Export Grants

The US economy got a jump in the first quarter of the year posting a 3.2% annualized increase over the year before fueled by the economies continued recovery. However this is slower then the 5.2% shown the year before partly because of lower government spending and a fall in exports. Exports only grew by 5.8% in the first three months of the year which is far less then the 22.8% that was experiences at the end of last year. This may not prove to be good for Obama’s initiative to revitalize the nations Export growth as he plans to double the exports over the next 5 years.

Strong spending by consumers helped to offset these drops with a 4% increase in spending has been reported versus the year before. Obama recently said:

We are moving in the right direction and this is an important milepost on the road to recovery.

Barack Obama believes that updating export restrictions with historic roots in the Cold War to help create new jobs and boost economic growth.

We are losing business opportunities unnecessarily. We’re also, I actually think, impeding effective monitoring of our national security because if you have export controls across everything you’re not spending time focusing on the handful of things that really do touch on sensitive national security. It’s going to be entirely grounded in our national security needs but I think will have a strong potential impact on where we can go in terms of exports. This is something we believe in and we want to continue to pursue.

U.S. companies have complained for years that they are loosing out on lucrative government sponsored contracts to Europe and Asia because many rules were put in place 30 years ago to prevent high value technology to find its way to Russia. Defense Secretary Robert Gates plans to lay out plans for revamping U.S. export controls in the coming days to help facilitate this. The Milken Institute recently completed a study sponsored by the National Association of Manufacturers and they estimate that modernizing these controls would boost economic output by $65 billion dollars and have the potential to create over 150,000 manufacturing jobs.

Export controls were last attempted to be revamped early in 2001, however when the September 11th attacks took place, these negotiation never were able to be put to a vote through congress. Currently exports of high technological value are approved on a transaction-by-transaction approach which has a huge backlog. Changes will also help different government agencies to work together rather then with competing goals.

The roaring lion that was the Chinese export engine is expected to grow to a purr beside the huge demand for imports in the country over the next 10 years. Currently China, the worlds largest exporter is wishing to see a greater balance between its imports and exports. Many exporters in China are gearing up now that the global recession is pulling back but many fear that once the full economic recovery takes hold, there will be little room to grow.

The transformation of China’s economic model through increased domestic demand as it stands now China had recorded a $7 billion dollar trade deficit in march. This is the first gap in its trade balance in over six years. Some inside and outside China see this as a anomaly unlikely to continue, but with increased US pressure for the country to let the Yuan rise in price, imported goods will soon become cheaper then domestically produced ones as the purchasing power will allow them leverage to buy US goods.

Sheng Guangzu, head of the General Administration of Customs told the International Business Daily that:

After realizing a recovery, it will be very difficult for Chinese exports to further expand. With the transformation of China’s economic model, domestic demand, especially consumption demand, will replace external demand to become the important engine of our economic growth. Our country is focusing on transforming its economic growth model, including changing the model of trade growth to seek a basic balance. We are not pursuing trade surplus deliberately.

Many in the west criticize these statements as China has done little to make it happen despite having the leverage to do so, but with China’s middle class growing in size, they soon may have no choice.

The Department of Agriculture has set aside 2.5 million dollars for business grants to help rural communities create wealth and become self-sustaining. These grants are available to communities with a population of 50,000 or less.

The grants will only be given out after applicants prove they intend to use the funds for technical assistance, training or economic planning. Preference will be given to entities that best demonstrate collaboration between multiple jurisdictions have strong leadership and represent socially diverse communities. Groups eligible for these funds are public bodies, non-profit organizations, Native Tribes or public co-operatives with composed of primary rural residents.

Applications are due by June 28th and more information can be found at the USDA Rural Business Opportunities website. There are many other types of business grants available as well which can be found on their website.

The Buy America campaign has its sights set squarely on Brazil, India and China and other fast emerging markets as part of Obamas goal of doubling exports over the next five years. Francisco Sanchez, Commerce Under Secretary for International Trade told reporters that is where US efforts need to be focused noting that 95% of the worlds consumer base is outside of the United States, and it is that group is where the largest gains will be found.

The initiative to increase exports plans a two sided approach. Increased advocacy for exporters, and a stepping up of enforcement of U.S. trade agreements to ensure that commitments to open their markets are being met. The under-secretary is planning a tour of major economies starting March 29th, visiting Brazil, India, Saudi Arabia, Canada and Mexico. China is also on the list and there is growing pressure on the Obama administration to put pressure on the communist government on their monetary policy and other trade matters, however he made sure to not go to far:

we will clearly and assertively press Chinese on any concerns, but do that in a way that bolsters trade rather than damages it

Sanchez also stated that the Commerce Department hopes to work closely with the Small Business Administration to grow US companies that export through grants and financing opportunities.

Sanchez said the Commerce Department would work closely with the Small Business Administration to increase the number small and medium-sized businesses that export. It will also call on logistics companies such as the US Postal Service, Fedex and UPS to try and identify companies that are already doing business overseas and help them find new markets for their products. There are also a number of large infrastructure projects planned in Algeria and Libya that US construction companies may be able to win a share of the contracts.

The Federal Reserve has signaled that interest rates will not rise until the economy begins to show concrete signs of recovery. Short-term interest rates will remain low for an “extended period” of time according to the Fed and outside ovbservers say that this means at least a six month delay in any hikes targetted for the fall between September and November.

