The Benefits of International Trade and Investment
America cannot have a growing economy or lift the wages and incomes of our citizens unless we continue to reach beyond our borders and sell products, produce, and services to the 95% of the world's population that lives outside the United States.
Few Americans are aware that the United States is the world's largest exporter of goods and services, notwithstanding media reports that China recently overtook Germany as the leading exporter of goods. U.S. exports of goods and services surpassed $1.83 trillion in 2008 and $1.55 trillion in 2009, according to the U.S. Department of Commerce.
These exports support millions of jobs. More than 50 million American workers are employed by companies that engage in international trade, according to the U.S. Department of the Treasury. This sum represents approximately 40% of the U.S. private sector workforce.
Trade is critical to the success of many sectors of the U.S. economy. Manufacturing is the sector that exports the most, with more than $1 trillion worth of exports in 2008. The U.S. Department of Commerce reports that one in four manufacturing jobs depends on exports.
The strong export performance of U.S. manufacturers was one factor allowing them boost their output by more than 70% between 1990 and 2008, according to the U.S. Department of Commerce. Vast productivity gains relating to increased use of automation and information technologies have helped U.S. manufacturers retain and in many areas enhance their global competitiveness in recent years, even as the number of Americans employed in manufacturing has declined since its peak in 1979.
In fact, the United States remains the world's largest manufacturer. U.S. factories account for 21% of the world's manufacturing value added — or 60% more than China, the second largest manufacturer — according to the UN Industrial Development Organization. The U.S. share of global manufacturing has held roughly steady for nearly four decades.
U.S. exports of services are also booming, reaching $507 billion last year. The United States achieved a trade surplus in services of $136 billion in 2009, according to the U.S. Department of Commerce. The United States is by far the world's largest exporter of services, and America's globally competitive service industries — which range from insurance and retail to telecommunications and express delivery — benefit immensely from opportunities abroad.
American farmers and ranchers also depend on exports. The U.S. Department of Agriculture reports that one in every three acres on American farms is planted for export markets. Agricultural exports broke the $100 billion mark for the first time in 2008.
Amid a renewed focus on boosting U.S. exports, it is important to bear in mind that imports benefit Americans as well. They bring lower prices for American families as they try to stretch their budgets. They expand choices and competition in the marketplace. Imports give us access to products that would not otherwise be available — such as fresh fruit in the winter. According to the Office of the U.S. Trade Representative, tariff reductions on imports brought about by the Uruguay Round and NAFTA increased the typical American family's purchasing power by $1,300 to $2,000 per year.
Indeed, tremendous benefits have flowed from U.S. FTAs, which cover 17 countries. These countries represent approximately 7% of global GDP outside the United States, and yet last year these markets purchased more than 40% of U.S. exports, according to the U.S. Department of Commerce. In other words, U.S. FTAs do an outstanding job making big markets even out of small economies.
The trade balance is a poor measure of the success of these agreements, but deficits are often cited by trade skeptics as a reason why the United States should not negotiate free trade agreements. However, taken as a group, the United States is now running a trade surplus in manufactured goods with its 17 FTA partner countries, according to the U.S. Department of Commerce (on top of the U.S. global trade surpluses in services and agricultural products). In fact, imported oil and gas from Canada and Mexico accounts for most of the remaining U.S. trade deficit with these countries, which is surely a result of geology, not trade policy.
Also overlooked in the U.S. trade debate is the fact that more than 97% of the quarter million U.S. companies that export are small and medium-sized enterprises (SMEs), and they account for nearly a third of U.S. merchandise exports, according to the U.S. Department of Commerce. In fact, the number of SMEs that export has risen two-and-a-half fold since 1992, reaching 281,668 in 2008. During the same period, their export revenue tripled, surpassing $359 billion in 2008.
"Evidence shows that many SMEs could sharply boost exports by entering new markets," reports the U.S. Department of Commerce. "Compared with large firms, SMEs are especially dependent on U.S. government initiatives to open foreign markets. This is because, unlike big companies, most SMEs do not possess offshore business affiliates that can be used to circumvent trade barriers and gain market access."
International investment is also critical to the future prospects of U.S. business. While three-quarters of U.S. multinational companies' capital expenditures are in the United States, they have invested more than $3 trillion abroad, according to the U.S. Department of Commerce. Sales by foreign affiliates of U.S. multinationals surpassed $5.5 trillion in 2007 — an astonishing sum that represents roughly half of all revenue earned by the Fortune 500 companies.
Most of these investments abroad are in sectors that cannot be served by means of exports from the United States. This includes many services as well as manufacturing operations for goods, such as detergent or potato chips, which generally cannot be exported due to high transportation costs or barriers to trade.
While these activities take place outside the United States, U.S. firms' investments abroad bring real benefits to Americans. As noted, U.S. multinational corporations earn trillions of dollars in revenue through their foreign operations, which creates tremendous value for shareholders and helps fund U.S. multinationals' research and development activities, 80% of which continues to be performed in the United States, according to the U.S. Department of Commerce.
Contrary to myth, an open investment regime that allows U.S. multinationals to invest abroad does not create a zero sum game in which a job created abroad is a job eliminated at home. A recent study found that U.S. companies that invest abroad create 2.3 jobs in the United States for every one they create overseas. U.S. companies that invest abroad tend to be more successful in a variety of ways, and they pay higher wages and create more jobs in the United States.
Nor does an open investment regime that allows U.S. multinationals to invest abroad create a race to the bottom. As noted, three-quarters of U.S. multinationals' capital expenditures are in the United States, and two-thirds of the portion that does go abroad is directed to developed countries with wages and labor standards similar to those in the United States, according to data from the U.S. Department of Commerce. When U.S. multinationals do invest in developing countries, they often create the best paying jobs around, with the best working conditions.
Finally, it is important to keep in mind that investment flows in as well as out. Foreign direct investment in the United States totals more than $2 trillion and sustains 5 million American jobs with an annual payroll of $350 billion, according to the U.S. Department of Commerce.
In the end, we cannot turn our back on international trade and investment. It is an inevitable part of the world in the 21st century. To secure the benefits of trade, our elected leaders must prioritize initiatives to open foreign markets and sell more of our goods and services overseas. Taking such steps will help grow jobs here at home.
American workers, companies, and farms are the most productive in the world. We must continue to expand our access to export markets—and that means keeping our own markets open and staying engaged in the global trading system.