The State of World Trade 2013: The Outlook for American Jobs, Economic Growth, and Global Leadership, Remarks by John Murphy Vice President for International Affairs U.S. Chamber of Commerce

As Prepared for Delivery

“Go Global” Conference
Rockford, Illinois

It’s a pleasure to be here today. In particular, I’d like to thank the members of the Go Global Planning Committee for the kind invitation.

Those of you who have visited the U.S. Chamber in Washington know we’re just across Lafayette Park from the White House. A couple of years ago, we put up a banner with 30-foot high letters across the front of our building, spelling J — O — B — S. It’s a reminder to the president and to ourselves that no priority facing our nation is more important than putting Americans back to work.

Nearly 12 million American are unemployed. We estimate the United States will need to create 20 million jobs by the year 2020 to replace the jobs lost in the recession and to meet the needs of our growing workforce.

World trade is playing a vital role as we reach for this job-creation goal. But too often, trade is a used as scare word. Many of you here today already have real world experience in international trade, but many Americans misunderstand the opportunities presented by exporting and importing.

Dr. Johnson wrote: “People need to be reminded more often than they need to be instructed.” I certainly need plenty of reminding. So I’d like to begin with some reminders about the basic facts about trade.

I’ll also look at the importance of trade to American manufacturing, how trade agreements can open up foreign markets, and how the United States is seeking new trade deals in Asia, Europe, and elsewhere to drive growth and job creation here at home.

The Overlooked Facts

To begin, I’d like to share the Chamber’s overview of the “Top 10 Overlooked Facts about International Trade.”

1) Outside our borders are markets that represent 80% of the world’s purchasing power, 92% of its economic growth, and 95% of its consumers. The possibilities are endless.

2) One in three manufacturing jobs depends on exports. In fact, U.S. factories have nearly doubled their output in the past two decades and today account for one-fifth of world manufacturing value added — a share greater than that of China, India, Brazil, and Russia combined.

3) One in three acres on American farms is planted for export. U.S. farmers and ranchers are the world’s most productive and top the global export rankings for a host of commodities.

4) U.S. services exports top $600 billion dollars annually, with a trade surplus that approaches $200 billion. The United States is home to large numbers of world beating services firms in such sectors as audiovisual, banking, energy services, express delivery, information technology, insurance, and telecom.

5) While they represent just 10% of global GDP, America’s free-trade agreement partners buy nearly half of U.S. exports. In other words, free-trade agreements can make big markets even out of small economies.

6) The United States has a trade surplus with its 20 free-trade agreement partners — in manufactures, services, and agricultural products. If you’re worried about the trade deficit, free-trade agreements are the solution — not the problem.

7) Imports mean lower prices and more choices for American families as they try to stretch their budgets and for companies seeking raw materials and other inputs. Access to imports boosts the purchasing power of the average American household by about $10,000 annually.

8) Trade supports 38 million jobs in the United States — more than one in five American jobs. The expansion in trade spurred by U.S. free-trade agreements sustains more than five million of those jobs.

9) More than 97% of the 293,000 U.S. companies that export their products are small and medium-sized companies. While large companies account for a majority of exports, small and medium-sized companies account for more than one-third of all U.S. merchandise exports.

10) U.S. exports of goods and services reached nearly $2.2 trillion in 2012. In other words, American workers, farmers and companies can compete and win in the worldwide economy.

Trade and American Manufacturing

I was asked to take a little extra time and reflect on how important trade is to American manufacturers.

Let me take a step back. First of all, reports of the demise of American manufacturing are greatly exaggerated. U.S. manufacturing output rose by 73% between 1993 and 2011, according to the U.S. Department of Commerce. That means it’s well on its way to doubling within two decades.

This increase represents the continuation of a long trend: U.S. manufacturing value added has grown eightfold since 1947 in real terms. And as I mentioned, the United States remains the world’s largest manufacturer, accounting for about one-fifth of world manufacturing output. The U.S. share has remained fairly steady for about four decades.

American manufacturers were hammered by the recent recession and a steep fall in demand. In other words, their customers cut back sharply on their purchases. But throughout the preceding two decades, American manufacturers set new records for output, revenues, profits, profit rates, and return on investment.

The same can’t be said of factory jobs. U.S. manufacturing jobs peaked at 19.5 million in 1979. That number has declined pretty steadily since then. Today, about 12 million Americans work in manufacturing.

