4 Points on Trade During National Small Business Week
By SBE Council at 3 May, 2016, 7:35 am
Over the long run, trade has been an unmistakable plus for the U.S. economy, including for American small businesses. However, the numbers, as well as campaign declarations, on trade recently have been troubling.
Consider four overarching points on the trends in trade and trade policy:
The Decline in Exports and Imports
According to the latest data released by the U.S. Bureau of Economic Analysis, despite a slight edging up in both exports and imports in February compared to January, both exports and imports are off notably in early 2016 compared to the latter part of 2014.
Exports of $178.1 billion in February were down significantly compared to $197.8 billion in October 2014. Meanwhile, imports of $225.1 billion in February were down from $240.5 billion in December 2014.
For good measure, total exports from 2015 came in at $2,223.6 billion, which was down from 2014, and came in at about the same level as registered in 2012. So, there effectively was no growth in U.S. exports from 2012 to 2015. For good measure, exports for January and February of this year actually were lower than during the first two months of 2012, and the same goes for imports. (And by the way, these are in nominal dollars, not factoring inflation into the equation.
Trade Vital to U.S. Economic Growth
This is deeply troubling, given how critical trade is for the U.S. economy. Consider that from 2000 to 2015, for example, the growth in real U.S. exports equaled 22.5 percent of the growth in real GDP, and the expansion in real total trade (i.e., exports plus imports) came in at 41.6 percent of real GDP growth. For additional perspective, in 1950, U.S. exports came in at 4.22 percent of GDP, imports registered 3.95 percent, and total trade equaled 8.17 percent of GDP. In 2015, exports had jumped to 12.56 percent of GDP, imports to 15.53 percent, and total trade to 28.09 percent of the U.S. economy.
Small Business is Vital to Trade
And then there’s small business. International trade is not just about big business. To the contrary, small business is central to U.S. trade. For example, 97.7 percent of exporters have less than 500 workers, and 37.1 percent fewer than 20 workers. In addition, 97.1 percent of importers have less than 500 workers and 42.6 percent less than 20 workers.
Policy Changes Needed
As for trade policy, the U.S. needs to move in the exact opposite direction as to what is being touted on the presidential campaign trail. The leading candidate in each of the major parties has staked out protectionist ground. Democrat Hillary Clinton once favored the Trans-Pacific Partnership – a proposed trade accord between the U.S. and 11 other Pacific Rim nations – but now stands opposed. She also had a mixed record on trade agreements while in the U.S. Senate. Meanwhile, Republican Donald Trump has aggressively called for higher tariffs on imports from China and Mexico, and wants to abandon NAFTA.
Protectionism, however, always ends badly. That was evident with the Smoot-Hawley Tariff Act serving as a trigger for a trade war and the Great Depression.
A strong trade agenda calls for the U.S. to once again lead on trade, including making the Trans-Pacific Partnership a reality; advancing the Transatlantic Trade and Investment Partnership (TTIP), which would reduce trade barriers between the U.S. and 28 European Union nations; pushing ahead with a decades-long plan to make all of the Americas a free trade area; implement pro-growth policies at home (such as substantive tax and regulatory relief), which will help get the U.S. economy back to being an engine for global growth and commerce; and advancing the protection of intellectual property globally, as IP is vital to U.S. entrepreneurs, businesses and workers (See SBE Council’s new book “Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment,” which is available here).
Now, that’s a trade agenda for National Small Business Week.
Raymond J. Keating, Chief Economist