Authors : Michael R. Czinkota and Charles J. Skuba
As he discussed his plans to work with Republicans in 2011, President Obama highlighted the importance of exports, innovation, competitiveness, and the need to achieve the possible rather than the ideal in creating jobs and boosting economic growth. The perfect is the enemy of the good, particularly in politics. This opens important policy prospects related to international trade and manufacturing. Now, with Representative Kevin Brady as the Chairman of the House Ways and Means Subcommittee on Trade, the President has the opportunity to work with the new Congress to take quick action and achieve the kind of dramatic results he outlined in his National Export Initiative and his Strategy for American Innovation earlier in his term. 2011 may prove to be a dynamic year for U.S. international trade and competitiveness prospects. As the second largest metropolitan export market in the United States, prospects look good for Houston as well.
America’s largest companies and brands are the best in the world. America is the world’s leading exporter of aggregated goods and services and continues to be a strong manufacturing country with about a 20 percent share of global manufacturing output. This is mainly due to U.S. strengths in high value added and differentiated products as well as cutting-edge services. With increasing market access to fast-growing emerging economies, U.S. companies can deliver even better global growth.
The issue is whether this success will create domestic jobs. Despite the seventeen consecutive months of manufacturing sector growth, U.S. manufacturing jobs have been sliding over time because of the decreasing labor-intensity of American products and dramatic gains in productivity. For example, in 1987 there was a common estimate of 18,000 jobs per one billion dollars of U.S. manufacturing exports. By last year, this job creation estimate had declined to 7,000 jobs per billion. With 9.9% unemployment in the manufacturing sector, the benefits of international trade and investment have been less apparent than the drawbacks of plant closings and layoffs in labor-intensive businesses.
President Obama expects jobs to come from exports and innovation, including from smart, smaller American companies, international companies investing in the United States, as well as larger American companies. To this end, he has presented a vision and policy directive: He wants to double U.S. exports by 2015 and to create a national environment to stimulate innovation and entrepreneurship. What has been missing is a legislative agenda and votes. This is understandable given the strong protectionist and even anti-business sentiment that prevailed in the last Congress.
But with the new Congress, the President has real opportunity to work with legislators to convert his vision into action. The first logical step is to bring the pending free trade agreements with Korea, Colombia, and Panama to the House floor for a vote. With the real impact that these agreements can bring to U.S. exports, having these agreements sitting in limbo since 2008 has been disgraceful. The positive auto industry compromise reached with Korea in November of last year pales against the billions of dollars in export opportunities lost by the U.S. over the three years of hiatus. With Representative Brady, a champion of free trade agreements and the Congressional leader in the successful passage of the Central American Free Trade Agreement, the path now seems clear for passing the Korea FTA. We can expect him to push this forward in the near future. But that needs to be a beginning rather than an end. We suggest that the House works with President Obama to ensure that the agreements with Colombia and Panama proceed simultaneously. There is no reason why U.S. companies should continue to suffer the competitive tariff disadvantages that these agreements will solve. These agreements remove barriers to U.S. products and services.
After these first steps on trade, the Administration and Congress should also explore the innovation side of the President’s agenda. Global U.S. economic leadership and export success require a strong economy driven by innovation, especially among entrepreneurs. New business ideas foster dynamism and create jobs. There are certainly opportunities for policy initiatives to encourage innovation and entrepreneurship. A starting point would be to examine the policies that actively discourage innovation, which typically boils down to the high cost of doing business. The 35% U.S. corporate tax rate, one of the highest in the world, and the burden of unnecessary regulations inhibit innovation and business expansion Just as free trade agreements work to eliminate barriers to U.S. exports, policies should eliminate barriers to innovation.
Today, U.S. exports are roughly 8 percent of global trade. To balance the U.S. current account, this world market share needs to rise to 12 percent under conditions of stable imports. To achieve such an increase requires action. As with the U.S. – Korea Free Trade Agreement, where we gained concessions in the automotive sector but gave in on beef products, the focus should be on results. The goal must be to provide U.S. firms with the conditions that allow them to succeed. President Obama now has the opportunity for an action partnership with Congress to achieve this goal.
Michael Czinkota teaches international business and marketing at Georgetown University in Washington D.C. and the University of Birmingham in the UK. He served in trade policy positions in the Reagan and Bush administrations. Charles Skuba teaches international business and marketing at Georgetown University – he served in the Commerce Department under President George W. Bush.