Once More into the Breach, Dear Friends

By Jock O’Connell

People in the maritime shipping industry habitually use the TEU to chart the ups and downs of world trade. But hardly anyone else does, and that can be a problem. Why’s that? Doesn’t every industry tend to be myopic in measuring its accomplishments. Aren’t those whose income depends on moving containers between ship and shore as entitled to obsess about TEUs as lawyers are about billable hours?

It is up to the point where you start assuming that your preferred metric is the one that should frame a debate over national trade policy.

Which gets us to the question of how a bracing logistical challenge brought on by a once-in-a-century pandemic should lead to calls for a National Export Plan (NEP). In years past, U.S. government initiatives to boost exports were spurred by hand-wringing over the country’s balance of payments deficit. And since America last recorded a balance of payments surplus in 1975 (and even then hadn’t done so consistently since the 1960s), fretful headlines—along with the sundry export promotion schemes they spawned—have routinely surfaced.

This time is different, though. The deficit driving the latest calls for a NEP is not last year’s $676.68 billion trade imbalance. Instead, judging by who’s been doing the calling, it’s evidently being driven by anxieties stemming from the soaring volume of TEUs that have been departing for foreign shores completely empty.

Hearings this month before the Federal Maritime Commission and the House Committee on Transportation and Infrastructure Subcommittee on Coast Guard and Maritime Transportation served to bring the matter into a disconcerting focus. The complaint, lodged mostly it seems by agricultural exporters, is that ocean carriers (who are more and more being tagged with the pejorative epithet “foreign-owned”) have been thwarting American exporters from exporting American goods, especially American food and fiber…at least by sea, at least in containers.

So here we have a logistical crisis, albeit one with broad economic consequences, that has inspired proposals for a national strategy aimed at, in the words of one leading advocate, “incentivizing exports.”

So why should this merit my raised eyebrow? In part, because I’ve been to this rodeo before, indeed repeatedly since I was studying economics in college back when the U.S. last had a habit of running trade surpluses. I remember the agonies of Gerald Ford and Jimmy Carter in wrestling with seemingly out-of-control deficits that would be dwarfed by the ones that caused Ronald Reagan to devalue the dollar in 1985. I listened as Barack Obama announced a National Export Initiative in his 2010 State of the Union address, and I cringed as Donald Trump thought tariffs would be the hydroxychloroquine of trade policy.

Still, the deficit so far this year is the worst since the Great Recession struck in 2008.

Okay, are there other reasons to be skeptical about a NEP apart from the nation’s less than spectacular track record in export promotion?

First, let’s start with what all reputable economists know instinctively to be true but cannot ever seem to adequately explain to politicians, journalists, and the general public. And that is that trade deficits are fundamentally macro-economic phenomena no more treatable by export incentives than were those ailments my dear mother remedied with Carter’s Little Liver Pills. Palliative elixirs, regardless of who’s selling the snake oil, may give the illusion of relief, but only for a moment. At worst, they divert attention from the more realistic but usually more costly and arduous treatments.

In the current instance, unless Joe Biden is allowed to invest billions on the physical and digital infrastructure that facilitates efficient and economical goods movement, and unless Americans start saving more, nothing will really change. A mere program of incentivizing exporters won’t accomplish much more than antagonizing trading partners, while running the risk of violating any number of international trade agreements.

Second, temporary dislocations—such as the clogged supply chains caused by the pandemic—should never be used to define long-term public policy options. Like past plagues, this too shall pass. And when it does, we’ll likely see the re-emergence of the patterns and levels of trade we saw before Tony Fauci became a household name. In the meantime, congestion should not be misdiagnosed as sclerosis.

Third, containerized trade is simply not the sum total of the nation’s export trade, although you might get a different impression from reading the papers. Let’s break down the numbers. To start, U.S. exports through April of this year have totaled $789.44 billion. Nearly 30% of that trade was in the form of services, while shipments of goods accounted for the balance. Scoff if you will, but every dollar I and other non-incentivized service providers earn from a foreign client counts as much in the tally of the national trade account as every dollar a subsidized farmer in Iowa makes from shipping a container full of rutabagas to Bolivia.

Then there’s the generally unacknowledged fact that containerized shipments are a junior partner in America’s merchandise export trade. Consider Exhibit A, which shows each mode of transport’s average share of the value of U.S. merchandise exports from 2015 through 2020.

As the export pie is sliced, the largest single share goes to “Other” which encompasses our prodigious overland trade with Canada and Mexico as well as the civilian aircraft manufactured by Boeing that are flown to their overseas customers. (Our North American trading partners, it’s occasionally helpful to note, import just over one-third of our merchandise exports. And very little of it goes by water.)

Fully 34.6% of America’s $1.424 trillion merchandise export trade travelled by sea, with almost equal shares of moving in containers and bulk. Exceeding the combined value of all seaborne exports are the exports handled by aircraft, either air-freighters or the lower decks of passenger airplanes. The value share is way out of proportion to the air freight tonnage involved, but that is because items that are highly perishable or have high value-to-weight ratios typically fly to market. This is why the value of exports shipped through LAX easily exceeds the value of exported merchandise shipped through either the Port of Long Beach or the Port of Los Angeles. It is also why San Francisco International Airport routinely handles half-again the value of exports shipped through the Port of Oakland.

Exhibit A U.S. Merchandise Exports Mode of Transport: 2015-2020 Source: U.S. Commerce Department Shares of Export Dollar Value n Containerized n Non-Containerized n Airborne n Other 17.1% 17.5% 30.1% 35.3%

So containers, which play such an overwhelming role in America’s import trade, account for the minority share of oceanborne exports.

Finally, there’s the matter of what we export in containers, and therefore what the chief candidates for export incentives may be. Each year about this time, the venerable and esteemed Journal of Commerce, in concert with its sisters-in-corporate-law organizations PIERS and IHS Markit, puts out a list of America’s Top 100 Exporters. It’s a curious list. Firms are ranked not by the value of their exports but by the number of loaded export containers they shipped abroad from U.S. seaports. Someone unfamiliar with the diverse contours of the U.S. economy might easily conclude from the Journal’s roster of exporters that American industry is principally engaged in the production of scrap materials and animal feed. Noticeably absent from the JOC list are names like Boeing or Microsoft or ExxonMobil or Intel or Johnson & Johnson, companies that are among the top U.S. exporters by dollar value. They find no prominence on the Journal’s roster simply because they don’t make much use of containerized shipping to reach their foreign customers. Oil companies use tankers. High-tech companies and cherry growers ship by air. And pilots fly Boeing’s jets to their client airlines around the world.

So, whether the goal is to boost America’s merchandise export trade or merely to repair a politically sensitive surplus of empty outbound containers, it pays to know what we export and how we get it there.

Metrics count, sometimes erroneously.

Disclaimer: The views expressed in Jock’s commentaries are his own and may not reflect the positions of the Pacific Merchant Shipping Association.