To boost a lagging economy, think trade.
A political parlor game has been played with public opinion in recent months as elected officials and media observers compete to declare the U.S. economy in recession. The pain of a recession gives critics a chance to assign blame, a favorite “Inside-the-Beltway” form of entertainment.
By the traditional economic definition – two consecutive quarters of negative growth – the U.S. economy has avoided a recession. Nevertheless, the economy is shedding jobs and confidence among manufacturers is eroding.
No matter the terminology, we can all agree the economy should be doing much better. Livelihoods and prosperity are at stake, and that’s no game.
So it is dismaying to find so many political figures competing to condemn one proven strategy for U.S. economic growth – trade and free-trade agreements. In fact, increased exports have kept the economy out of recession, and exports are especially critical to the health of the manufacturing sector.
Yet protectionism stalks the campaign trail as candidates declare NAFTA a jobs killer and repudiate trade negotiations. House Speaker Nancy Pelosi has abandoned longstanding procedures to block consideration of the U.S.-Colombia Free Trade Agreement, a decision that undermines America’s credibility as a negotiating partner. Labor unions drive this anti-trade agenda to demonstrate their political influence.
Promoting this anti-trade sentiment requires a willful disregard for the facts, including:
• Net exports are a key driver of the U.S. economy, accounting for 26 percent of our growth in 2007;
• According to the U.S. Department of Commerce, the jobs of nearly six million Americans now depend on trade;
• Trade also boosts manufacturing employment. Commerce reports that from 2005 to 2006 an estimated 290,000 more jobs were linked to the export of manufactured goods;
• In 2006, 19.9 percent of all manufacturing jobs depended on the export of manufactured goods – an increase from 18.6 percent the previous year.
“Last year we exported $1.6 trillion in goods and services, making America the number one exporter in the world,” Commerce Secretary Carlos Gutierrez observes. “The time is ripe for our businesses, ranchers and workers to expand markets to seize maximum exporting potential for our American goods. Our NAFTA partners, Canada and Mexico, are our largest goods export markets, accounting for 33 percent of total.”
GROWTH FROM NAFTA
Well, what about NAFTA? The North American Free Trade Agreement became a political whipping boy earlier this year in the Democratic presidential primaries – especially Ohio – as candidates sought to blame the pact for the loss of three million manufacturing jobs since 2000. Their basic argument: The trade deficit has grown and therefore manufacturing jobs have been lost.
Yes, the imbalance of trade within NAFTA has soared since 2000 – rising from $77 billion in 2000 to $140 million last year. But a manufacturing exodus is not at fault.
Omitted from the political debate is the fact that 95 percent of our total increase in the NAFTA trade deficit has resulted from increased energy imports. Canada is our largest foreign supplier of imported gas and oil; Mexico ranks third. Industry and consumers need that energy, and with all the restrictions on domestic production, thank goodness supplies are otherwise close at hand.
Indeed, a recent survey of manufacturers across North America finds strong sentiment that NAFTA has helped industry become more competitive and to expand business in domestic and international markets.
Forty-nine percent of manufacturers in the United States, Canada and Mexico reported that NAFTA contributed to growth not just within their North American market, but outside as well. Another 41 percent reported that NAFTA has had a neutral or slightly positive effect on their business, according to this survey by the consulting firm DeLoitte, the NAM, the Manufacturing Institute, and Canadian Manufacturers & Exporters. Only 10 percent of companies say that NAFTA has had a negative impact on business activity.
“North American manufacturers have largely seen NAFTA as an opportunity to improve their competitiveness,” said Emily DeRocco, president for the Manufacturing Institute, upon the survey’s release. “They have developed global capabilities on the basis of an integrated North American market.”
Shall we turn back, reject improved competitiveness and economic growth?
A BIG LEAP BACKWARDS
Unfortunately, Congressional leadership is, if not throwing things into reverse, at least stuck on neutral. When President Bush transmitted the U.S.-Colombia Free Trade Agreement to the House, Speaker Nancy Pelosi orchestrated a change in the rules to prevent the deal’s consideration.
The move sent a terrible message to America’s future negotiating partners, who now have reason to doubt the ability of any administration to negotiate a deal in good faith. But it also sent a message to U.S. manufacturers and their employees, an unproductive one: We want you to continue to face a playing field tilted against your products.
The overwhelming majority of imports from Colombia now enter the United States duty-free thanks to the Andean Trade Preferences Act, while U.S. exports are hit by an average 14 percent tariff. The FTA knocks down those trade barriers.
The Wall Street Journal recently examined the practical impact of the FTA on an American-based company, Caterpillar, rebuking the union opponents of trade on the company’s employees. The example used, an off-highway truck made in Decatur:
“Customers in Colombia now pay a 15 percent tariff – equal to $200,000 – on the import of these vehicles,” the Journal wrote. “If the FTA goes through, that import tariff goes to zero immediately. Conversely, if the deal dies and Colombia, which is trying to expand its world trade, strikes an agreement with another country where similar vehicles are made, U.S. exports will immediately be at a 15 percent price disadvantage.”
The loss of market share is a real threat. Canadian Prime Minister Stephen Harper has made a free-trade agreement with Colombia a priority, hoping to conclude talks by September. The European Union is pursuing talks with the Andean countries, Colombia included.
And although mining, energy and construction are especially promising sectors for U.S. exporters, it’s not all big business. Eighty-five percent of the 9,000-plus companies that export to Colombia are smallto medium-sized enterprises.
Colombia is just one trade agreement, but it is illustrative. If fact-free arguments against trade succeed in stopping passage of this one promising deal, then the pending agreements with Korea and Panama face even tougher odds. Once rebuked, our potential negotiating partners may bid us farewell and turn to more promising territories.
The economy shows no signs of fading as the number one topic during the fall election season, as it should be. As candidates debate and the voters decide, America’s manufacturers hope they forget the games, forget the blame, and focus on the facts: Trade helps the economy, and free trade agreements expand the opportunities for U.S. exporters and the millions of Americans they employ.
John Engler is president of the National Association of Manufacturers, whose mission is to enhance the competitiveness of manufacturers by shaping a legislative and regulatory environment conducive to U.S. economic growth and to increase understanding among policymakers, the media and the general public about the vital role of manufacturing to America’s economic future and living standards. Visit: www.nam.org.