Iowa State International Business Conference - Keynote Address by Thomas J. Donohue

Keynote Address by Thomas J. Donohue
President & CEO, U.S. Chamber of Commerce

April 2, 2004
Ames, Iowa

Introduction

Thank you. It's a great privilege to be back at Iowa State. I spoke at the Voorhees Lecture Series ten years ago, back when I was at ATA. Seeing old friends and familiar faces from the industry gives this event the feel of a mini-reunion for me.

I'm very pleased to see that a program for global entrepreneurs was added this year. Small business owners are the backbone of our economy.

They produce up to three-quarters of new jobs and most of the private sector output. And, what many people are surprised to learn, small businesses represent 96% of all exporters of goods.

So if you're going to hold a conference on the global supply chain, it sure makes a heck of a lot of sense to include entrepreneurs and small business owners.

It's a very good time to be talking about the challenges and opportunities presented by the global economy.

The presidential campaigns and the media are elevating the issue in the public consciousness, and the two candidates appear to have divergent views on how—or even whether—the United States should engage the global economy.

Well, 96% of the people we're trying to sell a product or provide a service to live outside the United States. So trading and investing around the globe is not a luxury; it is a requirement for competitiveness, growth, and prosperity.

That is why the Chamber is making such a strong case for free trade and investment in Washington and in capitals around the world.

We do this in many different ways. For instance, we perform trade education and nuts-to-bolts trade how-to for small businesses through our TradeRoots program.

We have a team of lobbyists who work to advance free trade agreements. We're making great progress in this area—deals with Singapore and Chile became law last year, and negotiations with Australia, Morocco and a group of Central American countries have concluded and are ready for Congressional review.

We have an international department with global regional experts who uncover overseas business opportunities, lead business delegations to foreign countries, and otherwise strengthen ties between U.S. and foreign business communities.

Through our affiliate, the Center for International Private Enterprise, or CIPE, the Chamber works to create conditions in developing countries that will produce democratic, free market societies. CIPE has eight field offices, including one in Iraq and in Afghanistan.

While the fight for free and fair trade is one the Chamber relishes, it is not an easy one.

Today, I would like to address some of the major challenges and opportunities in the global marketplace and share with you a few keys to future U.S. competitiveness.

Let me begin with an issue that is dominating all others in this election year—and that's the issue of U.S. jobs going overseas.

Outsourcing

We hear claims that global sourcing has destroyed our nation's manufacturing sector, when in fact real manufacturing output has nearly doubled in the last three decades.

It is that since 1995 manufacturing employment has dropped 11% in the U.S. But guess what? It has dropped 15% in China since that time. Where did all of these jobs go? To a country called "productivity."

Without question, some manufacturing jobs have been lost to overseas markets, and the same is now happening with some service jobs.

Rapid improvements in data and telecommunications, information technologies, and the educational levels of emerging economies have advanced sourcing to the point where it can cross international borders and encompass tasks you could never source before.

But we must not overstate the level of offshore sourcing. An analysis by Gartner Inc. has determined that exported business services today account for less than one-twentieth of 1% of GDP. And most of the sourced service jobs require little skill or training. The high-end work and wages stay here.

Yes, there is another study that forecasts 3.3 million info tech jobs sent overseas by 2015—but remember we are talking about an economy that employs 138 million and which will soon actually be short of workers.

President Bush's economist dared to say that sourcing is "probably a good thing for the U.S. economy in the long term." He caught a lot of hell for it—but is he right? Most economists, including Fed Chairman Alan Greenspan, think he is basically correct.

Outsourcing by other countries directly provides 6.4 million jobs in the U.S., and as many as 20 million indirectly.

Take a company like Toyota, which employs some 30,000 workers here but actually accounts for many times that number if you count all the dealers, distributors, and suppliers who get business from Toyota.

BMW employs 4,300 workers to make cars in South Carolina; Mercedes makes cars in Alabama, Honda in Ohio.

And by the way, jobs produced as a direct result of insourcing pay 16.5% more than the average domestic job.

U.S. exports support another 12 million jobs, and millions more are sustained by trade indirectly. We MUST consider these facts in any discussion about how we respond to sourcing.

Also, lower costs and greater productivity generated from sourcing enable firms to invest more in their core business, develop new and better products, and create better, higher-paying jobs here at home.

A new study released just this week shows that U.S. companies sending computer jobs abroad yielded higher productivity that boosted domestic employment by 90,000 across the economy last year.

Sourcing of computer jobs also increased U.S. exports by $2.3 billion last year and is expected to expand exports by $9 billion by 2008.

Foreign service providers need our computers, telecommunications equipment, and other hardware and software to do their jobs.

Call centers in India are outfitted with Compaq computers, Microsoft software, Lucent phones, and Coca-Cola bottled water. Offshore service firms also procure legal, financial, and marketing services from the U.S.

All in all, what we are really witnessing is not permanent job loss, but rather "job churning" created by a rapidly changing, competitive global economy.

What about those who are displaced? We have to train, educate, and retrain our workforce. Business spends $60 billion a year training their employees, and the federal government pitches in another $15 billion.

We strongly support the Trade Adjustment Assistance program. If it needs changes or an expansion to encompass newly displaced workers, we'd be willing to work to ensure that Congress gets it done.

Studies show that workers displaced by sourcing are often retrained for better jobs within the companies doing the sourcing.

For example, Cisco Systems is a leader in sourcing but has not reduced the number of its domestic employees—they've been redeployed into other areas, doing higher value-added work that often pays better than the jobs sent overseas.

We already know that we must make it more attractive to create and keep jobs in the United States—and we know how to do it. We must weed out excessive regulations, reform the legal system, reform an antiquated tax system, and expand our energy supply.

