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Chapter 2

Access to Markets?


This article is the second in a ten-part series titled “American

economies and has crossed the threshold of economic harm.

Competitiveness—A National Assessment through the Eyes of

These dynamics are flashing a yellow light to job creators warning

Job Creators.” The series explores how well America is

of still higher taxes, rising interest rates, excessive inflation, and

positioned to excel in today’s tightly contested global economy

prolonged national austerity – conditions that lower income,

through eight questions that job creators ask when determining

boost costs, and decimate demand. Furthermore, continued

where to locate, invest, grow, and hire among a world of

troubles in the housing market are taking a heavy toll. For many

alternatives.

American consumers, their homes are their single most important

We examine the first and most fundamental of these questions: “Will we have access to open, growing markets at home and

asset. Yet home values continue to stagnate and millions of mortgages remain underwater.

abroad?” It’s a simple proposition. Enterprises must have an

As these conditions intensify, job creators are becoming

ample supply of customers to survive; and they gravitate to where

increasingly apprehensive about the U.S. business environment.

they can best serve them.

This rebuff coincides with the flourishing appeal of international

For decades America has set the standard for market size and strength. High private-sector employment, rising incomes, and solid faith in the future has fostered pace-setting consumer demand that, in turn, has nurtured vibrant free enterprise; producing a self-reinforcing cycle of American employment, business growth, and prosperity. Today, however, adverse domestic conditions and a continued failure to respond adequately to titanic, opportunity- filled shifts in the world’s economic landscape are weakening the cycle. The nation’s debilitating macro-economic and public policy dysfunctions—headlined by runaway national debt—are devastating consumer and business confidence. Our skyrocketing ratio of debt to GDP rivals the world’s most troubled

investment and business operations abroad to access populations growing in size and purchasing power generated by greater levels of freedom. Four-fifths of the global economy lies outside U.S. borders and foreign markets will account for about 80 percent of world economic growth over the next 40 years. 1 According to the Stanford University press, the developed countries are on a path to drop from having 80% of the world’s income to 35%. As Jim Wolfensohn, former head of the World Bank, notes, “There will be a monumental shift of economic power. It’s not just a moderation trend, but a fundamental change in the world balance.’”2 Over the next 10 years, middle classes in India and China are expected to swell to 800 million people with a collective 8


purchasing power of $3 trillion.3 These realities will powerfully

with which we have an agreement. Of this total, 5.4 million U.S.

influence global investment patterns and corporate decision-

jobs are supported by the increase in trade generated by the

making. Indeed, according to a UN survey of executives, “local

FTAs.8

market size and growth…(and) access to international/ regional markets” are the factors that will most heavily influence business location decisions in years ahead.4

Yet, America’s international trade rankings continue to deteriorate. The World Economic Forum rates the United States 19th out of 125 nations in “trade preparedness.” We place 20th out of 183

These trends are unalterable, and they are opportune not

national economies according to the World Bank’s 2012 “trading

catastrophic. However, it means that the bridge to American

across borders,” which evaluates documentation burden along

prosperity in the 21st century is market access and trade; but the

with time and cost to export and import.9

span is broken and upgrades well-behind schedule. Restrictive tariffs and assorted obstacles continue to stymie the sale of U.S. goods and services abroad—impediments that persist thanks to an anemic U.S. trade agenda. Among the 214 trade agreements in effect worldwide, the United States is party to only 11.5 There are 297 agreements under negotiation globally, many involving the EU and China, while the United States is party to only one, causing us to lose an increasing number of customers and fall back in the race for new markets.6

A report by Ernst & Young summed it up nicely: “With emerging markets likely to dominate growth, succeeding in these markets has become a strategic imperative.”10 Doing so makes it vital that we act more strategically to remedy our fiscal, budgetary, and policy dysfunction; to reenergize the private sector with policies that encourage investment, productivity and hiring; to expand access to overseas markets via a modern trade agenda; and to provide world class infrastructure that smoothly connects job creators to the global marketplace. Nevertheless, we face

Our trade reluctance belies our experience. The small percentage

formidable obstacles in maximizing the benefits of trade and win

of countries with which the United States has a market access

job creators to our shores.

agreement accounts for nearly 40 percent of U.S. exports.7 The United States enjoys a trade surplus with its free trade agreement (FTA) partners in manufactured goods (on top of our global trade surpluses in services and agricultural products) and more than 17.7 million American jobs depend on trade with the 14 countries

