US Trade Forecast Report - HSBC Global Connections

March 2014

The U.S. is one of the largest and most dynamic economies in the world. With a population of over 300 million people, the U.S. is a prime destination for investment by foreign companies.


The US economy is expected to gain momentum in 2014. Solid jobs growth, reduced fiscal restraint and greater political certainty will help lift domestic demand, while exports should benefit from a gradual improvement in the external environment.

  • Trade conditions are expected to improve over the next six months, with the Trade Confidence Index (TCI) having reached its highest level in the survey’s five year history.
  • The US benefits from a highly educated and innovative workforce, which will help exports of technology goods to grow at a faster pace than total trade over the medium term. Emerging markets represent the most significant growth opportunities for exporters.
  • Europe and Canada will remain amongst the largest export markets for the US, but their dominance will fade as China and Latin America grow in importance.
Top five export destinations*
Rank 2012 2030
1 Canada Canada
2 Mexico Mexico
3 China China
4 Japan Korea
5 UK Brazil

*The table considers goods exports between the 25 countries in the sample.

The US benefits from an advantageous geographical position, an open economy and the most used currency for trade settlement. Conditions are improving for US exporters, with two-thirds of survey respondents expecting volumes to rise over the next six months. Rebounding global demand and more private sector confidence should drive the increase.

Equipping for growth

Spotlight: Technology

With emerging markets targeting Research & Development (R&D) investment to scale the value chain in the high-tech sector, this illustrates the need for developed economies to invest in innovation to remain competitive.

Why technology is important

Technology is essential for maintaining and enhancing standards of living, promoting business investment and supporting economic development. As a mature market with a relatively high rate of R&D investment, the US has a comparative advantage in the production of high-tech goods.

Global trade by sector for the USA (2014-30) - Growth (% year)

“Whilst we are seeing a contrasting short-term trade outlook, the longer-term trend for emerging markets remains one of growth and businesses need to consider now how best to capitalise on long-term trade opportunities. An important element of this is investing in research and development, which will allow emerging markets to scale the global value chain. Importantly, developed economies need to enhance their research and development spend to remain competitive.”

James Emmett, HSBC Global Head of Trade and Receivables Finance

Key findings

  • Over the medium-term, rapid growth of demand in Emerging Markets represents an opportunity that will greatly benefit US exporters of technology-intensive goods.
  • The US will also import high volumes of Information Communication Technology (ICT) goods to renew and replace existing stocks. US importers of technology goods stand to benefit from R&D growth and innovation in other developed economies, but also in emerging markets where R&D spending is growing rapidly.
  • The leading role of the US as an exporter of high-tech goods will come under pressure in the years ahead. Given the size of its economy, the US still has room to improve business R&D intensity, which currently ranks well below rates in Korea and Japan.

Short-term snapshot

Trade flows are expected to accelerate in the short term, with two- thirds of survey respondents expecting trade volumes to rise over the next six months (in line with the previous reading, six months earlier). Increased global demand and improved economic conditions in key industries should drive this increase in trade flows, with over 50% of respondents highlighting these as main drivers.

HSBC Trade Confidence Index (TCI)

The TCI edged up one point from six months earlier to reach 115, the highest level in the survey’s five year history. A gradually improving global outlook supported the rise in the index. At the sector level, wholesale/ retail and manufacturing companies are most optimistic about the six-month outlook; stronger trade flows were expected by 75% of respondents in the wholesale/retail sector and almost 70% in the manufacturing sector.

Cross border business

Emerging market growth is expected to remain modest by historic standards this year, but as a group these countries are still viewed by respondents as having the best growth opportunities for trade. One-third of respondents identified Asia as being the most promising regions for US trade over the next six months, while 28% chose Latin America.

Regional export flows - Growth (% year)

Corridors of choice

  • US trade partners are geographically diversified – Latin America, Asia, Europe or Canada were each identified as a trading partner by more than 70% of survey respondents.
  • Canada is expected to remain the most important US trading partner over the next six months, but China and Latin America are expected to represent key growth areas.
  • 92% of respondents use the US Dollar as their main trade settlement currency, but currency volatility is still cited as a constraint on business by one-third of survey respondents. However, other factors were of greater concern to trading companies, with 55% of respondents highlighting the cost of essential services (shipping, logistics and storage) as being the most significant barrier to trade.

Opportunities for business

US firms are well positioned to benefit from the improving global outlook. In particular, they benefit from a highly educated workforce, advanced technology and relatively high levels of investment in R&D. Looking ahead, on-going robust growth in China and Latin America should translate into more trade with these regions.

