How International Trade May Be Impacting Your Local Economy

These days, international trade supports more than one in five American jobs — 38.1 million across the country — according to research from Business Roundtable, an association of chief executive officers of major U.S. companies.

Top-10-Richest-Countries-in-the-world-by-gdp-per-capitaaIncreasing evidence points to the importance of international trade to the American economy and to local businesses and communities, as the share of U.S. jobs tied to trade more than doubled from 1992 to 2011. These jobs span a range of industries from technology and agriculture across 50 states.

And recent free trade agreements have led to rapid U.S. export growth to partner countries, according to Business Roundtable. America’s free trade partners purchased $733 billion in U.S. goods in 2013 — 12.6 times more per capita than non-partner countries purchased.

What it all boils down to, say experts, is that countries that trade with the U.S. buy more American products. And increased trade drives foreign companies to create more jobs in the U.S., by locating research facilities, laboratories and plants throughout the country.

“American innovation and global competitiveness depend on our ability to trade with the rest of the world,” said Peter Cleveland, vice president of Global Public Policy at Intel Corporation. “More than three-quarters of Intel’s revenue comes from sales outside the U.S., while roughly three-quarters of Intel’s advanced microprocessor manufacturing and R&D is done here in the U.S.”

Given these trends, Congress is currently considering new legislation that could help foster new trade agreements and potentially drive future growth, as well.

America’s Chief Trade Negotiator, Ambassador Michael Froman, expressed support for the effort in his testimony on the 2014 Trade Agenda,  “Done right, trade policy creates opportunities for American workers, farmers and ranchers; manufacturers and service providers; innovators, creators, investors and businesses — large and small.”

However, not everyone is sold on the pending trade agreements. Some labor groups have expressed concern over the impact of increased international competition on domestic job creation, trade deficit reduction and the government’s ability to prevent currency manipulation.

GLOBAL CONSUMERISM AND SUSTAINABILITY

Between 1980 and 2010, the middle class worldwide nearly doubled in size, growing to almost 2 billion people. By the year 2030, it is likely to reach nearly 5 billion people. The middle class is the largest group, demographically, in terms of consumers of various products and services. However, growth of the middle class poses pressures on the natural environment and demand for resources, such as energy, food, and raw materials. Rising world population and increased production and consumption raise concerns about sustainability, which refers to meeting humanity’s needs without harming future generations.  On the one hand, rising consumerism is a sign that living standards are improving worldwide; billions of people are emerging from the poverty that besets humanity.  On the other hand, growing population and consumerism pose important challenges to planetary well-being.

The World Economic Forum has proposed various ideas for addressing sustainability, while ensuring people can obtain the products and services they need:
1. Emphasizing durable over disposable. Firms and consumers alike benefit from products that are relatively durable, as opposed to disposable goods that use more resources and fill up landfills.

2. Using renewable versus disappearing resources. Renewable resources are usually more cost-effective and encourage sustainability. For example, energy generated from solar and wind sources can be maintained indefinitely, while fossil fuels are dwindling over time.
3. Sharing resources. Firms and consumers must think increasingly about developing and using goods that they share with others. For example, homeowners tend to use lawnmowers, snowblowers, and other home-care equipment only intermittently. Economies result when such resources are shared among several households.

4. Favoring virtual products and delivery methods.  Online product vendors use resources more efficiently than physical, “brick-and-mortar” retailers. Some products can be offered electronically, which saves paper. For example, many consumers opt for digital books they can read on Kindles, Ipads, and similar devices. Such approaches help reduce the destruction of forests and other resources.

5. Consuming locally grown goods. Many agricultural products must be transported long distances, which contributes to air pollution and needless resource usage. An emphasis on consuming locally-grown farm products can help increase resource sustainability and decrease pollution.

To thrive while preserving natural resources, companies will need to include sustainability in their strategy-making. Managers need to improve their understanding of how resources create new risks, but also produce new opportunities.  Firms must devise sophisticated approaches for conserving resources and offering sustainable products and services.

For example, Otis makes the Gen2 elevator, which uses up to 75 percent less energy than conventional elevators.  Recently, Otis established a green manufacturing facility to produce Gen2’s in Tianjin, China, which reduced site energy use by more than 25 percent. Builders are adopting Gen2 elevators and escalators, to save energy and help the environment. The Dutch consumer products company Unilever is cutting water usage and greenhouse gas emissions in its factories. The firm aims to increase recycling and recovery efforts in manufacturing, and reduce by one-third the use of materials in its product packaging by 2020. The Swiss food company Nestlé works with farmers around the world to help them increase crop yields, while minimizing their water usage and pollution. Nestlé has allied with nongovernmental organizations such as the Rainforest Alliance to focus on how farmers can improve access to clean water and sanitation.

Sources: Business & the Environment, “Food and Beverage Companies Serve Up Sustainability,” October 2011, pp. 1-3; Richard Dobbs, Jeremy Oppenheim, and Fraser Thompson, “Mobilizing for a Resource Revolution,” Mckinsey Quarterly, January 2012, accessed at www.mckinseyquarterly.com; World Economic Forum, Consumer Industry Emerging Trends and Issues (Geneva, Switzerland: World Economic Forum, 2011), accessed at www.weforum.org

COUNTRY OF ORIGIN EFFECTS

Buyer behavior is affected by the national origin of products and services. Many consumers are relatively indifferent to where a product is made. Other consumers favor goods produced in their home country. Country of origin (COO) refers to the nation where a product is produced or branded.  Origin is usually indicated by means of a product label, such as “Made in China”. When consumers are aware of a product’s COO, they may react positively or negatively. For example, many people favors cars produced in Japan, but would be less upbeat about cars made in Russia. Most people feel confident about buying clothing made in Italy, but would be less receptive to clothing from Mexico. Such attitudes arise because consumers hold particular images or conceptions about specific countries. Consumers assume that Japan produces high-quality cars and that Russia makes low-quality cars. While such beliefs are often rooted in reality, many are simplified opinions, false stereotypes or effect the slowness of accepting change.

Buyer reactions to COO are influenced by various factors.  First, COO stereotypes vary depending on the origin of the judge and on the category of the product being judged.  For instance, while Japanese cars are disdained by Indians, they are prized by Russians. While people in Brazil love Japanese consumer electronics, they spurn Japanese apparel.

Second, opinion varies depending the national origin of the firm and the location where its product is actually made. Many consumers love German Volkswagens, even if the car is produced in China, Poland, or some other location outside Germany.

Third, as the capacity of countries to perform well in specific industries improves, the COO phenomenon varies over time. Until recently, for example, few Westerners would have visited India to undergo surgery.  However, many now perceive India as an excellent value for obtaining medical care for various conditions, and spend the time and money to travel there to receive heart operations, cosmetic surgery, and other procedures.

Finally, the tendency of consumers to discriminate against foreign products varies by demographic factors.  For example, senior citizens and people with limited education tend to shun products that originate from abroad.