The ChamberPost

Making Big Markets from "Pitifully Small Economies"

by John Murphy

Alan Beattie at the FT has an interesting piece on the opportunities and, in his view, perils of export promotion. He concurs that boosting exports can create jobs, and observes:

Indeed, it is service-sector exports themselves that show most promise, including often-forgotten contributions to the balance of payments such as fees for the use of intellectual property. The US Chamber of Commerce recently put out a rather plaintive note trying to correct the common misapprehension that China is the world’s biggest exporter. China may send abroad $1,200bn (€905bn, £752bn) in goods each year – much of which involves assembled goods whose components were made elsewhere – to the US’s $1,100bn, but the US’s half-trillion dollars of service exports on top puts it into first place overall.

So, if not explicit export promotion, what instead? At this point, the standard Washington talking points would suggest that I argue for the tremendous importance of pushing through Congress the bilateral trade deals with South Korea, Colombia and Panama … But it is simply dishonest to pretend that pending trade deals are pivotal in achieving the export target. South Korea, although a bigger trading partner than most of the pitifully small economies with which the US has signed bilateral pacts, still buys only 3 per cent of US goods exports.

Hmmmm. South Korea is the eighth largest market for U.S. exports, purchasing $35 billion in U.S. merchandise exports in 2008. The business community respectfully disagrees that this qualifies as "small."

But more broadly, there is a powerful case to be made that FTAs are critical to the goal of doubling U.S. exports:

• The "pitifully small economies" with which the United States has implemented free-trade agreements (FTAs) may represent 7% of global GDP outside the United States, but they purchased 40% of U.S. exports last year.
• A recent study by the U.S. Chamber found that "U.S. merchandise exports to our FTA partners grew nearly three times as rapidly as did our exports to the rest of the world from 1998 to 2008."
• In 2003-2008, U.S. exports rose 79%, their fastest growth in nearly two decades. It is no coincidence that this period also saw the United States implement FTAs with 10 countries and saw earlier agreements such as NAFTA attain their full implementation with the elimination of all tariffs.
• Deficits are often cited by trade skeptics as a reason why the United States should not negotiate FTAs. However, taken as a group, the United States is now running a trade surplus in manufactured goods with its 17 FTA partner countries (on top of the U.S. global trade surpluses in services and agricultural products).

In short, FTAs make big markets out of "pitifully small" economies.

Clearly, if we want to help U.S. companies to boost exports and create jobs, more FTAs are in order -- with economies small and large.

Change in Colombia

by John Murphy

Tomorrow, Colombian President Alvaro Uribe will leave office, and his successor, Juan Manuel Santos, will be inaugurated. Santos was elected on June 20 with an astonishing 69% of the popular vote, not least because the former defense minister has pledged to continue many of Uribe's policies.

U.S. Chamber President Tom Donohue had this to say in the Latin Business Chronicle: "President Uribe is one of history's great men. He saved his country. It's that simple."

Uribe's legacy is impressive:

Public Safety: Colombia's homicide rate was cut in half and kidnappings were reduced by 90%. Law and order have been restored in rural municipalities. Right-wing paramilitaries have been disarmed, with more than 40,000 fighters demobilized. Uribe made dozens of peace overtures to the left-wing FARC and ELN guerrilla groups that have fought the government for half a century; on present course, desertions will lead to these groups' demise within a few more years.

Labor Unions: U.S. labor unions continue to claim Colombian trade unionists are targets of violence. However, homicide rates are nearly three times higher in the United States (5.4 per 100,000) than among Colombian labor union members (1.9 per 100,000). A resident of the District of Columbia is 17 times more likely to be murdered than a Colombian trade unionist. Far from being persecuted, Colombia's labor unions expanded their membership by more than 50% during the Uribe administration.

Education and Health Care: Nearly 90% of Colombian children are enrolled in school, up from 71% before Uribe took office. Currently, 73% of Colombians have health care coverage, up from 54% in 2002.

Narcotics Trafficking: Coca production in Colombia has been reduced by 40% over the past decade, according to the U.S. Office of National Drug Control Policy. Since 2000, Colombian security forces have interdicted cocaine and heroin shipments with an estimated street value between $35 billion and $40 billion.

Economy: The Colombian economy expanded strongly during most of the Uribe administration. Exports tripled, investment from abroad quintupled, and the number of international tourists visiting Colombia doubled. The World Bank now rates Colombia as the most business friendly country in Latin America. Colombia now has 11 free trade agreements covering 47 countries and 1.4 billion consumers, including one with Canada that is will enter into force within weeks.

