PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Small Business Week and the Global Marketplace: Trade and Small Business

By at 1 May, 2018, 9:47 am

by Raymond J. Keating-

Given that trade is such a hot policy topic right now, and considering that this is National Small Business Week, let’s take a look at key points on trade from a small business perspective.

First, it’s critical to provide a reminder that trade is not just about the “big guys,” but instead, is very much is about smaller businesses. In fact, most businesses involved in international trade are small firms.

U.S. Exporters

For example, according to the latest U.S. Census Bureau data (2016), 76.1 percent of U.S. exporters have fewer than 20 employees, 86.6 percent fewer than fewer than 50 workers, 91.8 percent fewer than 100 employees, and 97.5 percent fewer than 500 workers.

U.S. Importers

The story is similar in terms of importers, with 76.1 percent having fewer than 20 employees, 86.1 percent fewer than 50 employees, 91.3 percent fewer than 100, and 97.3 percent fewer than 500 workers.

Key Trading Partners

The same goes for trade with nations that have emerged on President Trump’s priority list, including renegotiating and the potential threat of pulling out of NAFTA with Mexico and Canada, and actual and threatened tariffs on goods from China.

Small Business and Mexico. Among U.S. businesses exporting to Mexico, 57.7 percent have fewer than 20 workers, 72.3 percent have fewer than 50 employees, 81.4 percent fewer than 100, and 93.6 percent less than 500 workers. Among businesses involved with importing from Mexico, 57.6 percent have fewer than 20 workers, 67.9 percent fewer than 50 employees, 74.6 percent fewer than 100, and 86.8 percent less than 500 employees.

Small Business and Canada. As for trade with Canada, 59.9 percent of U.S. exporters have fewer than 20 employees, 75.3 percent fewer than 50 employees, 83.7 percent fewer than 100 workers, and 94.4 percent less than 500. Meanwhile, as for importers, 43.3 percent have less than 20 employees, 55.7 percent fewer than 50 employees, 65.3 percent less than 100, and 83.0 percent fewer than 500 workers.

Small Business and China. Meanwhile, as for U.S. exporters to China, 53.7 percent have fewer than 20 employees, 68.7 percent less than 50 employees, 78.4 percent fewer than 100 workers, and 92.1 percent fewer than 500 employees. And regarding importers dealing with China, 74.3 percent have less than 20 employees, 84.9 percent fewer than 50, 90.2 percent fewer than 100, and 96.7 percent fewer than 500 employees.

Policy: Lower Barriers to Trade

Second, in terms of policy, reducing or eliminating governmental barriers to international trade between individuals and businesses remains critical. Free trade agreements reduce costs and obstacles, such as tariffs and quotas, and, for example, protect intellectual property, thereby enhancing opportunities for U.S. entrepreneurs, businesses and workers.

In addition, free trade reduces prices and expands choices for U.S. consumers, while doing the same for U.S. businesses in terms of, for example, intermediate and capital goods. Often times in the trade debate, imports either are treated as economic negatives – which they are not – or are simply ignored.

In reality, imports naturally increase with expanding domestic production and rising foreign investment in the U.S. When the U.S. economy is growing, imports of consumer, intermediate and capital goods commensurately increase. In fact, it must be kept in mind that more than 55 percent of all U.S. goods imports in 2017 were inputs for U.S. businesses, that is, they were intermediate goods or capital goods.

So, limiting trade, such as via higher tariffs or quotas, raises costs for U.S. entrepreneurs and small businesses.

Trade and the U.S. Economy

Third, the role of trade in the U.S. economy must be understood. Real total trade (exports plus imports) as a share of real GDP jumped from 6.1 percent in 1955, for example, to 29.3 percent in 2017. And growth in trade has equaled or accounted for at least 40 percent of U.S. economic growth in recent decades. Trade matters to the U.S. economy.

Finally, as explained in my recent testimony on small business and trade before the House Committee on Small Business, U.S. trade policy should be focused on strengthening NAFTA, such as via enhanced IP protections, not undermining it; reclaiming the U.S. leadership role in advancing free trade; and rather than imposing or threatening tariffs and quotas that will only hurt U.S. consumers and small businesses, when it comes to China, the U.S. should lead by example, making clear the benefits of protecting IP, for example, and engaging China constructively with the ultimate goal being a U.S.-China free trade agreement.

Trade and an agenda that expands global opportunities for entrepreneurs is worthy of celebration during National Small Business Week.

_______

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.

News and Media Releases