I can tell you that a number of companies have been literally driven out of this country because they need access to sufficient supplies of natural gas and more affordable health care.

The worst possible strategy for creating and keeping more jobs here would be to place restrictions on sourcing.

There are dozens of bills in state legislatures right now and some pending in Congress that would punish or try to limit sourcing.

Many would prevent companies that source from participating in the government contracting process. This will raise costs for taxpayers with absolutely no guarantee it will create one additional American job.

Fewer bids and less competition mean higher prices, lower quality and eventually higher taxes—which will take more money from the private economy and hurt job creation.

And, these and other punitive steps could violate the agreements we made with trading partners and cause retaliation.

Trade

That brings me to my second point. The U.S. must show strong leadership in starting, renewing, and advancing negotiations with our trading partners.

When compared with the rest of the world, the United States has a lot of catching up to do in the free trade arena. The European Union has 32 free trade agreements around the world. We have just five.

As I mentioned earlier, we are making progress on a number of bilateral and regional free trade agreements, but we must also turn the heat up on negotiations for a Free Trade Area of the Americas agreement and the WTO Doha Round.

According to the World Bank, a successful Doha round would increase global income by $500 billion and lift more than 144 million people out of poverty by 2015.

Successful talks would result in the reduction of agricultural subsidies, lower tariffs on manufactured products, and stronger rules governing services trade, intellectual property rights and foreign direct investment – measures that would especially benefit developing countries as they climb the economic ladder.

These promising benefits seemed lost on a group of developing countries that stalled the Doha round last fall in Cancun. As a veteran of many tough negotiations in my own career, I can tell you that sometimes it takes at least one and often several breakdowns in the negotiating process before the competing parties decide to get serious.

So the Chamber will continue to work with our own negotiators and like-minded allies around the world to put Doha back on track.

While working to complete negotiations in progress, we must also ensure that our trading partners live up to the obligations of trade treaties already in the books.

China is one trading partner we are working closely with in this regard.

On the positive side, China has undertaken a wide-ranging and impressive program to educate its officials and companies about the country's WTO obligations. A number of regulations have been revised and others newly written to comply with WTO principles.

But in other areas, including intellectual property rights protection, transparency, distribution services and trading rights, standards, and government procurement, among others, additional progress is needed—and expected.

For example, the express delivery services market in China remains largely closed to foreign-owned businesses because of excessive regulatory burdens and fees, a partial government monopoly, and a requirement that firms obtain special government permission to compete.

I'll be addressing similar issues in India when I travel there later this month to meet with government and business leaders. Tariff barriers in that country remain strikingly high, and unequal corporate and industry tax treatment puts U.S. firms at a distinct competitive disadvantage.

Infrastructure

We Americans have never been shy in telling other nations what they need to do to attract more foreign trade and investment, but we sometimes neglect our own responsibilities of being a global economic leader. I'd like to raise two specific issues.

First is our need for greater investment in our nation's infrastructure.

With nearly 4 million miles of public roads and bridges, more than 5,000 airports, 170,000 miles of track, 7,500 miles of subway and urban commuter track, and 9,000 commercial docks, wharves, and piers, the U.S. transportation network is an extraordinarily vital and valuable asset—and one we can no longer afford to ignore.

Our transportation network is under increasing strain, with serious consequences for our safety, mobility, the environment, and the ability to operate efficient and profitable businesses.

At the moment, the Chamber, through the Americans for Transportation Mobility coalition, is leading the effort to push the highway funding bill, TEA-21, through Congress.

Our goals are to:

• Achieve the highest level of funding possible;
• Protect the integrity of the highway trust fund so that funds are used only for their intended purpose of improving the nation's surface transportation infrastructure; and
• Demonstrate to the public the link between infrastructure investment and new jobs, economic growth, clean air, enhanced national security and increased safety.

Homeland Security

While upgrading our ports, airports, and highways should be a national priority, we must also ensure that people and goods can move through them as quickly and efficiently as possible.

One of our biggest challenges is striking the right balance between enhanced border and port security with the smooth flow of legitimate trade and travel expected in our just-in-time global economy.

Freight carriers and importers are adjusting their business practices to comply with the "24-hour rule" and advanced electronic transmission of cargo manifest requirements, among other transportation security regulations being implemented by the Department of Homeland Security.

All the while, regulators are invoking "emergency" powers to draft new rules with shorter than normal comment and evaluation periods.

The U.S. Chamber and the coalition "Americans for Better Borders" are on the front lines working to ensure that increased security measures are truly effective and are achieved without choking off the trade and jobs on which our people depend.

We've established a close working relationship with DHS to address these issues and to present ideas on how to achieve security and protect our mobility.

Through new technology, we have the potential to keep suspicious cargo and those with criminal or terrorist backgrounds out of our country without having to endure logjams at border crossings and ports.

In the end, the responsibility rests with business to speak out and insist that YES, we need to enhance security at our borders — but we ALSO must ensure that we can continue to move people and goods across the border with speed and efficiency.

Conclusion

Ladies and gentlemen, it could be argued that competing in today's global economy is tougher than it's ever been.

Our competitors are stronger today than they used to be in large part because they followed a lot of the advice we have given them over the past 50 years – they opened their economies, invested in infrastructure, and improved their educational systems.

But we still have the advantage because of our economic freedom; the free flow of new ideas and people; an entrepreneurial culture that encourages us to try—and if we fail, to try again; a system of governance based on transparency and the rule of law; and financial markets and a venture capital system that are unrivaled at taking new ideas and turning them into global products.

I'm confident the U.S. will always remain atop of the global economic food chain—as long as we keep our economy open and free, invest in education and training, and stay off the road of isolationism and defeatism.

Thank you very much.