We'll give Tom Donohue the last word: "President Uribe rallied his fellow citizens with his ideals, and he never compromised in his defense of democracy and economic freedom. The fact that he leaves office with the landmark U.S.-Colombia trade agreement unrealized is not a blemish on his record but on Washington's. Luckily, we have the example of his perseverance, which we'll remember as we work to secure the agreement's final approval."

Making It in America

by John Murphy

Addressing the AFL-CIO today, President Obama said: “For generations, manufacturing was the ticket to a better life for the American worker. But as the world became smaller, outsourcing, an easier way to increase profits, a lot of those jobs shifted to low-wage nations… We are going to rebuild this economy stronger than before, and at the heart of it are going to be three powerful words, ‘made in America.’” On the same note, House Democrats have pushed a package of bills under the banner of “Making It in America” in recent weeks.

The U.S. Chamber of Commerce is proud to represent tens of thousands of companies that make things here in the United States. While the difficulties American manufacturers face today are many, their success through the years should not be underestimated.

In fact, U.S. manufacturing value added nearly doubled -- rising by 90% -- between 1988 and 2008. According to the most recent available data, the United States remained by far the world’s largest manufacturer through 2008, accounting for a fifth of world manufacturing value added -- a share greater than that of China, India, Brazil, and Russia combined.

American manufacturers are hurting today due to the recession and a steep fall in demand. But throughout the past two decades, U.S. manufacturers set new records for output, revenues, profits, profit rates, and return on investment.

The same can’t be said of factory jobs. U.S. manufacturing employment peaked in 1979 at 19 million jobs. This number fell to about 13 million in 2008, and today approximately 11.5 million Americans are employed in manufacturing.

However, the president is very much mistaken when he says these lost jobs have “shifted to low wage nations.” U.S. investment abroad overwhelmingly produces goods to serve foreign markets, and only 10% is ever shipped back to the United States. If low wages were the main determinant of where jobs are created, Haiti would be experiencing a jobs boom.

Rather, the lost jobs have gone to a country called “productivity.” Technological change, automation, and widespread use of information technologies have allowed firms to boost output even as some have cut payrolls.

Soaring health care costs (which are set to rise much more under the recently passed health care legislation) and burdensome workplace rules further incentivize companies to boost production by investing more in capital equipment rather than hiring more workers.

The productivity revolution is a worldwide phenomenon: in fact, China shed 25 million manufacturing jobs in 1994-2004, ten times more than the United States lost in the same period, according to William Overholt of the RAND Corporation.

So if offshoring isn’t the cause of manufacturing job loss, what does today’s global economy mean for American factory workers?

President Obama last month pointed out that one in three U.S. manufacturing jobs depends on exports. In fact, the United States exported $1 trillion worth of manufactured goods in 2008, which generated more than $75,000 of revenue for each and every American factory worker.

Compare this to the salary of the average U.S. manufacturing worker — about $37,000. How could manufacturers make their payroll without their huge and growing exports? The short answer is, they couldn’t.

In other words, American companies can’t “make it in America” if they can’t sell at least some of it abroad.

Half a century ago, George Meany, who stood at the head of the American labor movement from 1952 to 1979, wrote: “Millions of American workers are dependent for their livelihood on the sale overseas of the goods they produce. … We must keep in our minds the necessity to find even more markets for American-made goods overseas.” He went on to explain that a Buy American campaign would “run contrary, not only to the policy of the AFL-CIO, but also against the best interests of American workers.”

During Meany’s tenure at the AFL-CIO and in the years since, every American president has followed this advice and moved the U.S. economy forward, even as the leaders of America’s labor unions have moved in other directions.

We need to get back to those pro-manufacturing, pro-trade policies, which many presidents have turned into political success. It’s a compelling combination that has paid off time and again for the country, the American people, and the economy. For the sake of those who make things in America, we hope President Obama does the same.

// Updated 5 Aug 2010 with source links.

Trade – Get in the Game

by John Murphy

Third Way has a new report out on How Export Barriers Cost America Jobs, with a specific focus on “non-tariff barriers.” It’s a thoughtful report, and it echoes many points the Chamber made last May in our State of World Trade. Here is their section on trade agreements:

There’s a new global arms race—for trade deals. As President Obama said recently, “if America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores.” We must pursue new trade agreements with urgency. Our foreign competitors fully understand the economic and employment benefits of new trade deals, and they are actively negotiating a raft of attractive new market-opening agreements for themselves.

