The ChamberPost

A Rare Two-fer: Boosting National Security and Economic Competitiveness

by Myron Brilliant

It’s not often that policymakers have a chance to boost U.S. economic competitiveness and national security at the same time, but the export control reforms announced by President Obama today will do just that.

The initiative’s four key steps will help create a flexible system to control the export of sensitive and commercially available items: a tiered list of products subject to controls that clearly differentiates between military and commercial items; a single set of licensing policies; an enforcement coordination agency; and a single IT system. 

Change is overdue. Our Cold War-era export control regime has not kept up with the changing geopolitical and economic environment. These reforms will strengthen national security by focusing on the most critical technologies -- what Defense Secretary Gates refers to as the “crown jewels” of American military and intelligence technologies.

However, when technologies are already widely available from America’s trade competitors -- or are no longer considered cutting edge -- controls make no sense.

U.S. small and mid-sized companies will welcome these reforms because overly complex export controls sometimes deter them from even trying to sell their goods abroad. But the changes also benefit America’s defense and technology industry, which relies on international sales to remain competitive.

A study issued earlier this year by the Milken Institute and the National Association of Manufacturers found that “modernizing U.S. export controls could increase exports in high-value areas. By 2019, these policy adjustments could enhance real GDP by $64.2 billion (0.4 percent), create 160,000 manufacturing jobs, and heighten total employment by 340,000.”

In addition, the Chamber supports ratification of the pending defense trade cooperation treaties with Australia and the United Kingdom, which will strengthen cooperation with two of our closest allies and help sustain our defense industrial base.

The president’s announcement today is good news, and the Chamber is pleased to support this initiative to advance U.S. national security and economic competitiveness at the same time.

Export Controls for the 21st Century

by Brad Peck

National Security Adviser Gen. James Jones (ret.) writes in the Wall Street Journal:

This week, President Barack Obama will announce a major step forward in the administration's efforts to fundamentally reform the nation's export-control system so that we strengthen our national security and enhance the competitiveness of U.S. manufacturing and technology. Export controls constitute the regulations we have to restrict the export of certain products and technology for national security and other reasons. The changes that we are making—in what we control, how we control it, how we enforce those controls, and how we manage our controls—will help strengthen national security by focusing on controlling the most critical technologies, preserving the technological edge that U.S. forces enjoy on the battlefield, and strengthening our economic competitiveness.

...The foundation of our new system will ultimately include a single control list that distinguishes in tiers between the most sensitive items and technologies and everything else; a single licensing policy to be applied across all agencies; a center to better coordinate the many agencies involved in export-control enforcement; and a single IT system to make sure decisions are fully informed.The development of a single, tiered, positive control list will allow us to closely and efficiently scrutinize the export of our most sensitive items and more effectively deny exports to those who mean to do us harm.

These reforms constitute much-needed, common-sense change in the way we do business. They will focus our resources on the threats that matter most and help us work more effectively with our allies in the field—all of which bolsters our national security.

Bolster national security and create jobs, as a January study by the Milken Institute and the National Association of Manufacturers found that "modernizing U.S. export controls could increase exports in high-value areas. By 2019, these policy adjustments could enhance real GDP by $64.2 billion (0.4 percent), create 160,000 manufacturing jobs, and heighten total employment by 340,000." More on reforming the current bureaucratically labyrinthine system here.

Amid Flooding in Pakistan, Chamber Renews Push for ROZ Legislation

by Esperanza Gomez Jelalian

Pakistan is experiencing its deadliest floods in decades, with the loss of more than 1,500 lives and devastating infrastructure loses across the country. As government officials meet with the International Monetary Fund  (IMF) to assess the impact of the floods on the economy, the U.S. Chamber renewed its strong support for legislation to create Reconstruction Opportunity Zones (ROZs) in Afghanistan and Pakistan that is pending on Capitol Hill.

In a letter sent to Secretary of State Hillary Clinton and USTR Ambassador Ron Kirk,  from Chamber President and CEO Tom Donohue stated: "In light of the devastating floods that recently struck Pakistan, we need to work together to secure Congressional approval of this legislation on an urgent basis."

The Chamber and its affiliate the U.S.-Pakistan Business Council are committed to promoting economic development in Afghanistan and Pakistan. We believe a properly structured ROZs program, S. 496 sponsored by Senator Maria Cantwell (D-WA) and Senator Orrin Hatch (R-UT), can help achieve these objectives. The Administration should strongly back this proposal when Congress returns from recess next month.

// See also the business response to the floods.

