Global Trade Agreements Expanding (Without the U.S.), Leaving Our Small Businesses Behind

By at 18 November, 2017, 7:38 pm

by Raymond J. Keating-

The rest of the world continues to work to roll back barriers to international trade. Meanwhile, the U.S. is meandering and pulling back, thereby reducing opportunities for American small businesses and entrepreneurs in the global marketplace.

Small businesses and their employees cannot afford to be left behind as trade among other nations expands.

While supporting positive efforts to provide tax and regulatory relief, President Trump’s direction on international trade belies his desire to grow the U.S. economy and help make our businesses more competitive and profitable. He removed the United States from the Trans-Pacific Partnership trade accord (TPP), while also creating uncertainty in renegotiating NAFTA. The President threatened to abandon the U.S.-South Korea trade agreement, and most recently, pledged that his administration will not engage in multilateral trade agreements.

In contrast, on November 10, trade ministers from the remaining 11 TPP nations announced that they were pushing ahead with getting the agreement done. As reported, “Though the economic impact of the agreement will be much smaller without the U.S. — TPP 11 makes up only 13.5% of the world’s gross domestic product and 15.2% of global trade volumes, as opposed to 38.2% and 26.5%, respectively, with the U.S. — the deal represents a statement of intent from the Asia-Pacific nations that multilateral trade is the future for them.”

Free Trade Critical for Small Business

In an analysis written when the TPP agreement was announced and in another analysis published in May of last year, SBE Council noted the benefits of reducing government barriers to trade between the U.S. and these 11 Pacific Rim nations, including tremendous plusses for small business.

Indeed, the absence of the U.S. from this agreement is not good news for small businesses. CNBC correctly noted, “Once the new deal is implemented, American farmers could be left at a disadvantage: The agreement seeks lower tariffs for goods traded among members, the bulk of which are Asia-Pacific nations. That means non-member countries, such as the U.S., will still face high rates when shipping to Asia-Pacific… Many U.S. small and medium-sized enterprises depend on the exports of goods and services to Asia. They will likely become less competitive as a result of exclusion from the new TPP, which seeks to facilitate easier access to regional supply chains for SMEs.”

Interestingly, regarding the TPP moving ahead, Japanese Economy Minister Toshimitsu Motegi was quoted: “The 11 countries completely share the view that bringing the agreement into force as quickly as possible is important to help persuade the U.S. to return to it.”

Indeed, let’s hope the U.S. is persuaded for the sake of small businesses so deeply involved in trade. According to U.S. Census Bureau data, 86.7 percent of U.S. exporting firms have fewer than 50 workers and 91.9 percent less than 100 employees; while on the import side, 85.5 percent have less than 50 workers, and 90.8 percent less than 100 employees.

Small businesses and their employees cannot afford to be left behind as trade among other nations expands.

NAFTA Has Been Good News for Small Business

As for another multilateral trade accord critical for small businesses, NAFTA must not be undermined in the current renegotiation process. In June 2017 testimony to the Office of the United States Trade Representative on NAFTA negotiations, among the points I made were the following:

● “With regard to NAFTA renegotiations, it is critical that in order for such negotiations to result in modernizing and strengthening an agreement that went into effect over 23 years ago, all parties stay true to free-trade goals and principles of reducing governmental barriers, obstacles and costs that limit opportunities for entrepreneurs, businesses, workers and consumers.”

● “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 2016, U.S. goods exports to our neighbor to the north increased by 165.7 percent. But export growth has been particularly strong with Mexico, since NAFTA took effect in 1994. U.S. goods exports to Mexico grew by 452.2 percent from 1993 to 2016. That was more than double the growth in U.S. exports to the world (a 212 percent increase in U.S. global goods exports over the same period).”

● “Consider that, according to U.S. Commerce Department data, in 2015, there were 89,106 firms that were exporters to Canada, as well as 59,428 firms exporting to Mexico. In each case, …, these overwhelmingly are small and mid-size businesses. For example, 75.4 percent of firms exporting to Canada and 72.7 percent of firms exporting to Mexico have less than 50 employees.”

● “For good measure, 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. Indeed, NAFTA has been a growth engine for small business.”

There is nothing inherently wrong with multilateral trade agreements. In fact, after World War II through the administration of President George W. Bush, presidents on both sides of the aisle largely led the world toward freer trade, with enormous economic benefits for U.S. entrepreneurs, businesses, workers and consumers, along with our trading partners.

Trade is not a zero-sum game, where if one side gains, the other loses. By definition, voluntary trades among businesses and consumers – whether across town or around the world – feed greater economic and income growth, and are by definition mutually beneficial, otherwise, such trades would not be undertaken. Government getting in the way of or trying to manipulate such trading due to, for example, misplaced concerns over trade deficits is the true source of problems.

However, the Obama administration largely stayed on the trade sidelines, but for its last minute support for the TPP, and the Trump administration is stepping further back from the international trade field of play. For the sake of more robust economic and income growth, and expanded opportunities for entrepreneurs, small businesses and workers, the U.S. needs to get back in the free trade game.

The U.S. must reclaim our global leadership role in reducing governmental barriers to trade between businesses and individuals. That process should start by reducing costly uncertainties regarding agreements already in effect, such as NAFTA and the U.S.-South Korea accord, and re-engaging on matters like the TPP.

Imagine the boost to U.S. economic and small business growth if the policy agenda were fully pro-growth, that is, tax relief, regulatory relief, reining in government spending, and advancing opportunities for entrepreneurs in the international marketplace.

See SBE Council’s latest look at trade data.

Also, please note that SBE Council has joined “ACTION for Trade.”

Please read SBE Council’s October 2016 study The Perils of Protectionism: Lost Opportunities for Small Businesses and the U.S. Economy.


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.

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