The number of free trade agreements has exploded over the past decade, and these agreements cover an ever-increasing portion of global trade. Almost 400 of these trade deals will be in force by the end of 2010, with many more in development. America’s major international competitors—including China, the EU, India, Japan and Korea—are all aggressively seeking new trade deals with major trading partners. Countries in the rapidly growing Asia-Pacific region have been particularly active in seeking better access and fairer treatment for their exports. In the meantime, America has largely been sitting out of the game. And in this game, standing still means falling behind. This places our companies and workers at severe risk of losing new—and current—export business to foreign competitors whose countries are smashing down barriers to their exports.

At the same time they are seeking fairer treatment for their exports, foreign governments continue to maintain and create obstacles to U.S. exports. These barriers will present increasing disadvantages for our exports as limits on other countries’ exports continue to fall away. Our foreign competitors seem intent on building shiny new expressways to speed their own exports, while continuing to throw up new speed bumps to trade from the United States. America can’t continue to go along for an increasingly bumpy ride.

Who’s the World’s Largest Exporter?

by John Murphy

The World Trade Organization (WTO) today issued its World Trade Report 2010, an annual publication that offers definitive statistics on international trade.  In recent months, media reports have widely described China as the world’s largest exporter, but today’s report indicates that the United States remained the world’s largest exporter of goods and services through 2009. China has indeed overtaken the United States and Germany to become the world’s largest exporter of merchandise.

Exports in 2009, billions of U.S. dollars
	Merchandise	Commercial Services	Total
U.S.	1,057	470	1,527
Germany	1,121	215	1,336
China	1,202	129	1,331

Source: WTO, World Trade Report 2010, pp 28-29. 

Tariffs Nobody Wants, Part II

by John Murphy

Why does the United States levy tariffs on imported goods that U.S. manufacturers and consumers need...but that aren't even produced domestically?

On June 28 I wrote that Congress has been unable to move the Miscellaneous Tariff Bill (MTB). According to a Key Vote letter sent by the U.S. Chamber to the House of Representatives this week:

Tens of thousands of American workers and hundreds of American companies depend on the MTB for relief from tariffs that serve only to raise costs for U.S. manufacturers and other U.S. businesses.

According to guidelines established by Congress, the MTB is a vehicle for the temporary suspension or reduction of duties levied on imported materials or intermediate products that are not produced domestically, or where there is no domestic opposition. By eliminating these tariffs, the MTB lowers costs and helps U.S. businesses maintain their competitive edge.

The process for approving products for duty suspension under the MTB is fully transparent. All tariff suspension requests go through a vetting process to determine whether any affected products are produced domestically or whether there is any domestic opposition.

Since the last MTB expired at the end of 2009, the United States is levying significant tariffs on inputs and components that U.S. manufacturers need but that aren't even made in the United States.

The good news is that the bill has been placed on the House suspensions calendar, where, our friends at the NAM point out, "a two-thirds vote is necessary for passage. Fortunately, the case for the bill is so strong that that margin is attainable." With Key Vote letters from the Chamber and NAM, it’s plain the business community views this as a top priority.

Doubling Exports: Taking the First Step

by John Murphy

As the President’s Export Council meets today, officials are reporting that the United States is on track to meet President Obama’s goal of doubling U.S. exports within five years. 

The U.S. Commerce Department recently reported that “U.S. goods and services exports in the first four months of 2010 are up 16.9 percent to $587.4 billion from the $502.5 billion in exports in first four months of 2009.” An analysis by the Democratic Leadership Council indicates U.S. annual export growth must average 14.8 percent to double exports within five years.

So we’re off to a good start. However, the impressive figures from the Commerce Department have benefited from the fact that exports were depressed in the first four months of 2009, when the world economy was in the depths of a financial crisis.

Even so, doing away with foreign barriers to U.S. exports could make a huge difference -- and create badly needed jobs. As Bloomberg notes:

The president pledged June 26 at the Group of 20 summit in Toronto to revive the stalled free-trade talks with South Korea with a goal of finishing a deal in November during his planned visit to Seoul. The aim is to submit a free-trade deal to Congress in succeeding months, he said…

[U.S. Trade Representative Ron] Kirk gave no time estimate on completing agreements with Colombia and Panama. “We continue to make good progress” in talks with those countries, he said…

The U.S. Chamber of Commerce released a study in May showing that free-trade agreements boost economic growth by more than $300 billion a year, led by sales of U.S. products to Canada and Mexico, the top U.S. trading partners.

