Thursday, October 9, 2014

Can the U.S. Be an Export Nation in a Difficult International Economy?

The IMF says the global economy will grow slower than expected this year while another recent announcement states that China superseded the U.S. in terms of purchasing power this year. Both are game changing events in what appears to be a long played out economic drama. Even though the news is not positive it does provide an opportunity for the U.S. to focus on improving its infrastructure to lower costs and retool for better managing international markets.  

Slower International Economic Growth:

International markets are expected to experience slow growth in the near future according to an October 7th report by the International Monetary Fund (IMF). The IMF initially thought the world economy may grow as high as 3.7% this year but have revised that number down to a weaker 3.3%. The slowing economy could make it more difficult for companies that are trying to export overseas to locations where the economy is lack luster.

Growth in advanced economies and emerging economies are widely different. Advanced economies should experience a 1.8% growth rate this year and a 2.3% growth rate in 2015. Emerging economies are expected to have a higher rate of 4.4% based upon their riskier investment portfolios.   Companies are attracted to the cheaper and more lucrative emerging economies for new investments.

The IMF argues that one of the difficult challenges facing economies is the ability of countries to enact reform and change to improve upon their competitive positions. Countries should select which changes are needed and beneficial and then move down the path of change to make things happen. Political capital and the ability to share objectives will naturally have an impact on the success of reform efforts. 

Chinese Wealth and Influence:

The IMF states that China’s economy is larger than the U.S. in terms of purchasing power (1). China has surpassed the U.S. on purchasing power parity (PPP) meaning that once the Gross Domestic Process (GDP) is adjusted the Chinese have significant purchasing strength in the global market making them more influential than in the past. They have become a direct competitor and market changer.

National wealth creates influence among business stakeholders. When national wealth is high countries are able to better bargain for deals, influence international stakeholders, and obtain the resources needed to adjust and be more innovative. As China rises on the international scene a new alternative takes shape which becomes viable for nations seeking the best deal between two large economic countries (U.S. and China). 

Needed Improvements:

A slower international economy and a more powerful China is not the end of the game. It provides an opportunity for the U.S. to direct its efforts toward implementing its own growth oriented strategies to draw investments and improve the overall economic functioning of the nation. When difficulties arise decision-makers are encouraged to put down petty differences and focus on solutions through collaborative problem-solving.

Economic hubs act similar to emerging markets but have the additional benefit of being within a more stable national economy. Their growth potential as a localized entity is higher than national rates but can also influence those national rates. Emerging technology and manufacturing hubs are prime examples of flush investment and growth opportunities that have not been fully explored. 

Within the U.S. there are examples of hubs that developed organically through like-minded stakeholders. Understand where these hubs are located, encouraging mutual development within these hubs, and creating awareness of investment opportunities has a long-tail impact on the national economy. As hub members become more innovative they will naturally export products and raise their income opportunities by drawing in more investment interest to feed their growth. 

The point between A and Z has many stops and twists along the path. At times we have become our own worst enemies in the sense that other considerations beyond the health of the nation regularly take precedence. We must only look at the political spectrum to see this distraction at work. Americans desire employment opportunities and this comes through building ground-based products and services that have international penetration. Government should move upwards in its development to lower costs, empower local economies (i.e. hubs and clusters), reduce debt, improve infrastructure (i.e. how hubs interact on a national level) and focus on founding fundamental principles that encourage basic human motivation. 

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