Key Reminders on the Benefits of Trade During “World Trade Week”

By SBE Council at 16 May, 2022, 6:15 pm

by Raymond J. Keating  –

International trade, unencumbered by assorted government-imposed costs like tariffs and quotas, is a positive for the economy, including for small businesses. World Trade Week (May 15-22, 2022), of course, is a period in which we should take note of such benefits.

Indeed, any opportunity to remind or teach people about the benefits of free trade needs to be taken, as trade is an issue that too often succumbs to special-interest politics. While most economists agree on trade being a positive for the economy, it’s still an ongoing process to keep people thinking clearly on trade. I’ve been trying to do so in periodicals, classrooms, and the halls of Congress for more than three decades, including writing a book called Free Trade Rocks!

Let’s take World Trade Week to provide a reminder on four essential points on trade that too many people are either unaware of or sometimes forget.

First, trade very much is about small business. International trade is far from being the exclusive domain of ‘big business.” Consider that, based on the latest U.S. Census Bureau data, among all identified U.S. exporting firms:

● 76.3% have fewer than 20 employees

● 86.3% fewer than 50 employees

● 91.4% fewer than 100 employees

● 97.4% fewer than 500 employees.

On the import side:

● 76.7% have fewer than 20 employees

● 86.4% fewer than 50 employees

● 91.3% fewer than 100 employees

● 97.3% fewer than 500 employees

Second, trade helps to fuel the U.S. economy. For example, real total trade (that is, real exports plus real imports) equaled 30.3% of real GDP in 2021, up from 6.3% in 1955.

Third, imports are not negatives for the U.S. economy. To the contrary, practically all imports are inputs to domestic U.S. businesses, from manufacturers to retail establishments. Economist Don Boudreaux explained this important point perfectly:

“In summary, with the exception of vacation travel abroad, almost no imports are purchased directly by final consumers.  Almost all imports, even ones that are conventionally classified as ‘final consumer goods,’ are inputs into the production processes of domestic producers. Almost all imports, even ones that are conventionally classified as ‘final consumer goods,’ are in fact intermediate goods. And therefore, almost all tariffs, even ones on imports that are conventionally classified as ‘final consumer goods,’ artificially increase the costs of producing domestically and of otherwise operating domestic businesses.”

Fourth, the U.S. is an export leader. For some reason, the idea that the U.S. is not a major exporting nation seems to hold sway in some circles. In reality, the U.S. is the second largest exporter of goods, the largest services exporter, and the “world’s largest trading nation,” according to the Office of the U.S. Trade Representative.

What are the top goods exporter by the U.S.? WorldsTopExports.com reported the following for 2021 regarding U.S. exports:

1.) Mineral fuels including oil: US$239.8 billion (13.7% of total exports)

2.) Machinery including computers: $209.3 billion (11.9%)

3.) Electrical machinery, equipment: $185.4 billion (10.6%)

4.) Vehicles: $122.2 billion (7%)

5.) Optical, technical, medical apparatus: $91.7 billion (5.2%)

6.) Aircraft, spacecraft: $89.1 billion (5.1%)

7.) Gems, precious metals: $82.3 billion (4.7%)

8.) Pharmaceuticals: $78 billion (4.4%)

9.) Plastics, plastic articles: $74.3 billion (4.2%)

10.) Organic chemicals: $42.9 billion (2.4%)

These four points provide some powerful reminders on why free trade, that is, reducing governmental burdens on international trade, is a positive for U.S. entrepreneurs, businesses, workers and consumers.

This is good news during World Trade Week, and throughout the rest of the year.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest nonfiction book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.