Those FTAs also directly support more than five million American jobs. To create more of the employment opportunities we so badly need, the three pending FTAs with Korea, Colombia and Panama will surely help. We just need to turn these words into action.

"1,000 Jobs in the Ditch"

By John Murphy

In his State of the Union address last January, President Obama set the goal of doubling U.S. exports within five years. The Chamber applauded this goal because, in our estimation, boosting exports is one of the best avenues to creating the 20 million jobs Americans will need over the next decade.

To help reach this objective, the president launched a new National Export Initiative to enhance the federal government’s export promotion efforts. As part of the NEI, the president has called upon the U.S. Export-Import Bank to increase aggressively the financing it makes available for exports.

So far, so good. But as the Wall Street Journal reports, the administration appears to be subordinating its export-promoting, job-creating goal to other aspirations: 

Bucyrus International Inc. said it may lose a $310 million order for mining machinery from a subsidiary of Reliance Power Ltd. of India because of a decision by the U.S. Export-Import Bank against providing loan guarantees for the project.

The decision is equivalent to “throwing 1,000 jobs in the ditch,” Tim Sullivan, chief executive of the South Milwaukee, Wis., maker of mining equipment, said in an interview Friday. Bucyrus has estimated that the order would create or protect 984 jobs in 13 U.S. states…

The bank is required to consider the environmental effects of projects it backs, the official said. The mining equipment would be used for a coal mine that is to supply a new power plant in Madhya Pradesh, India.

Mr. Sullivan said that the order from Reliance was contingent on the guarantees and that he feared Reliance would turn to rival suppliers from China or Belarus. 

What’s going on here? As its web site observes, Ex-Im Bank may “grant or withhold financing support after taking into account the beneficial and adverse environmental effects of proposed transactions. Ex-Im Bank’s objective is to maintain U.S. exporters’ competitiveness in the global marketplace while ensuring that the projects it supports are environmentally responsible.”

To govern is to choose. While Ex-Im Bank’s environmental guidelines and direction received from Congress have weight, its procedures include a vote by its board of directors. In other words, the board has at least some discretion. 

But with 1,000 American jobs in the balance, the board decided that they weren’t the top priority. The Journal adds:

The decision could put President Barack Obama in an awkward spot during a planned visit to Wisconsin Tuesday and Wednesday. “This was a very bad decision,” Tom Barrett, the Democratic nominee for governor of Wisconsin, said in a statement. Mr. Barrett, currently mayor of Milwaukee, added: “We have to focus on creating jobs.” He pledged to “explore avenues to reverse the outcome.” That is likely to be difficult as there is no appeals process for votes by the Ex-Im Bank board. 

Reliance Power will still dig its mine. It will just buy the equipment from a supplier in some other country. This is a terrible missed opportunity that the United States will pay for in lost exports and lost jobs.

Tariffs Nobody Wants

By John Murphy

// 20 July 2010 update here.

Here's an interesting question: Why does the United States levy tariffs on imported goods that U.S. manufacturers and consumers need...but that aren't even produced domestically? It may not make sense, but it happens all the time:

Exhibit 1: Congress has been unable to move the Miscellaneous Tariff Bill (MTB), which provides "a three-year tax moratorium on the importation of chemicals, dyes and other non-domestically produced components used by companies during the manufacturing process," according to Roll Call.

That's right - "non-domestically produced." Since the last MTB expired at the end of 2009, the United States is levying significant tariffs on inputs and components that U.S. manufacturers need but that aren't even made in the United States.

The Roll Call article adds: "According to Congressional guidelines provided to Roll Call, all tariff suspension requests go through a lengthy vetting process that susses out whether there are any domestic producers of the materials and whether the tax suspension will cost less than $500,000. The requests are reviewed by the White House, Congressional Budget Office, the U.S. International Trade Commission, the U.S. Customs and Border Protection and the U.S. Trade Representative's Office...

"'MTBs are not earmarks - they are, first and foremost, jobs bills,' Matthew Beck, a Democratic Ways and Means spokesman, told Roll Call. 'In the past, MTBs have received strong bipartisan support because they support American businesses and jobs. In fact, a recent study estimates that the MTB provisions under consideration by the House would increase U.S. production by $4.6 billion, expand GDP by $3.5 billion and support roughly 90,000 jobs.'"

