THE U.S. ELECTION AND TRADE

THE U.S. ELECTION AND TRADE

By Michael R. Czinkota *

 The candidates in the U.S. presidential election have had heated exchanges. Each one of them tries to pick up those few undecided votes which make all the difference. Clever pollsters are using their newest tools to identify and pursue the maybe’s.

For me, as teacher of international business and trade, I wonder what the victory of any one candidate mean for my field – how will international trade be affected? International trade in goods and services comprises now almost 30% of US GDP –making it a vital component of the domestic economy. The fact that exports have been mentioned several times in the various debates, highlights that politics gradually accepts the importance of trade.

How do the candidates stack up?

First , President Obama: He has led for almost four years now and been able to demonstrate his commitments. He has signed three Free Trade Agreements which had been negotiated by President Bush – but there are 193 countries left. He helped conclude long term negotiations to let Russia enter the World Trade Organization this year. The President has taken a number of trade actions, and even declared Chinese car tires to be too cheap and has limited their import. He has also frequently admonished the Chinese government to increase the value of its currency.   He has promised in 2009 that he will strive to double US. exports in five years.

Now to Governor Romney: He talks about trade in virtually every speech he gives. Just like the young Japanese mother whispers to little Masaaki “export my baby, export a lot”, the governor tries to inculcate key international trade values and desires in his audience. He recognizes the importance of currency values. Through his work in the private sector he has seen the threats and benefits of the global economy, and has recognized that there is no reason for the United States to play second fiddle. At the same time, his experience gathered abroad allows him to understand the importance of different cultures, and the need to consider issues which, at home might be unexpected, but can be routine abroad. He stresses the importance of helping firms to enter global markets and talks about profits as the key motivator to such market entry. He talks in terms of competitiveness both for firms and their employees – which in turn leads him to stress the importance of an internationalized education.

A second term President Obama would devote some attention to trade issues – but, just like Israel, they are not really a core component of his global posture. The entire issue of competitiveness of firms is seen as something at which one throws money (and loses large amounts of it) – rather than the building process of innovation. Plans like doubling exports don’t portray a vision which is what we need in the international arena. There is a big difference whether one talks about straightening out a road versus offering the vision of a national highway system. There is a lot of earnest belief, that government can drive the export success of the nation. Those in the trenches claim that the real trade volume comes from firms, particularly those who have had the inclination and opportunity to research the requirements of their markets abroad.

A President Romney is likely to upset some long term traditions – be they in currency markets or in trade agreements. He is more likely to link specific performance and assistance. It would not be impossible for President Romney to declare the Doha Round of trade negotiations as a failure, and search for a new approach to an expansion of trade. He might be more in the face of partner governments, but his actions would be more swift and perhaps even more harsh. As a firm believer in markets, a President Romney might encourage students to get ready for a globalized economy, explaining that unmotivated, disinterested, or uneducated members of the work force need to change their attitude dramatically if they wish to do well. Mr. Romney is brimming with excitement to do something about the U.S. trade position in the world. It may bring some pain, but still better than another bursting bubble.

So, where does that leave us? Of course there are many considerations based on which we select our favorite. An increasingly important one is trade. I think both candidates will support trade, but it  seems that this support will come with varying intensity. Voters should keep that in mind as they cast their ballot.

*Michael Czinkota teaches international business and trade at Georgetown University. He served in trade policy positions during the Reagan and Bush administration. Contact: czinkotm@georgetown.edu

Economic Lessons from the Olympics

As the Olympics deliver another sports highlight to the world, some Americans remain highly irate with the uniforms worn by the U.S. team. The reason: the team uniforms are made in China. One senior U.S. senator suggested piling up the uniforms and burning them. Some are even trying to use this controversy against presidential candidate Mitt Romney, due to his leadership of the 2002 Winter Olympics. In response to this public relations debacle, Ralph Lauren, a design icon in the U.S., has already firmly committed that uniform production for the 2014 Winter Olympic game will take place on U.S. soil. Before we sweep this controversy under the rug, however, here are a few thoughts on the importance of the Olympics for economic thinking.

First off, there are also others who voice discontent about their national Olympic outfits. The British public, host of the games, complains about its uniforms designed by Stella MaCartney. They believe that there is not enough red in the uniforms, which therefore do not seem to sufficiently reflect the national colors of the U.K. Second, it almost seems as if the debate over the labels on the uniforms draws more attention than the actual preparation of team USA or the London games themselves. Shouldn’t the essence of the Olympics lie in the performance of the athletes from around the world competing with each other to excel by fulfilling the Olympic motto: “Citius, Altius, Fortius” (Faster, Higher, and Stronger). There is no part of the motto calling for ‘domesticus’ or ‘pulcher’. One could well argue that attention should mainly be focused on the performance of the athletes, rather than how they look during the opening ceremony. Furthermore, the real performance is not delivered in dress uniforms, but rather in the swim suits or leotards made wet and sweaty by competition.

If there were to be a debate, the quality of the uniforms rather than the source of production should receive public attention. The Olympics are all about effectiveness and efficiency. The economic argument should focus on a cost benefit analysis of those uniforms. Does the outsourcing of stitching tasks to China lower the costs, and how does such international procurement affect quality?  There is no need for a patriotic argument here, but rather the simple exploration of whether the team gets what has been paid for. If there has to be some flag waiving about Olympic clothes, then it might be during the entrance of the Chinese team,  since  its national basketball team and six other Chinese sports teams will compete in outfits featuring the swoosh of Nike, a U.S. owned-brand.

The current debate over the Olympic clothes reflects much bigger issues such as the upcoming U.S. presidential campaign and the subsequent formulation of national policy, but also the future direction of all major economies around the world. How should one deal with and respond to international competition both in terms of process and activity? We all like to win, but the Olympics indicate that we should be willing to let everyone put up their best efforts and honor the highest performers. Typically, we prefer that participants on national teams are domestic citizens. But for special athletes (or products), outsourcing seems to be acceptable, yet touches a nerve if domestic conditions are problematic.

Comments made by some politicians about the Olympics and about the economy may sound silly and outrageous; but just like other outsourcing kerfuffles in the past, their true meaning ought to be taken with a grain of salt, and seen as the vote catching lamentations which they are. For both an economy and the Olympics, it seems unlikely that thoughtful leaders would ignore the value of designs and innovations in favor of low-value added sewing and stitching. After all, outsourcing low value manufacturing provides consumers in wealthy nations with low price products, particularly valuable to low income segments. We should also remember that as originators of the Games, (and of the word ‘economy’) the Greeks get to be first in presenting their flag during the opening march, but when it comes to performance, they are on equal footing with all other nations.  Economies also need to refresh their innovation every day.

Right after the opening ceremony, the impact of the dress uniform’s origin will begin to fade. It deserves perhaps mention that the Olympic Game athletes of yore were competing in the buff, which reinforces that it is the context and performance that matter, rather than the clothes. With the athletic performances the Olympic athletes do set an economic example for all of us: We need to embrace change, observe the best, and learn from all for future improvements.  The clothes may differ, but the competition continues.

By Michael Czinkota and Jiashan Cui

Professor Czinkota and research assistant Cui work at Georgetown University, McDonough School of Business. Blog: michaelczinkota.com