NAM President John Engler argues for free trade agreements and a modernization of the U.S. export control system.
The national leaders at the G-20 in Pittsburgh last September called for “rebalancing” the global economy, reflecting a widespread belief that some nations export too much while others import too much. The G-20 urged surplus trade nations to expand domestic consumer spending and trade deficit nations to increase savings and reduce reliance on imports.
Unfortunately, it seems unlikely that the nations that have built up huge exporting industries will change their policies anytime soon. They recognize that exports are key to long-term growth. It is high time we came to the same realization and began promoting exports as a matter of national policy.
A full 95 percent of the world’s consumers are not in the United States. We have a mature economy where growth potential is limited. But beyond our borders, growth potential is virtually unlimited.
The United States continues to rank as the world’s largest manufacturing nation, but comes in third in exporting. That underscores the problem. As the world’s largest manufacturer, we should also be the world’s largest exporter. We produce more than 20 percent of the world’s manufactured goods, but export only about 10 percent of that production and that level is dropping.
Our third-place ranking belies our mediocre performance in exporting. The NAM recently conducted an in-depth analysis of the 15 top trading countries and discovered that the United States ranks dead last in terms of proportion of manufacturing that is exported. China’s ratio is 2.0, Germany is 3.3, France is 3.2 and Taiwan is 3.5. But the reality is even more discouraging than that. The average ratio for all of the world’s nations is 2.17. In fact, our analysis concluded that if the United States could raise its export ratio merely up to the world average, our exports would double and we would erase our trade deficit completely.
It is beyond dispute that increasing exports is a worthy goal because it means wealth coming into the country instead of going out. Each $1 billion in exports translates roughly into 9,000 jobs in the United States. If there was ever a time when we are intensely concerned about creating jobs, that time is now.
As I see it, there are four key components to stepping up our exports:
First, we need to move aggressively on Free Trade Agreements (FTA). We have pending FTAs with Panama, Colombia and South Korea. Since the United States and Peru concluded a free trade agreement in 2007, we finalized no more FTAs. FTAs are important because they enable us to export tariff free to countries that already sell their exports to us tariff free. FTAs are a win-win for us. In fact, we enjoy a trade surplus in manufactured goods with FTA nations.
A few years ago, there was a heated debate about the Central American Free Trade Agreement (CAFTA) before the agreement passed the House by only two votes. Treaty critics warned that CAFTA would harm our economy. At the time, we had a billion-dollar trade deficit with the Central American countries. Now we have a more than $6 billion surplus with them. The critics were wrong. The advantages to us of FTAs are clear. So why are we not moving forward with Panama, Colombia and South Korea?
While we have been dawdling, the European Union has completed or is negotiating six agreements with 19 countries. Japan has completed or is negotiating 10 agreements with 17 countries. Korea has completed or is negotiating agreements with 15 countries. And Canada has completed or is negotiating agreements with 31 countries, including Colombia, Panama and Korea. We live in a dynamic world of commerce; if we’re not moving forward, we’re standing still.
Second, we need to understand that manufacturing is key to exports and work to make our manufacturing more competitive. We recently updated our study of the comparable costs of production in the United States. Our costs for energy, regulation, employee benefits, litigation and taxation put us at a 17.6 percent disadvantage against our nine major trading partners. Much of this is self-inflicted wounds. For example, we spend about 2 percent of our Gross Domestic Product on litigation. No other country comes close to that. Our corporations pay the second highest tax rate in the world after Japan. To make exports a national priority, we need to undertake a serious effort to reduce the costs of production in this country, making our exports more competitive in the global marketplace.
Third, the U.S. government needs to modernize the U.S. export control system not only to improve our national security but to increase the export of low-risk items and technologies. Our present system was developed during the Cold War era when the U.S. dominated advanced technologies and our government was determined to prevent them from falling into the hands of the communist bloc. Today, advanced technologies are available everywhere but the U.S. alone is discouraged from exporting by these outdated restrictions.
President Obama recognizes the need to build an export control system for the 21st century and announced in August 2009 a top-to-bottom review of the current decades-old policy. I am optimistic these actions will lead to eliminating needless controls, allowing U.S. companies to compete for lucrative foreign markets, while focusing controls more tightly on technologies that actually are vital to national security. The current system does not serve national security, but does undermine U.S. competitiveness and discourage job creation.
And fourth, government and the private sector need to link arms in an all-out effort to expand exports. Right now our government spends twice as much to promote exports of agricultural products as it does manufactured goods – though manufactured exports are 10 times the value of agricultural. In terms of percentage of value involved, we spend 20 times as much on promoting agricultural products. We should continue promoting export of agricultural exports, but manufacturing is where the real money is – and a much larger effort is needed here.
And manufacturers need to become more aggressive about exporting. We can no longer be content with the domestic market. The greatest potential for growth lies beyond our shores, as does our country’s future. The NAM works closely with the U.S. Department of Commerce to help manufacturers learn the ropes of exporting and take advantage of foreign markets.
Not surprisingly, the most dynamic exporting countries were the first to emerge from the current worldwide economic slowdown. If we aspire to grow and maintain our world economic leadership, we must reorient our economy toward exports. There is no viable alternative.
The National Association of Manufacturers’ 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.