Where have the lost manufacturing jobs gone? Not to Mexico or China. According to the federal government, less than 1% of layoffs is attributable to “offshoring” or the movement of jobs overseas.

Rather, most of these jobs have been lost to a country called “productivity.” Technological change, automation, and widespread use of information technologies have enabled firms to boost output even as some have cut payrolls. Today, sophisticated capital goods are often cheaper substitutes for low-skilled workers.

This productivity revolution is a complex phenomenon, but it’s also global. A RAND study found that China shed 25 million manufacturing jobs between 1994 and 2004, 10 times more than the United States lost in the same period.

Productivity means prosperity, and the productivity of America’s workforce leads the world. But the other side of the coin is that manufacturers can do more with fewer workers.

Happily, our productivity advantage is not the only one we have. There are others, like the incredible shale energy revolution now underway, that will give us access to cheaper energy than many of our global competitors for years to come.

Today, as American manufacturers struggle with a weak recovery at home, their prowess as exporters is one more key asset in their pursuit of success. U.S. exports of manufactured goods topped $1.35 trillion in 2012. And as I mentioned, 12 million Americans work in manufacturing.

Do the math, and you’ll see that exports generate revenue of more than $100,000 for each American factory worker, according to the U.S. Bureau of Labor Statistics and U.S. Department of Commerce.

Compare this with the annual earnings of the typical U.S. manufacturing worker—about $50,000. There is no way manufacturers could make their payrolls without the revenues they earn by exporting.

A Level Playing Field for Trade

In short, for manufacturers — just as for farmers and ranchers and services providers — for companies both large and small — trade is not an optional luxury. It’s an economic imperative.

The United States needs a forward-leaning trade policy that recognizes both the immense opportunities presented by international commerce as well as the challenges it presents.

Building on this clear-eyed vision, trade can revitalize our weak economy and create hundreds of thousands of badly needed jobs without raising taxes and without adding to the deficit. It can help attract foreign investment, travelers, and talent that will spur our economy and put even more Americans back to work.

However, there’s no denying that the international playing field is at times unfairly tilted against American workers and companies. While the U.S. market is largely open to imports, many other countries continue to levy steep tariffs on U.S. exports, and foreign governments have erected other barriers against U.S. goods and services.

U.S. goods arriving in many developing countries, in particular, face tariffs that are five or ten or twenty times as high as our own tariffs, particularly for key U.S. manufactures and agricultural exports.

Americans rightly sense that this status quo is unfair to U.S. workers, farmers, and businesses. No one wants to go into a basketball game down by a dozen points from the tip-off — but that’s exactly what American exporters do every day. These barriers are particularly burdensome for America’s small and medium-sized companies.

The U.S. Chamber believes that American workers, farmers, and companies must be allowed to operate on a level playing field when it comes to trade. We need a strategy for opening overseas markets.

To do that — to bring down the foreign tariffs and other barriers that shut U.S.-made goods and services out of foreign markets — countries negotiate trade agreements to open up markets.

Free trade agreements have a proven record of boosting trade. In the U.S. Chamber’s analysis, U.S. exports to new free-trade agreement partner countries have grown on average four times as rapidly in the three to five year period following an agreement’s entry into force as U.S. exports globally.

We need more of these trade agreements that create a level playing field and that are enforced fairly.

A Trade Report Card

On this front, there’s some good news to report. After a “time out” on trade agreements that lasted for several years, the last Congress approved long-pending free-trade agreements with Colombia, Panama, and South Korea.

Congress in May of last year reauthorized the important Export-Import Bank of the United States, and in December it approved legislation to ensure American companies receive better access to the Russian market in the wake of Moscow’s long-awaited accession to the World Trade Organization (WTO) last summer.

So in some ways, decision-makers in Washington are already at work helping American companies seize the benefits of trade.

We’re seeing some positive results. Since the 2008-2009 financial crisis, U.S. exports have grown rapidly. Exports of goods and services rose by 41% over the past three years. Our boom in exports has accounted for nearly half of all U.S. economic growth during this period as the United States has slowly begun to recover from recession.

But it’s not all rosy. Yes, our trade is up, but we’re still falling behind our competition. The U.S. share of global exports fell from 18% in 2000 to 12% in 2010. What can we do about this? Let me share the Chamber’s agenda with you.

Trade Promotion Authority

First, the president needs the authority to negotiate trade agreements — Trade Promotion Authority (TPA). Without TPA, we simply cannot enter into these new trade agreements I’ve just described.