Exhibit 2: While the Congress's failure to approve the MTB is incredibly frustrating, there is building momentum for another piece of legislation - the Affordable Footwear Act.

As explained by the American Apparel & Footwear Association (AAFA) at www.endtheshoetax.org, this legislation "seeks to remove regressive and punitive import duties, commonly called the 'shoe tax,' on a range of shoe types popular with today's consumers, particularly lower- to moderately-priced footwear and children's shoes."

The "shoe tax" ranges as high as 67.5%. As Ed Gresser, President of the Progressive Policy Institute, writes in "Toughest on the Poor: Tariffs, Taxes, and the Single Mom," this is all too common: "Tariffs are highest on the goods important to the poor."

According to AAFA, "this Affordable Footwear Act is not controversial -- imports account for 99% of all shoes sold in America, and the few remaining domestic footwear producers do not oppose the legislation... The depression-era shoe tax originated in the 1930 to protect a manufacturing sector that no longer exists today."

The administration's goal of doubling U.S. exports within five years is one the Chamber supports, but it's worthwhile to remember the significant benefits imports bring as well. As the Chamber reported in our State of World Trade report last month, "imports bring lower prices for American families as they try to stretch their budgets. They expand choices and competition in the marketplace. Imports give us access to products that would not otherwise be available - such as fresh fruit in the winter."

The Chamber supports the Affordable Footwear Act and the Miscellaneous Tariff Bill. We urge Congress to approve these sensible bills swiftly.

Deeply Troubled about "Columbia"

by John Murphy

Richard Trumka is "deeply troubled." So declares the president of the AFL-CIO in a statement issued today on the "U.S.-Columbia [sic] Free Trade Agreement." As readers of these columns know, this accord would create good American jobs, bolster an important ally, and confirm that America is unwilling to cede its leadership in trade.

Trumka disagrees. "We are deeply troubled by Secretary of State Hillary Clinton’s remarks on June 9th," laments Trumka. "She pledged to begin a ‘very intensive effort’ to pass the U.S.-Colombia Free Trade Agreement."

Good for her! But she’s not alone. As the Washington Post editorialized today, the victory of Juan Manuel Santos in Colombia’s peaceful and democratic presidential election last Sunday "demonstrated that pro-American, pro-free-market politicians still have life in Latin America… [Santos] has rejected the authoritarian socialism of Venezuela’s Hugo Chávez. A former journalist with degrees from the University of Kansas and Harvard, he values free media and independent courts."

How can the United States extend a hand to President-elect Santos? The Post has a suggestion: "Ratification of the free-trade agreement would serve the administration’s stated goal of boosting U.S. exports while bolstering a nation that could be an anchor for democracy and political moderation in the region. It would also allow the administration and Congress to demonstrate that friends of the United States will be supported and not scorned in Washington."

Trumka disagrees. He declares that it is "premature to talk of passing the trade agreement before there is evidence of sustained and substantial advancement on labor and human rights... [and] significant progress to halt the violence against trade unionists."

But the Post notes that "murders have fallen by 45 percent and kidnappings by 90 percent" during the administration of outgoing President Alvaro Uribe. In fact, homicide rates are nearly three times higher in the United States (5.4 per 100,000) than among Colombian labor union members (1.9 per 100,000). A resident of the District of Columbia is 17 times more likely to be murdered than a Colombian trade unionist.

Or wasn’t that a typo? Perhaps Trumka is arguing the United States should reject free trade with the District of Columbia (where my family and I live). That’s a bad idea too.

***

One more thing — last night, Canada’s Senate gave final approval to the Canada-Colombia Free Trade Agreement. For months, the U.S. Chamber and others have warned that the Canada-Colombia FTA will put U.S. workers and farmers at a marked competitive disadvantage in Colombia. Canadian wheat farmers will be able to sell their crop to Colombians at a discount, and Canadian manufacturers will be better able to undercut their U.S. competitors in the Colombian market.

Unfortunately, this scenario is already unfolding. Following implementation of a new trade accord between Colombia and Mercosur, the U.S. share of Colombia’s market for soybean meal, yellow corn, and wheat dropped by 67%, 53%, and 37%, respectively, in 2008-2009.

So I do have one thing in common with Trumka. I, too, am deeply troubled.