The Fed tried to downlplay these numbers, releasing the minutes from their March 16th meeting pleding that this “extended period” is contingent on the evolution of the economy rather then a set amount of time. This could mean that rates could rise sooner or later if conditions warrent it. This is the usual language given by the Fed as it doesnt want to surprise global markets or give them guarantees about it either.

Economists still believe that the economic recovery remains very fagile. Housing markets are still dependant on government support and one in ten americans are still out of work. Incomes have not been growing so businesses are loath to hire more or risk investing to expand their capacity and these factors require that interest rates remain low expecially when there are no substantial inflationary pressures eroding the dollars purchasing power.

Finally after months of huge job losses, the U.S. economy got a welcome bost with 162,000 jobs added in March. Despite a large portion of these jobs being temporary workers hired by the Census Bureau the private sector itself added 123,000 jobs last month which was much high then analysts had predicted. Even though all these numbers were added, the overall unemployment rate of the country remained unchanged at 9.7. This is because despite the huge job gains, the economy needs to create at least 125,000 in order to keep pace with natural population growth.

There is still a long road ahead before recovery can gain a solid foothold. The country has lost over 8 million jobs during a two year period and compared to that number, the recent news is just a drop in the bucket. At the current rate it would still take over give years before we were able to consider the effects of the recession erased. Manufacturing added over 17,000 jobs for the third monthi n a row led by fabrication industries. Temporary-help in the private sector added 40,000 jobs in march a well. However the financial services and information technology industries both lost jobs in march. Health care, education and retail all had growth. One of the most promising signs is the consturction sector which finally had positive growth after many months of job losses adding 5,000. Many are counting on the construction industry to be the leader in job growth once the housing market is able to recover.

Obama was careful in his words praising the numbers calling it a “significat milestone”:

We are beginning to turn the corner, This month more Americans woke up, got dressed and headed to work in an office or factory or storefront. More folks are feeling the sense of pride and satisfaction that comes with a hard-earned and well-deserved paycheck at the end of a long week of work.

There are Thirteen states that are still posting double digit unemployment rates including: Florida, California and the District of Columbia and Illinois. Many companies have reported willingness to expand their payroles, however they want to wait until later in the year when there are more signs of a recovery to the overall recovery before they are willing to risk bringing on more help. When demand dropped off at the beginning of 2009 many industries want to see consumer spending rise significantly before investing.

U.S. Manufactuers export orders rose to their highest level in nearly a quarter century according to the Institute of Supply Management (ISM). This was the ninth straigh month of growth for the export which is an sign that industrial activity is rising significantly since before the recession. While exports have been championed by the current administration as the key to the countries job growth the numbers do not indicate it.

Despite this massive increase in export growth, factory jobs hare still rising but have slowed dropped in their pace. The products that fueled the exports are capital intensive activities. Most products are built using robotics in the place of workers and other sophisticated machines. While these big ticket items help the economy they are not big employment generators. The index currently sits at 61.5 and anything over 50 is considered growth. Most of this growth has been to export orders in Canada and China.

On March 11th, 2010 President Obama signed an executive order outlining the creation of a National Export Initiative. This iniative that will direct federal resources appropriately to improve conditisions where private sector businesses are able to export goods.

Grants and Financing

Funds will be focused on small buisnesses via grants and other financing sources. This initiative consist of a cabinet of 14 members – while leaving the option for more at a later date. This will cabinet consists of:

• The Secretary of State
• The Secretary of the Treasury
• The Secretary of Agriculture
• The Secretary of Commerce
• The Secretary of Labor
• The Director of the Office of Management and Budget
• The United States Trade Representative
• The Assistant to the President for Economic Policy
• The National Security Advisor
• The Chair of the Council of Economic Advisers
• The President of the Export-Import Bank of the United States
• The Administrator of the Small Business Administration
• The President of the Overseas Private Investment Corporation
• The Director of the United States Trade and Development Agency

This cabinet will report to the president periodically to report on the progress of any initiative and should colaborate with the Trade Promotion Coordinating Comettee (TPCC) in executing initiatives through the NEI.

Exports dropped 0.3% in so far in 2010, however economists predict this mearly to be a blip and exports will be be a bright spot for job creation through the rest of 2010. Except for Euope where the dollar has risen against the euro over worries about EU member nations debt crisis, the greenback has slid against other major currencies which has historically lead to an increase in exports due to foreign currecies purchase power.

In January the trade deficit shrank unexpectidly by 6.6% to $37.3 billion dollars, the biggest in over a year. Imports over the same period had dropped by 1.7% because more americans have decided to save their money rather go out and make purchases from manufactures abroad. Oil imports fell sharpy along with automobile sales from Japan and Europe.

The small drop in January was the first after eight straight months of increases. Nigel Gault, cheif economist at IHS Global Inisght said belives that:

We believe U.S. export growth will continue. This month’s drop in trade volumes doesn’t mean that the trade recovery is over.

The massive US debt is what is keeping the downward dollar low at the moment and making American exports more competative will help to even further close the trade gap. President Barack Obama has vowed to bring the deficit under control despite all this, but is seen as a more long term goal and exporters will be able take advantage of this for many years to come.