The NYT got the story wrong today when it noted that exports of manufactured goods are lagging growth of agricultural goods. The article implies that the decline in the value of the dollar is not having the beneficial effect on exports that would ordinarily be expected because so much manufacturing has already relocated elsewhere. In fact, the growth in of exports U.S. manufactured goods has been very impressive, given the slowdown in both the world economy and the U.S. economy. It is important to realize that the U.S. economy has itself become an engine for U.S. exports because so many products for the U.S. market are assembled outside of the United States. This means that when the economy grows more rapidly, more parts are exported to factories overseas to assembled and then imported back to the United States. This pattern also applies to exports of long-lived capital goods, as increased demand in the U.S. will increase investment in developing countries to serve the U.S. market. For this reason, a downturn in the U.S. economy would be expected to lead to a downturn in exports of U.S. manufactured goods. This is exactly what happened as the U.S. economy sank into recession in 2001. Exports of capitals goods fell by 21.2 percent from the first quarter of 2001 to the first quarter of 2002. By contrast, exports of food, feed, and beverages fell by just 0.3 percent. Without the sharp fall in the dollar in recent years, it is likely that the slowdown would have to let to a falloff in exports of manufactured goods. Instead they have risen at a rapid pace, albeit not as quickly as exports of commodities.
--Dean Baker