Public skepticism: Polls show that a majority of Americans are skeptical about trade benefits, even though (1) trade accounts for more than 28 percent of GDP and 38 million jobs;11 (2) the United States enjoys an international trade surplus in services,12 as well as in goods with countries with which we have a trade agreement; 9


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(3) affiliates established overseas by U.S.-owned companies to

State capitalism: We must come to grips with the emerging

serve markets abroad create jobs in the United States;14 (4)

economies’ practice of state capitalism that seeks to enhance

increased exports have offered a rare bit of good news in the

trade, boost the competitiveness of domestic firms and home-

otherwise sluggish recovery following the recession that began in

based multinational corporations, and attract firms home through

2007;15 and (5) our brand reputation leads the world.

the use of extraordinary state interventions. Tactics include

To be sure, international trade and competition have resulted in the loss of some American jobs in particular sectors and locations. The human consequences of these losses matter and demand our vigorous response. Claims, however, that international trade—specifically, the sale of foreign goods in the United States and offshoring—has contributed to a net loss of U.S. jobs are not supported by the facts.16 Setting aside the job creation side of the trade ledger, less than 3 percent of layoffs of 50 or more people are attributable to import competition or overseas relocation, according to survey data from the U.S. Bureau of Labor Statistics.17 The need of global companies for proximity to the new centers of demand will often require them to invest and create jobs outside U.S. borders. Properly balanced, these actions can strengthen our global firms, enhance their productivity, and expand their employment in the United States. At the same time, facilitating access to global markets via advantageous trade policies coupled with superior end-to-end supply chain logistics mitigates many of the advantages of proximity and enables home production to supply foreign markets.

production subsidies, targeted tax abatement, free or subsidized land, free living arrangements for employees, special financing, grants, and other benefits.18 Moreover, countries are devising cleverer means of shutting off access to U.S. goods such as employing regulation to circumvent trade agreements. The Atlantic Council of the United States has found that it’s now more common for barriers to commerce to come not from quotas and tariffs but from regulations and standards.19 The U.S. must be able to counter these practices, in keeping with our principles and values, if we are to succeed. Still, we have no thoughtful, wellorganized approach, just as we have no bona fide national trade agenda or strategy to guide the way. Anemic Trade Finance: One approach by which the U.S. government, like many of our competitors, promotes trade for home companies is financing assistance. In part because of an agreement among member nations of the Organization for Economic Cooperation and Development that limits subsidized trade finance assistance, the U.S. finances fewer transactions and takes longer to process applications than do many institutions serving foreign competitors. Some OECD member countries are finding ways to circumvent the limits to the 10


America’s detriment, while other nations such as China are simply

created in the United States. The ITC further estimates that if

not bound by OECD rules and provide robust financial support to

China’s Intellectual Property Rights standards were aligned with

exporters that far exceed our own.20

ours, in 2009 U.S. exports of goods and services would have

Excessive Export Controls: In still other cases, U.S. export policies result in self-inflicted wounds. The delays imposed by time-consuming procedures for the sale of goods covered by

increased by $21.4 billion, sales for U.S. majority–owned affiliates in China would have increased by $87.8 billion, and 2.1 million American jobs would have been created.23

export control regulations increase their cost and scuttle sales,

Incoherence of International Standards: Disparate national

even when items are approved for transfer. Even reporting

standards greatly complicate America’s ability to sell the

requirements imposed by the U.S. government on would-be

advanced, high-value products that are our bread and butter into

purchasers of certain items can be enough to dash a U.S. sale in

multiple markets abroad. The United States must lead global

favor of a competitor. As the Milken Institute (MI) has reported,

efforts to coordinate reasonable and appropriate regulations,

“…the end-user nation has not been prevented from receiving the

standards, anti-corruption practices, and transparency measures

technology in question and the U.S. eventually sees its

that foster trade on a truly competitive playing field. This is why

technological competitiveness in the world market diminish.” The

America is and must continue to be an influential leader in the

same study found that modernizing U.S. export controls could

World Bank, International Monetary Fund, World Trade

create “160,000 manufacturing jobs, and heighten total

Organization, World Customs Organization, World Intellectual

employment by 340,000.”21

Property Organization, Organization for Economic Cooperation

Intellectual Property (IP) Theft: IP theft is a worldwide phenomenon and takes many forms, from state-sanctioned

and Development, G-8, G-20, United Nations, and other important global political and economic institutions.

