How to Get the World to Buy American

 | Sep 21, 2011 | 4:30 PM EDT  | Comments
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I read a newspaper article recently that promoted a "Buy American" campaign as a means of helping the economy. I had two basic thoughts: First, what is the U.S. government doing to promote a "Buy American" campaign to foreign consumers? After all, President Obama did pledge to double U.S. exports by 2014 in his 2010 State of the Union speech. We are far away from that goal, and not enough progress has been made.

Part of this lack of progress on international trade development is related to my second thought on the buy American theme: International trade conjures many fears in U.S. workers and consumers that more global trade means more American jobs going overseas. Some of this fear may be justified, but it holds us back from pursuing open relationships with current and potentially new trading partners that can create jobs, even though it may increase a transitional flux in U.S. labor markets.

So, when the Council on Foreign Relations, an independent, non-partisan think tank, recently came out with a lengthy paper on U.S. trade policy, I took note. It acknowledged the deep worries many, if not most, Americans have about global trade, but noted that a Bureau of Labor Statistics survey indicated that, in layoffs of 50 or more people between 1996 and 2004, less than 3% were attributable to import competition or overseas relocation. That is not to say, Americans' fears are unfounded -- it's not just the actual relocation of U.S. jobs overseas, it's also the fact that U.S. companies have opened new facilities abroad instead of here. Falling inflation-adjusted incomes for those with jobs have compounded that anxiety. We need to remember that an unprecedented number of people have been lifted out of poverty and into the middle class in developing nations, and they are now potential customers for U.S.-based exporters.

The Council noted that global trade has added to the U.S. economy, and can continue to do so significantly. In fact, global trade from prior liberalization efforts has already added 10 percentage points to GDP compared to what it otherwise would have been. That amounts to well over $1 trillion. Looking ahead, the Council noted that annual U.S. income could be $500 billion higher or more with substantial liberalization of global trade in both goods and services.

Right now, though, the U.S. seems to lack direction as to how to increase trade and exports. Despite Obama's earlier pledge to double exports in five years, not enough has happened in terms of actual initiatives -- or results. It is true that a rebounding global economy has lifted exports by 19% since the beginning of 2010, but imports -- a larger component of trade -- have increased by a virtually identical amount, leaving the net trade deficit 22% wider than in 2010's first quarter, and slightly worse than just before the recession began.

The increase in exports is merely due to a broad rebound in global trade following a sharp contraction during the recession, rather than any concerted policy efforts. Perhaps distracted by other issues or perhaps cognizant of American's fears -- whether founded in fact or not -- the Obama administration has not kept its word on trade initiatives that can actually boost exports and create U.S. jobs in the process.

The Council has outlined a number of key recommendations that the federal government could pursue, which include:

• An ambitious trade-negotiations agenda that opens markets for the most competitive U.S.-produced goods and services, especially in the biggest and fastest-growing emerging markets.

• A National Investment Initiative that would coordinate policies on inbound and outbound investment to encourage high-wage, high-productivity jobs in the U.S.

• A robust and strategic trade enforcement effort, with the U.S. government playing a more proactive role in ensuring that U.S. companies and workers are not harmed by trade agreement violations.

• Greater efforts to promote exports through more competitive export financing and a more active government role in supporting U.S. overseas sales.

• Expanded use of trade to foster development in the world's poorest countries.

• A comprehensive worker adjustment and retraining policy.

• A new deal with Congress to give the president a mandate to negotiate trade-opening agreements with an assurance of timely congressional action.

There will always be those who say we can't compete on price with production in low-wage emerging markets. It's true, we don't compete on price for low-value, low-tech production. But we compete very favorably on high-value, high-tech production. Take Germany, for example. It's hardly a low-cost producer but 40% of its economy goes to exports versus 14% here. Germany takes a more active role in helping its companies compete abroad, especially smaller companies that might need help with logistics planning, information gathering and financing.

In fact, the Council notes, "Overall, Germany spends twice as much as the United States on export promotion as a percentage of its GDP. Partly as a result, Germany exports almost two-thirds as much to China as does the United States, even though its economy is only one-quarter the size of the U.S. economy." Germany has four large offices in China that help smaller German companies export more to that country.

The U.S. has made some progress catching up to other developed nations to promote exports, but more can be done.

Part of the problem, aside from financing, is bureaucracy. Trade initiatives, such as those with South Korea, Panama and Colombia, are still waiting to be enacted. Other rules hinder companies seeking export assistance. The Council noted that one of the rules for getting export financing in the U.S. was a strict domestic content requirement. In other words, U.S. companies were limited in their ability to get export assistance because of a shortsighted "Buy American" policy, even though greater sales abroad would mean more U.S. jobs, even if some components of otherwise U.S.-made products were imported.

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