Congress has granted every president from Franklin D. Roosevelt to George W. Bush the authority to negotiate market-opening trade agreements in consultation with the Congress. The U.S. Constitution gives the Congress authority to regulate international commerce, but it gives the president authority to negotiate with foreign governments.

TPA rests upon this constitutional partnership: It permits the executive branch to negotiate agreements in consultation with the Congress; when an agreement is reached, Congress may approve or reject it, but not amend it.

TPA lapsed in 2007. That’s unacceptable; every American president needs TPA, and every president should have it. Potential partners won’t negotiate seriously if they know agreements could be picked apart by Congress.

Without TPA, the United States is relegated to the sidelines as other nations negotiate trade agreements without us — putting American workers, farmers, and companies at a competitive disadvantage. Already, 354 free trade agreements are in force around the globe, but the United States is a party to just 14 such agreements covering 20 countries.

The last time Congress passed TPA, in 2002, it took more than a year for a bill to reach the president’s desk. The Obama Administration and Congress are now beginning discussions on new negotiating authority. Senate Finance Committee Chairman Max Baucus recently said he wants to introduce a bill by June.

The Chamber stands ready to work to ensure TPA is renewed as soon as possible.

Trans-Pacific Partnership

And with whom should we negotiate trade agreements? When we ask our member companies this question, we always get the same answer: We should go where the money is.

As U.S. companies scour the globe for customers with money to spend, the Asia-Pacific region stands out. Two billion Asians joined the middle class in the last 20 years, and another 1.2 billion are expected to do so by 2020. According to the IMF, the world economy will grow by $21.6 trillion over the next five years, and nearly half of that growth will be in Asia.

However, U.S. companies are falling behind in the Asia-Pacific. Over the last decade, U.S. exports to the Asia-Pacific market have steadily increased, but the U.S. share of the region’s imports declined by about 43% from 2000 to 2010. In fact, the growth in U.S. exports to Asia lagged behind overall U.S. export growth in that period.

Why is this? One reason U.S. companies have lost market share in the Asia-Pacific region is that many countries maintain steep barriers against U.S. exports.

For example, a typical Southeast Asian country imposes tariffs that are five times higher than the U.S. average while its duties on agricultural products soar into the triple digits. In addition, a web of nontariff and regulatory barriers block market access in many countries.

Trade agreements are crafted to overcome these barriers. But what happens if other countries clinch trade deals that leave the United States on the outside, looking in?

The number of trade accords between Asian countries surged from 3 in 2000 to more than 50 in 2011, and another 80 or so are in the pipeline. At the same time, the United States has clinched just three trade agreements in Asia.

In addition, 16 countries are launching expedited negotiations for a trade deal called the Regional Comprehensive Economic Partnership (RCEP). It includes Australia, China, India, Japan, Korea, and New Zealand as well as the 10 ASEAN countries—but not the United States.

The Trans-Pacific Partnership (TPP) is America’s best chance to tap into the world’s most exciting and lucrative markets. Its objective is to achieve a comprehensive, high-standard, and commercially meaningful trade and investment agreement among 11 Asia-Pacific nations.

While U.S. policymakers describe the TPP as Asia-focused, it also aims to integrate existing U.S. trade agreements in the Americas (with Canada, Mexico, Peru, and Chile). The TPP can ensure that the United States isn’t stuck on the outside—looking in—as Asia-Pacific nations pursue new trade accords among themselves.

The TPP negotiators are seeking a comprehensive agreement. In trade talks, whenever one party seeks to exclude a given commodity or sector from an agreement, others tend to follow suit, limiting its reach.

For the United States to achieve the goal of a true 21st century agreement—with state-of-the-art rules on intellectual property, for instance—its negotiators must hold fast to the goal of a comprehensive accord.

The TPP could pay huge dividends for the United States by significantly improving U.S. companies’ access to the Asia-Pacific region, which is projected to import nearly $10 trillion worth of goods in 2020.

Regaining America’s historical share of key Asia-Pacific markets would — in 2020 alone — increase U.S. exports by almost $600 billion, supporting more than 3 million American jobs.

The TPP has the potential to strengthen our nation’s commercial, strategic, and geopolitical ties across the region. What an economic shot in the arm it would be. And what better way to send a clear, unmistakable message that America’s leadership in the Pacific is here to stay.

