Why Is the US Share of World Merchandise Exports Shrinking?

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Table of Contents

Introduction
An analysis of strength and weaknesses of this study
Impacts of other countries on export reduction in the US
What it means
Conclusion
References

Introduction

Over the last the decade the US, merchandise export has been declining acutely. The values of the exports share have decreased from 12% to 8.5% in the last decade. According to Mendel (2011), observers have tried to explain the reason for the loss in ground in the import share by claiming that this loss is due to a shift in export activity.

The observers claim that the US economy has shifted from commodity market to service oriented market. According to Mendel (2011), this assumption is very wrong since there is no data to support these arguments.

Mendel (2011) investigates the factors that have led to that fall in export share in the US. Moreover, he tries to show the role of changing productivity in the US and how it a led to fall of the export share when related to the competitors. Mendel (2011) found two potential alternative factors that could have led to the fall in export share.

These two factors included composition of the world trade and the rate of growth in the economy. According to Mendel (2011) if the world increased the trade of goods that the United States did not deal in then consequently there would be a fall in the export share even if the firms in the US remained at the same level of productivity.

The fall in export share in the United States however coincides with the fall in price of commodities. Therefore, in the article Mendel (2011) focuses in competition rather than commodity prices.

Mendel (2011) observes that it is difficult to attribute the fall in United States export share to a faltering competiveness in US firms. A possible explanation to the fall in export share in the US is that the nation accounts for a relatively small output of the global share. This article therefore presents an alternative way to determine the exporter competitiveness.

It shows how the GDP and the export share are related to one another. Moreover, the article tries to explain the reason behind the loss in export market share by the United States using the concept of the GDP and the concept of competition. Matters pertaining to price of the commodity are not addressed extensively in this study and therefore can be seen as an inherent weakness that the author should have addressed.

An analysis of strength and weaknesses of this study

In order determine the strengths and weaknesses in a study it is good to compare the study with other article in the same category. These articles may express a similar opinion or a different. Articles expressing a similar opinion show that the research is supported and therefore acts to strengthen the opinion advanced.

According to Mendel (2011), the article focuses on competiveness of the country and the decline in the US export trade. His opinion is supported by Baier and Jeffrey (2001) who suggest that competition from other nations is a major source in the decline of the United States export market share.

The article presents an interesting view by showing the interrelation between the GDP and the export of a country. From the graphs shown in the article and the data presented, there is a clear correlation between the GDP and the export share. As the GDP increases, the export share increases. This analysis by the author presents an inherent strength in the study. It clearly shows the reason behind the decline in export trade in the United States. This is because the exports stated decreasing with the decrease in the GDP.

However, the weakness in the study lies in the model used to analyze the data. The gravity model is subject to a wide range of criticism. According to Dan and Shinji (2006), the gravity model does not take into account the comparative advantage of countries involved in international trade. Without this aspect, the general data yielded by the model may be misleading to the viewers.

A good example of this is the look of the data presented in the study by Mendel. The data yielded by the graphs do not consider the comparative advantage therefore even though they may be true they are misleading to some extent. Therefore, when considering the use of gravity model in international trade policy application this criticism is particularly important.

Impacts of other countries on export reduction in the US

Due to expansion in economies of other countries, it is natural that the export share of the US would fall. This is because the fast growing economies may lead to the countries having an advantage in economies of scale. From Mendel’s (2011) research there is a correlation between the GDP and the export share in the market.

An increase in GDP means an increase in the in the export share. The article uses gravity model to determine the reason for a fall in export share this models tracks most of the decline in market share in the US. Predictions obtained from the model show that the decline in the export market share in the US can be attribute to the GDP and geographic factors. From the article, it is clear that the gainers in the process of United States loss are China, Mexico, Indonesia, and India.

What it means

The rate of economic growth and size of the economy also contributed the amount of trade that occurred between countries (Mendel, 2011). This can therefore be used to explain the difference between export share of China and the United States.

China is gaining in the export share due to the vast size of its economy and its rapid economic growth while the US is losing due to the slow growth in economy. Data collected and analyzed by Mendel (2011) show that the United States biggest loser in the export trade is the machinery and transportation equipment.

Conclusion

To sum up, the article showed a great deal of promise in highlighting how competition and GDP influenced the export share of the United States. In fact, it was quite effective in doing so by presenting data from the 1980s onwards showing how the United States fared during this period in the export share.

The values of the exports share decreased from 12% to 8.5% during this period. The article investigates the factors that have led to that fall in export share in the US. Moreover, it tries to show the role of changing productivity in the US and how it a led to fall of the export share when related to the competitors.

However, the fact that the study was weak in the terms of model used to analyze the data makes the study a bit shaky in the eyes of some economists. The gravity model is subject to a wide range of criticism. The model does not take into account the comparative advantage of a country. Therefore, it is advisable to take this fact into account when using the gravity model especially in enactment of policy.

References

Baier, L., and Jeffrey, H. (2001). The Growth of World Trade: Tariffs, Transport Costs, and Income Similarity. Journal of International Economics, 53 (1), 1-27.

Dan, C. and Shinji, K. (2006). Trade Specialization in the Gravity Model of International Trade. Trade Policy Research, 1, (2), 189-197

Mandel, R. B. (2012). Why Is the U.S. Share of World Merchandise Exports Shrinking. Current Issues in Economics and Finance, 2 (18), 1-8

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