Long-term outlook

As the world’s largest economy, the US is expected to play a key role in driving trade flows in the coming years, both as an export destination and import source. We expect relatively subdued growth in emerging markets to weigh on US export growth in the short run, but a modestly improving outlook in Europe should provide some offset. Over a longer horizon, emerging markets should be the key source of trade growth.

Corridors to watch

US trade flows have traditionally been dominated by flows to and from Canada, Mexico and Europe. However, more subdued growth outlooks in Canada and Europe have led exporters to look toward faster growing destination markets amongst developing economies. In that regard, China and Brazil are expected to prove particularly significant as export destinations by 2030.

The most promising export market for the US should be China. The country’s share of US exports has risen from just 1% a decade ago to around 7% currently and it is expected to reach 14% by 2030. In contrast, Europe is expected to play a smaller role as an export destination with the share of exports to Europe (excluding Russia) falling from their current level of 20% to 14% by 2030.

At a sector level, industrial machinery should remain a key driver of US exports, with US manufacturers retaining their global lead in this highly competitive sector through continued technological innovation. Other key drivers of export growth will be transport equipment and scientific apparatus. On the import front, industrial machinery, ICT and transport equipment are expected to dominate US imports for the foreseeable future.

The USA’s projected sector contribution increase in merchandise exports

Focus on technology

  • A highly educated and innovative US workforce has allowed the US to maintain its dominant position in the world economy. As a share of GDP, education ranks amongst the highest in the OECD while it ranks fifth in the world in patent applications per capita.
  • This strong position will help exports of technology goods to contribute 17% of the forecast growth in total US goods exports in the remainder of this decade. Emerging market demand for technology goods will become an increasingly important driver of US export sales.
  • Amongst the 25 economies in the Trade Forecast, the US is expected to retain its position as the third-largest exporter of technology goods over the next 20 years. On the import front, the US will fall from second to third place behind China over this period.

Conclusion

Increased competition from emerging markets should not be viewed as a threat for US firms, but rather as an opportunity. Growing demand from these markets should support US export growth while a stronger pace of R&D spending in emerging markets should generate new imports that benefit US firms and consumers. Nevertheless, if the US is to retain its lead in knowledge- intensive economic activities it is crucial that businesses continue to invest in research and innovation.

About the HSBC Trade Forecast – Modelled by Oxford Economics

Oxford Economics has tailored a unique service for HSBC which forecasts bilateral trade for total exports/imports of goods, based on HSBC’s own analysis and forecasts of the world economy to generate a full bilateral set of trade flows for total imports and exports of goods, and balances between 180 pairs of countries. Oxford Economics produces a global report for HSBC, as well as country specific reports on the following 23 countries: Hong Kong, China, Australia, Indonesia, Malaysia, India, Singapore, Vietnam, Bangladesh, Canada, USA, Brazil, Mexico, Argentina, UK, France, Turkey, Germany, Poland, Ireland, UAE, Saudi Arabia, and Egypt. The analysis also includes trade with Japan and Korea for a total sample of 25 key trading nations.

Oxford Economics employs a global modelling framework that ensures full consistency between all economies, in part driven by trade linkages. The forecasts take into account factors such as the rate of demand growth in the destination market and the exporter’s competitiveness. Exports, imports and trade balances are identified, with both historical estimates and forecasts for the periods 2014-16, 2017-20 and 2021-30. Sectors are classified according to the UN’s Standard International Trade Classifications (SITC) system at the two-digit level and grouped into 30 sector headings. More information about the sector modelling can be found on http://www.globalconnections.hsbc.com/

About the HSBC Trade Confidence Index:

The HSBC Trade Confidence Index is conducted by TNS on behalf of HSBC in a total of 23 markets, and is the largest trade confidence survey globally. The current survey comprises six- month views of 5,550 exporters, importers and traders from small and mid-market enterprises on: trade volume, buyer and supplier risks, the need for trade finance, access to trade finance and the impact of foreign exchange on their businesses. The fieldwork for the current survey was conducted between November – December 2013 and gauges sentiment and expectations on trade activity and business growth in the next six months.

Technology Focus – Methodology

This report focuses on how emerging markets are targeting R&D investment to scale the value chain in the high-tech sector, illustrating the need for developed economies to invest in innovation to remain competitive. For this analysis, we collected together four key high-tech sub-sectors into one group:

  • Office machines and automatic data-processing machines (SITC code 75)
  • Telecommunications equipment (SITC code 76).
  • Electrical machinery and appliances (SITC code 77)
  • Photographic apparatus and optical goods (SITC code 88)

Based on the same underlying forecasts used for the existing analysis of trends in bilateral trade flows, the report examines how exports/imports of this group of products are expected to evolve over time.

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