Trans-Atlantic Partnership

That’s the view across the Pacific. And what about across the Atlantic?

The European Union is by far America’s largest commercial partner and — in the size of its economy — our only true peer. Together, the United States and the EU generate nearly half of global GDP. U.S.-EU trade in goods and services — together with companies’ earnings on bilateral investments — tops $5 trillion annually.

U.S. firms have direct investments surpassing $2 trillion in the EU. This sum represents more than half of all U.S. direct investment abroad and 20 times what U.S. companies have invested in China.

Despite this robust relationship, the U.S.-EU economic relationship could be even more powerful. While European and U.S. tariffs are often low, the sheer volume of transatlantic commerce is so large that eliminating even these relatively small trade barriers could bring big benefits.

According to a study released recently by the Centre for Economic Policy Research in London, a U.S.-EU trade agreement would:

• Boost U.S. exports to the EU by $300 billion annually,
• Add $135 billion to U.S. GDP each year, and
• Increase the purchasing power of the typical American family by nearly $1,000.

That’s why the U.S. and European business communities applauded the recent announcement that the United States and the European Union will negotiate a new trade deal.

In his State of the Union address in February, President Obama called for a Trans-Atlantic Trade and Investment Partnership. This proposed trade deal will:

• Eliminate tariffs,
• Liberalize services, investment, and procurement, and
• Overcome the “tyranny of small differences” between regulations in Europe and America to reduce unnecessary costs.

By doing so, we can ensure our regulations protect health, safety, and the environment while boosting economic growth and job creation on both sides of the Atlantic.

Such an agreement would generate hundreds of thousands of jobs on both sides of the Atlantic, and promote the global competitiveness of U.S. and European firms.

Further, opinion polls show considerable support. According to a Gallup poll earlier this year, 57% of Americans view trade as “an opportunity for economic growth,” while 35% see it as “a threat to the economy.” This is the most positive balance we’ve seen in 20 years. For trade with the EU, the balance is even more positive — by 58% to 28%.

In contrast with some developing countries, the United States and the EU are committed to similar social, labor, and environmental standards. Concerns in these areas have made some recent trade agreements controversial but should not stand in the way of a transatlantic trade accord.

It’s worth taking note of what our neighbors are doing with Europe. The EU has a free trade agreement with Mexico and is negotiating one with Canada. Why on earth would we want to see the United States left behind?

For too long, the United States has ignored the untapped potential of its ties to the world’s other economic colossus. For the sake of jobs and growth, it’s time to turn that around.

Commerce in the Americas

What about the Americas? The ties that bind the United States to our hemispheric neighbors through trade and investment are already strong.

In 2011, the United States exported nearly as much to its neighbors in the Americas as it did to Asia and Europe combined.

This is the result not just of close proximity but of good policy. The United States has free-trade agreements with 12 countries in the Americas stretching from the Canadian arctic to the Chilean antarctic.

These agreements have turbocharged the growth in hemispheric commerce over the past two decades. Today, 87% of our hemispheric exports are shipped to these free-trade agreement partners.

As a result, the United States sells more goods to Canada than to the European Union, which has 15 times as many consumers. U.S. exports to South America grew nearly twice as fast over the past decade as our exports to Asia. The nations of the Americas accounted for over half the total increase in U.S. merchandise exports over the past three years — twice Asia’s contribution.

The United States can continue to build on this solid foundation. As a first step, the Chamber has called for the United States and Brazil to negotiate an economic partnership agreement.

While two-way commerce between the United States and Brazil has grown impressively in recent years, it could expand even more vigorously if such an agreement eliminated the significant barriers to bilateral trade and investment.

Second, the United States should consider how to stitch together its existing hemispheric trade agreements. Doing so would enhance their benefits on a regional basis, allowing companies to operate their supply chains more efficiently.

Goods could move across borders more quickly. Making product design, production, packaging, marketing, and retailing more efficient across markets could stimulate growth and productivity.

Finally, the United States should continue the good work underway here in North America to address persistent “behind the border” barriers to trade. The U.S. Chamber has strongly supported the Regulatory Cooperation Councils launched recently with Mexico and Canada. We are working to provide officials in all three countries with practical input on how to overcome the “tyranny of small differences” in regulation.

Similarly, the United States is working with Canada and Mexico to better manage our shared borders based on a risk-based approach to security that also maximizes the efficiency of cross-border supply chains.