Promoting Engagement With Cuba

by JP Fielder

Maria Medrano has an op/ed in The Hill on the need to get U.S.-Cuba policy right:

This week, Cuba announced the release of 6 more political prisoners bringing the total released in the last month-and-a-half to 32.  This move follows reports that the Obama Administration will announce plans to expand the scope of legal travel to Cuba.  Combined with legislation in Congress to lift the travel ban and ease agricultural exports and policy briefs supporting all these moves, these latest developments indicate we are on the brink of changing our strategy toward Cuba. 

...In a letter sent this week to House Foreign Affairs Committee members, the U.S. Chamber urged a mark-up of H.R. 4645 because getting U.S-Cuba policy right matters. It will send a signal to the wider world about American values and how their influence can help shape a brighter future for the Cuban people.  It is time for American citizens to act as ambassadors of freedom, democracy, free markets, and free enterprise and begin to permeate Cuban society to support a transition to democracy and full civil liberties. 

Read the whole thing here.

Moving Forward on Trade With South Korea

by JP Fielder

The Dallas Blog quotes Christopher Wenk regarding the fact that South Korea is preparing a free-trade deal with the European Union- "everybody is moving forward except for us right now." As the Washington Post pointed out yesterday, that's not a good thing:

The message may have been familiar recently when the local Chamber of Commerce took up a proposed free-trade agreement between South Korea and the United States. "Wave the flag," the speaker exhorted the audience. "This is an opportunity to stimulate the U.S. economy at no cost to U.S. taxpayers."

But the man on the podium wasn't the typical business booster. He was South Korean Ambassador Han Duk-soo, who has assumed the unusual role of a foreign official promoting U.S. jobs. With the Obama administration pledging a major new push to ratify the agreement, Han has gone on the stump in cities such as Montgomery, Ala., Peoria, Ill., and Detroit to build American support for free trade and allay concerns that his country is trying to snatch U.S. manufacturing jobs. "I'd like to see more Ford and General Motors cars in Seoul," said Han, a Harvard-educated economist and veteran Korean minister who can mix quips about the Cubs and White Sox with the arcana of tariff schedules.

For three years, since it was negotiated by the Bush administration, the free-trade agreement has languished in Congress...The agreement would eventually eliminate tariffs between the two countries. Because those levies are typically higher on the South Korean side, administration officials estimate the deal could mean more than $10 billion annually in increased U.S. exports to Seoul and tens of thousands of new U.S. jobs. South Koreans say they would benefit from lower prices -- some tariffs on food imports from the U.S. are as high as 40 percent -- and a more efficient flow of investment in and out of their country.

...The South Korea agreement would be the most significant free-trade pact signed by the United States since the North American Free Trade Agreement with Mexico and Canada in the mid-1990s. And with the dispute over the South Korea agreement serving as a proxy for the larger trade debate in the United States, both advocates and opponents have mobilized.

The pact is "the acid test" for whether a larger trade agenda can be rejuvenated, said William C. Lane, a lobbyist for Caterpillar. Company executives project Caterpillar would significantly benefit from the agreement -- the firm has less than 5 percent of South Korea's heavy-equipment market -- and hosted Han on a recent tour of its Peoria headquarters, where he met privately with top executives, visited a manufacturing facility and tried his hand driving one of Caterpillar's massive D11T "earthmovers.''

...There is more at stake than jobs and money. Asian nations outside China, particularly democracies such as Taiwan and South Korea, have been pressing for a more energetic U.S. presence in the region, worried they need a counterweight to their large and increasingly influential neighbor. Heightened U.S. trade with Asia would be part of that. But Seoul is just waiting for the United States. South Korea is negotiating trade pacts with the European Union and others. U.S. business officials worry American companies could be left behind.

"Asia is booming. Regional trade is liberalizing," said U.S. Chamber of Commerce Asia vice president Tami Overby, a longtime U.S. business activist in South Korea who helped coordinate the South Korean ambassador's tour. Trade agreements "are flying fast and furious in Asia," she said. "These things are happening, and [the U.S.] is on the outside."

It's time to get back in the game and bring jobs back inside.

Free Trade Hits a Roadblock

by Brad Peck

From the Washington Times:

Eight months after he called for action on a string of stalled free-trade deals, President Obama is battling fierce opposition from his own party and concerns over a rising trade deficit in a rush to meet his own self-imposed November deadline for finishing a major accord with South Korea. But the failure of the Obama administration to advance any major trade deals has many of his allies on the issue - including many top Republicans - questioning where Mr. Obama can deliver on his promises. "I've never heard a president make the arguments for trade agreements as eloquently as President Obama did in January and not say at the end of that statement: 'I will send this agreement to you and expect you to pass it, and want to work with you to pass it,'" said Rep. David Dreier, a California Republican and an outspoken proponent of trade deals. "I don't quite get it." "Everybody is moving forward except for us right now," said Christopher Wenk, senior director of international policy at the U.S. Chamber of Commerce, noting that South Korea, for one, is preparing a free-trade deal with the European Union.