copping of know-how to back-alley trafficking in counterfeit and

Failing transportation infrastructure: Yet, extensive trade pacts

pirated products, a practice that cost $250 billion in 2007.22

and coherent international rules are irrelevant if job creators are

According to a study on trade abuses prepared by the U.S.

unable to move their goods to far-flung markets fast and

International Trade Commission (ITC), Chinese theft cost U.S. IP-

affordably. While “we still have one of the best end to end

intensive firms $48.2 billion in lost sales, royalties, and license

infrastructure systems in the world;”24 an overburdened,

fees in 2009, preventing a large number of jobs from being

underfunded and inadequate infrastructure threatens our position 11


as an export platform from which job creators can access global

tax policies that promote purchasing power, investment, and

markets efficiently to create jobs at home. Our aging ports,

hiring.

highways, railways, and intermodal connections are marred by incapacity and inefficiency, leaving them widely unprepared to accommodate rising freight loads. Many U.S. competitors have more modern and interconnected systems than those in the United States, and they market these assets to investors and job creators who depend on global supply chain efficiency to survive.

We must embark on an ambitious, job-creating trade promotion program that vanquishes trade barriers, strengthens mechanisms to protect U.S. rights, ensures that trade terms are enforced, and clarifies incoherent international rules and standards that impede the sale of U.S. goods and services overseas.

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We must expand programs to mentor and assist U.S. small and

Bottom line: Despite the complex challenges our economy faces,

medium-sized companies to seize foreign trade and procurement

America has more going for it than any country on earth. We

opportunities and to help them navigate foreign customs

remain a hotbed of innovation with a long track record of

procedures and regulations.

invention and a world-leading capacity for problem solving. We have sophisticated global companies and fertile small businesses. We are the best in the world at logistics and supply chain management. We have plenty of what the world needs and desires: food, energy, innovative products of every kind, and

We must remodel U.S. export controls and procedures to enhance U.S. competitiveness and protect national security; and modernize U.S. transportation infrastructure to keep American commerce humming and our goods on the move.

highly sought-after arts, entertainment, and culture. We have a

Through it all we must remain responsive to job creators’ need for

political and economic system the world is imitating. Yet, if we are

access to growing vibrant markets at home and abroad if they are

to remain an example to the world, achieve the greatness to

to perform their essential functions in a free and prosperous

which we aspire; and assure job creators we can deliver the

society.

demand they need and keep the cycle of American prosperity churning strong, we also have much work to do. We must end political gridlock and right the nation’s economic ship to restore consumer and business confidence and demand. This includes fixing our broken budget and instituting competitive 12


End Notes

1. Xinhua News Agency, “Emerging markets to account for 80% of future global growth: ex-IMF chief,” XinhuaNet, June 24, 2011, http://news.xinhuanet.com/english2010/business/2011-06/24/ c_13947907.htm; Latin America Trade Coalition, “Who supports the U.S.-Colombia and the U.S.Panama trade promotion agreements?,” Latin America Trade Coalition Editorials and Op-Eds, June 20, 2011, http://www.latradecoalition.org/editorials-and-op-eds/. 2. Joyce Rouston, “Balance of Power Shift Coming Says Wolfensohn, Former World Bank President,” Stanford Graduate School of Business, January 1, 2010, http://gsb.stanford.edu/news/headlines/ vftt_wolfensohn.html. 3. Cummings, et al., Growth and Competitiveness in the United States: The Role of its Multinational Companies, (McKinsey Global Institute; June 2010) 40; the figure is inflation adjusted. 4. United Nations Conference on Trade and Development (UNCTAD), World Investment Prospects Survey 2009–2011, (New York: July 2009), 56, http://www.unctad.org/en/docs/diaeia20098_en.pdf. 5. World Trade Organization, “Regional Trade Agreements Information System (RTA-IS) Database,” Accessed May 27, 2011, http://www.wto.org/english/tratop_e/region_e/region_e.htm. 6. Ibid. 7. United States International Trade Commission, The Year in Trade 2010: Operations of the Trade Agreements Program, (Washington, DC: USITC Publication 4247, July 2011), 4–1. 8. John Murphy, “The State of World Trade,” (U.S. Chamber of Commerce, Washington DC; 2010). 17. 9. Doing Business 2012: Doing Business in a More Transparent World Economy Profile: United States, (Washington, DC: World Bank and International Finance Corporation, 2012), 78, http:// www.doingbusiness.org/~/media/fpdkm/doing%20business/documents/profiles/country/USA.pdf. 10. Ernst & Young and Oxford Analytica, The Ernst & Young Business Risk Report 2010—the Top 10 Risks for Global Business (New York: December 2010), 5, http://www.ey.com/Publication/vwLUAssets/ Business_risk_report_2010/$FILE/EY_Business_risk_report_2010.pdf. 11. Bruce Baumhol, The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities, 2nd ed. (Upper Saddle River, NJ: Wharton School Publishing, Jan. 2010), 15.

