Trade Gets a Boost
By SBE Council at 22 February, 2017, 11:35 pm
by Raymond J. Keating-
Free trade – that is, trade between businesses and individuals across international borders largely unencumbered by excessive or burdensome governmental measures (such as tariffs, quotas, and regulations) – has been taking a beating of late in the world of politics.
Fortunately, though, according to the new Gallup poll on the issue, the American public is not buying into the notion that international trade is something to be feared. Instead, a record high of Americans view foreign trade as an economic opportunity.
American Public Overwhelmingly Sees Trade as Opportunity
Specifically, Gallup found that 72 percent of American view foreign trade as an opportunity for economic growth, while only 23 percent see it as a threat.
Gallup offered a breakdown by party affiliation: “All political party groups show an increase from last year in the view that trade is an economic opportunity. Among Democrats, this view has increased 17 percentage points to 80%, while among Republicans it has risen 16 points to 66%. The increase is smaller among independents — up eight points to 71%. For all party groups, the percentages viewing foreign trade as an economic opportunity are at record highs.”
Good for Small Business
That’s generally good news, including for the small and mid-size businesses that overwhelmingly populate the world of trade. Consider that, according to the Census Bureau, 97.7 percent of identified U.S. exporters have less than 500 workers, along with 97.1 percent of importers also having less than 500 employees. Going even smaller, 37.1 percent of exporters have less than 20 employees, and among importers, 42.6 percent also have less than 20 workers.
Making Headway on Reducing Regulatory and Other Non-Tariff Trade Barriers for Small Businesses
Of course, the benefits of free trade for small business, their workers and the economy are only realized when free trade policies are actually put into effect. A step forward was taken on February 22 with the WTO’s Trade Facilitation Agreement (TFA) going into effect.
As the WTO explained in a February 22 release:
“The TFA’s provisions include improvements to the availability and publication of information about cross-border procedures and practices, improved appeal rights for traders, reduced fees and formalities connected with the import/export of goods, faster clearance procedures and enhanced conditions for freedom of transit for goods. The Agreement also contains measures for effective cooperation between customs and other authorities on trade facilitation and customs compliance issues.”
The United States Trade Representative’s office also has noted:
“Red tape and unnecessary formalities at borders can diminish market access gains made through the lowering of tariffs. Uncertainty about import requirements, hidden and unreasonable fees, and slow border release times are among the non-tariff barriers most frequently cited by exporters.”
The bottom line is that the TFA is meant to reduce regulatory and bureaucratic barriers to a smooth flow of trade. And given that it’s meant to make international trade easier, it will be a big plus for small businesses here in the United States and across the world.
In its February 22 release on the TFA, the European Commission highlighted the positives for small business:
“The agreement will also help improve transparency, increase possibilities for small and medium-sized companies to participate in global value chains, and reduce the scope for corruption… Commissioner for Trade Cecilia Malmström said: ‘Better border procedures and faster, smoother trade flows will revitalise global trade to the benefit of citizens and businesses in all parts of the world. Small companies, that have a hard time navigating daily bureaucracy and complicated rules, will be major winners.’”
In terms of potential results, as the WTO noted:
“Full implementation of the TFA is forecast to slash members’ trade costs by an average of 14.3 per cent, with developing countries having the most to gain, according to a 2015 study carried out by WTO economists.”
“The TFA is also likely to reduce the time needed to import goods by over a day and a half and to export goods by almost two days, representing a reduction of 47 per cent and 91 per cent respectively over the current average.”
Regarding small and medium-size enterprises (SMEs), the WTO economists found:
“SMEs suffer more from administrative burdens than large enterprises, particularly in developing countries. For instance, exports by SMEs are more sensitive to delays at the border than exports by large firms. Since the TFA will reduce delays at the border, it increases the opportunity for SMEs to become more integrated in international trade. Using data from the World Bank’s Enterprise Survey which covers nearly 130 developing countries, this report finds statistical evidence to show that implementation of the TFA will increase the probability of SMEs exporting and, compared to large firms, will see a far greater rise in the share of their sales that go into the export market.”
In the end, this agreement is expected to boost global trade by $1 trillion annually.
Reducing the costs of trade means expanding and acting upon the opportunities – that Americans see and small businesses capitalize on – in the global marketplace.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.