PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Statement for the Record: House Ways and Means Committee Hearing on “U.S. Trade Policy Agenda”

By at 21 March, 2018, 7:46 pm

The Honorable Kevin Brady

Chairman

Committee on Ways and Means

U.S. House of Representatives

Washington, D.C.  20515

 

The Honorable Richard Neal

Ranking Member

Committee on Ways and Means

U.S. House of Representatives

Washington, D.C.  20515

 

Dear Chairman Brady and Ranking Member Neal,

On behalf of our nationwide membership of entrepreneurs and small businesses, the Small Business & Entrepreneurship Council (SBE Council) is submitting this letter for the record on the Hearing on U.S. Trade Policy Agenda, hosted by the Ways and Means Committee on March 21, 2018. Thank you for hosting this important hearing as certainty and U.S. leadership on trade is vital to ensuring strong U.S. economic growth, small business growth, quality job growth and the health of U.S. entrepreneurship.

Since U.S. small businesses are very involved in global trade and integrated into the global marketplace, our entrepreneurial sector has a strong stake in trade policy – namely, opening markets that allow our small businesses to grow and expand. Small businesses and their employees are deeply involved in foreign trade in terms of both exports and imports. Looking at employer firms directly involved in trade, according to the U.S. Census Bureau, 76.2 percent of U.S. exporters have fewer than 20 employees, and 86.7 percent fewer than 50 workers; while 75.2 percent of importers have fewer than 20 workers, and 85.5 percent fewer than 50 workers.

Unfortunately, trade has been stuck in a no-growth gear for too long. According to the latest trade data from the Bureau of Economic Analysis, January 2018’s numbers on both imports and exports were poor. On a seasonally-adjusted basis, exports in January actually declined by 1.3 percent versus December. In effect, from November to January, exports were flat. Meanwhile, imports experienced a slight decline in January, and that was after four months of growth. But to put this in perspective, the January 2018 level of $200.9 billion in U.S. exports was, in effect, the same level registered in October 2014 ($200.1 billion). That’s no effective growth for over three years. As a side note, these numbers do not factor in inflation, so in real terms, there has been a decline.

Weak growth, or no growth, on exports means U.S. businesses are losing ground overseas. This hurts the economy and small business growth, as 95 percent of the world’s consumers are outside U.S. borders.  Our small businesses desperately want to tap into the explosive growth of wealth and middle-class disposable income overseas.  These global consumers want U.S. products and services, and our small businesses want to compete for their business.  Given innovative technologies and the growth and convenience of the platform-based economy, tapping into these markets should be easy.  However, high tariffs and other barriers often make the pursuit of doing business overseas complex and not cost-effective.

That is why SBE Council would like to see the U.S. return to its global leadership role on trade and aggressively pursue new agreements.

In terms of going global, entrepreneurs are also concerned about the potential theft of their intellectual property (IP). SBE Council was pleased that the Trans Pacific Partnership (TPP) zeroed in on the issue of protecting IP along with its other chapters to ease small business access into every market involved in the agreement. Unfortunately, the U.S. pulled out of TPP, which we believe is a setback for the U.S. and our small businesses.

On NAFTA re-negotiations, we are also pleased to see a focus on strengthening IP.  SBE Council feels strongly that NAFTA modernization should be about expanding trading opportunities, strengthening IP and addressing other issues that make the agreement work better for all parties when it comes to increasing cross-border commerce. It would be a very bad move for the U.S. to pull out of NAFTA.

As the negotiations proceed to modernize NAFTA, it is critical to keep in mind that since the agreement went into effect in 1994, it has been very positive for the U.S., Canada and Mexico. NAFTA has also been positive for U.S. small businesses.

In a recent analysis on NAFTA, SBE Council chief economist Raymond Keating crunched the numbers, using U.S. Census Bureau data, on its beneficial impact for the U.S. economy and our small businesses. He noted:

“Since free trade accords went into effect with Canada, Mexico and the U.S., export growth from the U.S. to both nations has been strong. The U.S. entered in a free trade agreement with Canada first, taking effect in 1989. From 1988 to 2017, U.S. goods exports to our neighbor to the north increased by 294.3 percent. (Over the same period, inflation – as measured by the GDP price index – increased by 82.8 percent.)

But export growth has been particularly strong with Mexico since NAFTA took effect in 1994. U.S. goods exports to Mexico grew by 484.4 percent from 1993 to 2017. That was more than double the growth in U.S. exports to the world, which registered a 239.5 percent increase over the same period. (Inflation increased by only 56.9 percent over this period.)

Import growth was even more robust. Goods imports from Canada grew by 268.6 percent from 1988 to 2017, and goods imports from Mexico expanded by 686.7 percent from 1993 to 2017.”

As noted time and again by Keating, imports are not economic negatives:

“To the contrary, growing imports reflect an expanding domestic economy, with imports including consumption products as well as capital goods used by U.S. businesses. For good measure, many U.S. firms are involved in the importation of goods from other nations. In the end, U.S. consumers and small businesses benefit from the expanded choices and lower costs that come with lower barriers to imports.”

In 2015, there were 89,106 firms that were exporters to Canada, as well as 59,428 firms exporting to Mexico. These firms, according to the U.S. Census Bureau, are overwhelmingly small and mid-sized businesses. For example, 75.4 percent of firms exporting to Canada and 72.7 percent of firms exporting to Mexico have fewer than 50 employees.

The growth in the number of U.S. firms exporting to both Canada and Mexico has been dramatic. From 1992 to 2015, there was an 81.4 percent increase in the number of U.S. exporters to Canada and a dramatic 365.5 percent increase in those exporting to Mexico. NAFTA has been a growth engine for small business.

As for imports, in 2015, there were 16,799 U.S. firms that were importers related to Canada, and 15,290 U.S. firms were importers related to Mexico. Again, the vast majority were small and mid-sized businesses. For example, 54.8 percent of Canada importers and 67.5 percent of Mexico importers have fewer than 50 employees.

The bottom line is that small businesses are winning with NAFTA and in the global marketplace. With expanded opportunities made possible through more trade agreements, U.S. entrepreneurs will continue to excel and dominate, which means they will contribute even more to America’s innovative and competitive capacity.

That is why SBE Council is urging the Administration to positively engage with all our trading partners. Fixing outdated agreements or flawed trading practices can be achieved through strategies that do not hurt the U.S. economy or our small businesses and their employees (by imposing tariffs, for example.)

An agenda that takes the U.S. down a protectionist path on trade is not a productive one or a strategy for economic growth. Reclaiming the mantle of leadership on free trade will expand opportunity for U.S. entrepreneurs, businesses, workers and consumers, as well as for those in nations with which we have free trade agreements.

Thank you for your leadership and for hosting this hearing to explore the direction of U.S. trade policy.  Please let SBE Council know how we can help the Committee better understand the small business stake in this important issue.

Sincerely,

Karen Kerrigan, President & CEO

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