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12. Matthew Slaughter, “Comparative Advantage and American Jobs,” The Wall Street

21. Ross DeVol and Perry Wong, Jobs for America: Investments and Policies for

Journal, January 26, 2011, http://online.wsj.com/article/

Economic Growth, (Milken Institute, January 2010), 5, http://www.milkeninstitute.org/pdf/

SB10001424052748703555804576102500952966450.html.

JFAMilkenInstitute.pdf.

13. Joel Popkin and Kathryn Kobe, Manufacturing Resurgence: A Must for US Prosperity,

22. “The Economic Impact of Counterfeiting and Piracy,” Organization for Economic

(Washington, DC: National Association of Manufacturers, January 2010), 9; U.S.

Cooperation and Development, November 2009, http://www.oecd.org/document/

Department of Commerce, “The Trade Stimulus,” updated October 27, 2008, http://

23/0,3343,en_2649_34173_44088983_1_1_1_1,00.html.

www.trade.gov/press/press_releases/2008/fta-factsheet_102708.pdf. 23. Robert B. Koopman, et al., China: Effects of Intellectual Property Infringement and 14. Cummings, et al., Growth and Competitiveness in the United States: The Role of its

Indigenous Innovation Policies on the U.S. Economy (Investigation No. 332-519),

Multinational Companies, (McKinsey Global Institute; June 2010), 53.

(Washington, DC: U.S. International Trade Commission, Publication 4226, May 2011), xixxviii, http://www.usitc.gov/publications/332/pub4226.pdf

15. International Trade Administration, “The Trade Stimulus,” October 27, 2008, http:// trade.gov/press/press_releases/2008/fta-factsheet_102708.asp.

24. Tom Donohue, “No Time for Wallowing,” FreeEnterprise.com, August 16, 2011, http:// www.freeenterprise.com/article/no-time-for-wallowing.

16. Patrick Love and Ralph Lattimore, “International Trade: Free, Fair and Open?” OECD Insight (Paris: Organization for Economic Co-Operation, 2009), 96. http://www.oecd.org/

25. Jonathan Cummings, et al., Growth and Competitiveness in the United States: The

dataoecd/33/53/42732710.pdf; Ben S. Bernanke, “Embracing the Challenge of Free

Role of Its Multinational Companies (McKinsey Global Institute

Trade: Competing and Prospering in a Global Economy,” speech delivered at the Montana Economic Development Summit, Butte, MT, U.S. Federal Reserve, May 2007. 17. Council of Economic Advisors, Economic Report of the President 2006, (Washington, DC: Executive Office of the President, February 2006), 161. 18. Jason Dean, Andrew Brown, and Shai Oster, “China’s State Capitalism Sparks a Global Backlash,” The Wall Street Journal, November 16, 2010, http://online.wsj.com/ article/SB10001424052748703514904575602731006315198.html. 19. Stuart E. Eizenstat and Grant D. Aldonas, Transatlantic Leadership for a New Global Economy, (Washington, DC: The Atlantic Council of the United States, April 2011), xii, http://www.acus.org/docs/070420-Transatlantic%20_Global_Economy.pdf. 20. Report to the U.S. Congress on Export Credit Competition and the Export-Import Bank of the United States for the Period of January 1, 2010 through December 31, 2010, (Washington DC: Export-Import Bank of the United States, June 2011) preface, http:// www.exim.gov/about/reports/compet/documents/2010_Competitiveness_Report.pdf.

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The Eight Factors of American Competitiveness

Š 2012 National Chamber Foundation The National Chamber Foundation (NCF), the public policy think tank of the U.S. Chamber of Commerce, drives the policy debate on key topics and provides a forum where leaders advance cutting-edge issues facing the U.S. business community. NCF’s programs focus on three goals: (1) examining emerging business issues, (2) driving public debate, and (3) informing business and government leaders. To achieve these goals, NCF offers research programs, roundtables and conferences, and leadership development initiatives.

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The Eight Factors of American Competitiveness: Access to Markets