Is the tide turning for American exporters?

Summary

Trade tensions with major trading partners in 2018 and 2019 followed by the pandemic mean that the past few years have been particularly rough on American exporters. But with trade tensions easing a bit and hope that the global economy can more or less re-open this year, is the tide finally turning for American exporters? 

Global economic activity is a primary driver of U.S. export growth. With many of the world's major economies set to re-open at a similar time, we forecast that global GDP will grow in excess of 6% in 2021, which would be the strongest growth rate in at least40 years.

Strong global growth should spur demand for U.S. exports. We forecast that the volume of goods exports will be up about 12% in the fourth quarter of this year relative to the same period in 2020. We look for strong growth to continue next year with real goods exports growing 8% on a Q4-over-Q4 basis in 2022.

The overall volume of goods exports has rebounded from its May 2020 low, but it has not yet recovered all the lost ground from its pre-virus peak. Real exports of capital goods, autos & parts, and consumer goods all remain depressed, which has weighed on the overall volume of exports. But real exports of agricultural products and industrial supplies have already surpassed their pre-virus levels.

Looking ahead, we expect that growth in real exports of capital goods and consumer goods should be strong. These categories not only present the most ground still left to be made up when compared to their pre-COVID trend, but strong recoveries in many major foreign economies should boost demand for these products.

Economic growth in many Asian economies, which generally have had relative success combating the virus, should be strong in 2021. Strong growth in Asia should support robust growth in American exports to the region. We expect that economic acceleration in many European countries later this year will also help boost U.S.exports. However, economic growth in many Latin American countries, which continue to struggle with COVID cases, may lag, which could exert some headwinds on U.S.export growth to the region.

We forecast that the combination of strong growth in exports and significant acceleration in domestic demand will lead to 7% growth in U.S. industrial production this year and almost 5% in 2022. If this forecast proves to be reasonably accurate, then2021 and 2022 would mark the strongest two-year stretch of growth for the U.S.industrial sector since the late 1990s.

American exporters faced a one-two punch

The past few years have been rough on American exporters. As shown in Figure 1, real exports of goods and services were essentially at between mid-2018 and late 2019 due, at least in part, to trade tensions between the United States and many of its major trading partners. Total exports then nosedived roughly 25% between Q4-2019 and Q2-2020 when the COVID pandemic more or less shut down the global economy. Real exports bounced in the third and fourth quarters of last year as many foreign economies started to re-open, but overall exports remained more than 10% below their pre-pandemic level at the end of last year.

The pain has been especially acute for exporters of services such as airlines that carry foreign passengers and for tourist destinations in the United States that cater to foreigners. Real exports of goods plunged 25% between Q4-2019 and Q2-2020, but they have subsequently rebounded and stood just 4% below their pre-pandemic level at the end of last year. Real exports of services also cratered by roughly 25% between the end of 2019 and Q2-2020, but they essentially flatlined in the second half of 2020. Real exports remained more than 10% below their pre-pandemic level at the end of last year.

As we outlined in our recent U.S. Economic Outlook, we forecast that real GDP in the United States will grow more than 6% in 2021. If realized, this would mark the strongest year for real GDP growth since1984. We also look for global GDP to grow in excess of 6% this year ( Figure 2) due to synchronized upturns in most major foreign economies (see our International Economic Outlook for details). As we describe in more detail in the next section, global economic growth is a primary driver of U.S. export growth. What does the future hold for U.S. exports? Does the outlook differ depending on the type of export and their destination? This report sheds some light on these questions, focusing largely on the outlook for goods exports, as they account for a little over two-thirds of total U.S. exports.

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