Trade, Inflation and Small Business

By SBE Council at 5 May, 2022, 10:20 am

by Raymond J. Keating –

During National Small Business Week, it’s particularly worth noting that the U.S. economy is a small business economy – and that’s the case when it comes to international trade as well.

In general, according to the latest Census Bureau data (pre-pandemic, by the way), there are roughly 32.6 million businesses in the U.S., and of those, only 20,868 have 500 or more employees. Yes, the American economy is overwhelmingly about smaller businesses.

Small Businesses Dominate Global Trade

Some people might still be surprised to learn that international trade is largely about smaller enterprises as well. Consider that, again based on Census data, among all identified U.S. exporting firms:

● 76.3 percent have fewer than 20 employees

● 86.3 percent fewer than 50 employees

● 91.4 percent fewer than 100 employees

● 97.4 percent fewer than 500 employees.

And on the import side:

● 76.7 percent of importing firms have fewer than 20 employees

● 86.4 percent fewer than 50 employees

● 91.3 percent fewer than 100 employees

● 97.3 percent fewer than 500 employees.

This puts trade data in different perspective, given that most people seem to mistakenly believe that trade is exclusively the domain of large businesses.

The Growth of Trade in March 2022

According to the latest trade data from the U.S. Bureau of Economic analysis, both U.S. exports and imports grew in March. For good measure, growth was strong enough to outstrip inflation, that is, we saw real growth in exports and imports during March. That should aid real GDP for the first quarter when we see the first update or revision toward the end of May.

While total exports and imports are presented in nominal dollars (that is, not adjusted for inflation), this report does offer a look at real goods exports and imports (excluding services). Real goods exports in March ran ahead of the levels in February and January, but offered no growth versus where they were during October, November and December.

Meanwhile, real goods imports have grown since July of last year, with the move up in March of this year being particularly strong.

Trade Growth is a Positive for the U.S. Economy

In the end, the growth in trade in March is a positive for the overall economy, including small businesses, and continued growth in trade is essential to overall U.S. economic growth. Export growth means expanding business and opportunities for U.S. entrepreneurs, businesses and workers in international markets. And the same goes for rising imports, nearly all of which are inputs to U.S. businesses, from manufacturers to retailers.

Of course, we would all benefit from a policy shift on trade, from the current mix of protectionism and indifference to a pro-growth agenda of advancing free trade agreements that reduce governmental barriers to opportunity in international markets.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.