How U.S. Exports Are Already Reviving

Trump was one of the first politicians in an age to bring awareness to U.S. trade deficits. His business experience made the problem obvious to him, but most Americans were completely unaware. Slow job growth has largely been due to our lack of exports. Thankfully, Trump has made important promises in regards to the issue, and he is already making gains.

United States exports have enjoyed the Trump Bump since he took office, and if he can negotiate trade deals even a fraction as well as we hope, then things are looking up for exports. The early success is riding on an industry that might surprise you.

Oil

Crude oil is the topic that usually dominates discussions regarding the industry, but refined products demand a conversation. The U.S. has seen explosive growth in refined oil exports over the past five years, and the numbers are impressive.

In 2012, the country exported roughly 1.3 million barrels of refined oil every day. By the end of 2016, that number was up to 3 million. The shift has mostly stemmed to U.S. refineries filling gaps left by declining production in Latin America, Africa and Asia.

Here’s another way to look at the change. This past year was the first time in history that the U.S. exported more refined goods from Latin America than it imported. This rode largely on the fact that Mexico imported record high amounts of refined from the U.S. It represents an isolated trade deficit switch that is very promising for the future of the industry, domestically.

A more important point to all of this is the capacity of oil refineries in America. While production has more than doubled, production is nowhere near capped. Most refineries are still operating well below 25-percent capacity.

Despite this, the United States is still the world leader in exporting refined oil. It’s a clear demonstration of how the country can out-produce competitors in quantity, quality and competitive pricing.

The Bigger Export Picture

Refined export growth has been a large contributor to a larger picture of export growth in the country. Post-recovery exports in the country hit a low point at the start of last year and have since rebounded significantly. The fastest growth (as you can probably guess) came after Trump was elected. That growth has surged even faster since the start of 2017, and combined export growth in January was the largest seen in five years.

While that is certainly good news and additional signs of positive economic trends, it isn’t all good news. In that same span, U.S. imports have also grown, and at a rate faster than exports. This has caused our trade deficits with most countries to become even more unfavorable. President Trump certainly has his work cut out for him on this front.

Lessons to Learn

Since oil trade deficits are moving in a desirable direction, we’re forced to ask if there are any lessons that can be applied to other industries. There are a few major factors that have enabled the current trend with refined.

The first comes down to the availability of cheaper crude. Shale production and discoveries of additional caches, both domestic and foreign, have given refineries access to more oil, and they can sell refined products at lower prices. This is a great condition for any high-demand market, and it’s a situation that can’t often be replicated on demand.

Another contributor to the success of oil exports is OPEC. The organization is far from perfect, but it has brokered international trade laws that specifically make it easy for the U.S. to competitively export refined products.

Trade agreements in other industries are less favorable. In fact, they shape our entire production outlook. The leading exports for the country are goods that require specialized production: namely electronics and healthcare equipment. Our deficits stem from the import of goods that require large-scale, unskilled labor. Without protection, our labor prices are too high to compete.

This brings us to the crux of the issue. Improving on our trade deficits increases production, creates jobs and grows the economy overall. It’s no wonder Trump has made this such a large issue.

The key to success will come down to Trump’s ability to get us out of trade agreements that disproportionately favor imports at the cost of our nation’s exports and the strategic use of tariffs to put America’s unparalleled production capacity to work. Oil shows us that we can do it, but we need to create conditions of success first.

Regards,

Ethan Warrick
Editor
Wealth Authority


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