As we enter the second quarter of 2017, the global economy is experiencing its sixth year of stagnation, and the growth outlook does not indicate any improvement. Consumers and businesses share a sense of anxiety, uncertainty and reticence regarding both the economic and political environment across the globe.
Here we go again: The U.S president is attacked on a global scale for his thinking on trade and investments. Mrs. Merkel, chancellor of Germany even announced a “new chapter in U.S. European relations” and stated that “Europe must take our fate into our own hands’’. Similar accusations had been raised in 1980 after the election of President Reagan. He was labelled a B class actor, a cowboy and an inexperienced but lucky vote gainer. The accusers were wrong then and they are wrong now!
President Trump lived up to his convictions during the tense G-7 political summit just as he had already done during and after the U.S. presidential campaign. No surprises there when he reflected on the need for more balanced trade relations and the requirement for all nations to pay a fair contribution for the benefits they obtained from the United States.
Why should we worry about misaligned participations in trade? According to the U.S. Department of Commerce, less than 1 percent of U.S. firms export. Tens of thousands of small-business manufacturers and service sector firms could export their goods and services, but do not. These companies often fear the challenges of going overseas. But all firms entering new markets face shortcomings and disadvantages when compared to local competitors. Due to a lack of local knowledge, unfamiliarity with market conditions, insufficient insights into consumer behavior, and newness to political decision making, all new entrants encounter a “burden of foreignness.” Policymakers need to help prospective exporters overcome this burden and successfully access new opportunities overseas.
President Trump has issued a new executive order focusing on so-called “Buy American, Hire American” policies. Making the announcement at the Snap-On Tools plant in Kenosha, Wisconsin, the President’s order directs various federal agencies to produce reports and recommendations on government procurement policies, with the goal of increasing domestic employment and production.
The Executive Order (found here) covers two broad areas of government policy: numerous “Buy American” laws and regulations, which set requirements that materials purchased by the government – say, steel for building a bridge – give preference to US domestic producers; and “Hire American,” which aim to address reported abuses of H1B visas that undermine high-skilled domestic labor.
President Trump announced a new executive order aimed at pushing forward his trade agenda. Targeting the US trade deficit, the order directs the Commerce Department and the US Trade Representative to lead an interagency investigation and produce a “comprehensive report” on the causes of the US trade deficit. They are to do so by looking at specific industries and trade policies by foreign countries that contribute to the continuing gap between US exports and imports.
According to the US Census data on trade, the US ran about a $500 billion net trade deficit in Goods and Services with the rest of the world in 2016. The US runs a larger deficit when looking only at Goods (such as manufactures, agriculture, etc.), at $750 billion, while the county runs a surplus of about $250 billion in Services (such as business services, finance, information technology, etc.). Broken down by country, the largest Goods deficits are with China (over $54 billion in the first two months of 2017) and Mexico, as well as Saudi Arabia (petroleum imports) and the European Union. In Services, it is noteworthy that the US runs sizable surpluses with all of these same countries. (Data from US Census) Continue reading