...Business groups - which were pleasantly surprised by Mr. Obama's November deadline for a South Korea deal - warn that the U.S. government must act quickly. They note that South Korea's trade agreement with the European Union, tentatively set to be signed this fall, has caused American meat and dairy exports to South Korea to plunge. The Chamber of Commerce's Mr. Wenk said efforts by some in the United States to renegotiate pieces of the South Korea deal could open the floodgates for other industries seeking better terms and lead some South Korea industry groups to demand changes as well.

According to a November study by the Chamber of Commerce, the U.S. stands to lose $35 billion in exports to the world and as many as 345,000 jobs if it fails to implement the agreement with South Korea. Canada, which recently ratified a trade pact with Colombia, is in negotiations with South Korea, as is Australia.

You can find the November study here, for additional information on the importance of trade for job creation please see: The State of World Trade and Opening Markets and Creating Jobs: Estimated U.S. Employment Effects of Trade with FTA Partners.

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.

Reading List - 10 August 2010

by Brad Peck

• Trade wrap from Scott Lincicome
• Johanns slams Dems' alternative to his 1099 repeal bill - Repeal Or Bust for small businesses.
• FDIC Adds Two New Divisions to Gear Up for Dodd-Frank Act - and you get to pay for them. 
• The Myth of Authoritarian Growth - Shining light on “enlightened” despots .
• Of Entrepreneurs, Pastors, and Politicians - Ryan Streeter writes on this Rasmussen poll:

...the result shows something quite interesting about the American psyche. I’ve written elsewhere about how Indian and American entrepreneurs are alike, especially in one key area: they start their businesses not to make more money (as, say, Chinese entrepreneurs do) but to achieve greater independence. Americans appreciate this fundamental trait of the enterprising class—namely, that entrepreneurs represent freedom and opportunity more than money.

The guardians of faith (clergy) and the protectors of the American ideal (entrepreneurs) help us understand who we are and what we want to be. It shouldn’t be a big surprise, then, that people who want to use our money to tell us what to do or think—be they journalists or congressmen—rub us Americans the wrong way.

Full Recovery and Broad Prosperity

by Brad Peck

Last Friday, in the New York Times, Edmund Phelps took a look a look at the notion that a lack of demand is the only thing holding back the economy:

The worst effect of focusing on supposedly deficient demand is that it lulls us into failing to “think structural” in dealing with long-term problems. To achieve a full recovery, we have to understand the framework on which our broad prosperity has always been based.

First, high employment depends on a high level of investment activity — business expenditures on tangibles like offices and equipment, and also training for new or existing employees, and development of new products. Sustained business investment, in turn, rests on innovation. Business cannot wait for discoveries in science or the rare successes in state-run labs. Without cutting-edge products and business methods, rates of return on a great many investments will sag. Furthermore, innovation creates jobs across the economy, for entrepreneurs, marketers and buyers. State-led technology projects do not.

High business investment also depends on companies having confidence in the future. A company might be afraid to invest in research or product lines if it fears the rest of the economy is not doing the same — or if it fears the government might become hostile to its goals. During the Depression, John Maynard Keynes warned President Franklin D. Roosevelt not to damage business confidence with anti-profit rhetoric — to treat titans of business “not as wolves or tigers, but as domestic animals by nature.”

Taxes on investment? Check. Discouraging innovation? Check. As for anti-profit rhetoric, well, I could link for days, but let's focus on today, here is the Free Exchange on Sen. Schumer on H-1B visas:

Mr Schumer also thundered that this measure “will not affect the high-tech companies such as Intel or Microsoft that play by the rules and recruit workers in America”. I’m not sure what “rules” he is referring to: he makes it sound as if companies who use legal methods to staff projects in the US, using a visa scheme that the American government has set up, are dodgy operators in some sort of grey market.

There you go. Gives businesses great confidence to know that at any given moment the governement that wrote the rules will blast folks for following them. The post goes on to point out more foolishness:

What’s also funny about all this chest-thumping service-sector protectionism is that it comes from the world’s leading exporter of commercial services, who you’d think would understand the need for open markets in an industry where it is the world’s biggest player. In 2008, the last year for which the WTO has comprehensive worldwide data, America’s exports of commercial services were around 5 times India’s (and about 28% of its total exports).

It is truly no wonder that "When Congress Is Away, the Market Will Play"

“about 90% of the capital gains over the life of the Dow Jones Industrial Average have come on days when Congress is out of session.” The finding could of course be a fluke but Ferguson and Witte found the relationship to be particularly strong when Congress’s approval ratings are lower. They point out that when Congress is in session, companies and investors face "a more uncertain tax and regulatory environment."

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.