, even if we played exactly as you request there would be no change in the trade flows or in your trade deficit." 

While it was always an exaggeration of U.S. weaknesses, this argument contained enough truth that it was long hard to counter. Today, however, that is much less the case. Let’s start with weapons and aircraft. Even its harshest critics have always acknowledged that the United States is very competitive in the weapons and aircraft markets. Yet, even its closest allies have striven to import only what was absolutely necessary from the United States while having most of the arms and aircraft made in their own factories within their own territories. Take the recent decision by Japan to buy the U.S. F-35 as its next generation fighter plane. Japan is not going to import that plane off the shelf from an American factory. Rather it is negotiating to have as much of the plane as possible made in Japan despite the fact that making it in Japan will dramatically increase the cost.

As for commercial aircraft, press reports this week noted that Airbus will take a larger share of global aircraft sales this year than Boeing. This strong Airbus showing reflects the success of a long running European industrial policy that has been aimed not only at avoiding as much as possible the procurement of U.S. made aircraft but also at displacing them in the world markets. Virtually every Asian economy including those of Japan, Korea, and China has some effort underway to promote the production of commercial jet aircraft or of aircraft parts, and procurement both of U.S. brand military and commercial aircraft is often made conditional on at least partial production of the plane within the home territory of the procuring body.

So a good first reply to the question of what the United States has to sell would be – arms and aircraft, if that would only be fully permitted.

But now the even better reply is that the United States is the most competitive locations for production and provision of a broad range of goods and services. Take autos as an example. Honda has just announced that it may increase its production in the United States by 40 percent and begin to use the United States as an export platform for some models. This is because the strong yen has made U.S. based production more competitive than Japan based production. Similarly, Mercedes Benz, BMW, Hyundai, and other global auto makers are added production capacity in the United States not only to supply the U.S. market but also for export.

This morning’s New York Times reports that GE is returning production of some appliances to Louisville, Kentucky and a recent study by Booz & Co. emphasizes that about 90 percent of U.S. manufacturing industries are quite competitive in global markets. One of the most competitive is semiconductors which were the basis of the whole rise of Silicon Valley. Yet, as in the case of aircraft, a number of governments are promoting and subsidizing indigenous semiconductor production as part of efforts to displace the leadership of the U.S. based production.

So the answer today to the question, is that the United States has plenty to sell if the strategic industrial policies aimed at displacing such sales are abandoned or modified. And it is the lack of focus on such policies that constitutes my opposition to proposals for free trade agreements like that suggested between ASEAN and the United States. Free trade agreements that do not result in more trade in items in which it is well know that countries are competitive is not really free trade. Rather it is a charade.

My call is for less charade and more real trade, meaning actual sales and delivery.