Trade with the Middle East, Turkey, and Africa

Turning to the Middle East and Africa, U.S. companies see vast, often untapped possibilities. There’s also a powerful confluence of U.S. geostrategic and economic interests.

Across these regions, national economic policies for too long have served as a drag on regional trade and investment. Trade with the United States has consisted largely of oil, gas, and minerals.

The recent sweeping changes in the Arab world are also bringing change to its international commercial relations. When the Arab Spring began in Tunisia, it was popular discontent with grim economic prospects that provided much of the impetus for change.

Today, as societies seek more accountable forms of government, new leaders are also gauging whether economic reform, openness to trade and investment, and free enterprise can meet the demands for a better life heard from all quarters.

The U.S. Chamber has urged the Obama administration to make closer trade and investment ties a central part of U.S. support for reform in the Middle East and North Africa. Increased international trade and investment, with the private sector helping lead the way, must play a major role going forward.

At the fore in the Chamber’s regional priorities is Egypt, the keystone of the Arab world and its most populous nation. The newly elected government is keen to develop closer economic ties to the United States and has expressed support for market-friendly policies.

Turkey is another nation that has captured the imagination of American business. Its economy is growing rapidly, and so are U.S. trade ties. Turkey’s democratically-elected, secular government is held up as a regional model.

In the case of both Egypt and Turkey, the U.S. Chamber has urged the administration to consider negotiating new trade agreements to allow exporters to tap these dynamic markets.

In addition, Africa is drawing new attention as economic growth takes off. According to an analysis by The Economist, six of the world’s ten fastest-growing economies over the ten years ending in 2010 were in sub-Saharan Africa.

We’ve urged the administration to dedicate greater resources and attention to ensure U.S. firms can get in on the ground floor of Africa’s economic development.

The World Trade Organization

And what about the global trade agenda and the World Trade Organization?

Sixty years ago, America’s Greatest Generation returned home from war determined to win the peace. Working with friends overseas, they built international institutions they hoped would secure a peaceful, prosperous world for their children.

Arguably the most successful of these was the one they created to foster world trade, namely, the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO).

Thanks in large part to the work of the GATT and the WTO, world trade has grown from $58 billion in 1948 to $22 trillion today. This is a 40-fold increase in real terms, and it has allowed incomes to rise in country after country.

Where should the WTO focus its energies today? First, the U.S. Ambassador to the WTO — a terrific negotiator from Montana named Michael Punke — is working with other countries’ officials at the WTO headquarters in Geneva to finalize a Trade Facilitation Agreement (TFA) in time for a summit planned in December.

As you’ve been discussing at this conference, businesses worldwide are linked together today through a global web of interconnected supply chains. Raw materials, intermediate goods, and other production inputs come from all over the world to create products with the greatest value for the customer.

Driving these changes are technological progress and falling transportation costs — coupled with companies’ need to site their production facilities close to resources, labor, and markets.

But chokepoints at the border — such as the red tape of customs rules and paperwork, redundant security programs, and burdensome border regulations —can have the same detrimental impact on trade as tariffs and taxes.

Cutting this red tape at the border through a trade facilitation agreement has the potential to promote economic growth, lower trade barriers, and raise living standards around the world. It would boost the world economy by as much as $1 trillion, according to the Peterson Institute for International Economics.

The Chamber led a senior business delegation to Geneva in February where we met with dozens of WTO ambassadors to urge them to redouble their efforts on this front and to offer our assistance where possible.

The Chamber also strongly supports efforts now underway in Geneva to assemble a “coalition of the willing” to negotiate a Trade in Services Agreement (TISA) that would liberalize trade in services—the fastest growing sector of the global economy.

A focus on services is a natural for the United States. America is by far the world’s largest exporter of services, which topped $600 billion dollars last year.

The United States is home to large numbers of world beating services firms in such sectors as software, engineering and architectural services, banking, express delivery, e-commerce, insurance, and telecommunications. Tearing down the barriers that shut these American companies out of foreign markets will generate growth and jobs here at home.

Finally, the Chamber strongly supports ongoing efforts to expand the reach of the WTO’s Information Technology Agreement (ITA).

The ITA has proven to be one of the most commercially successful trade agreements ever. It eliminated tariffs on a wide-range of high tech products, and it made the newest technologies more affordable and available around the world.

Since it was signed in 1996, the ITA has grown to include more than 70 countries representing 97% of world trade in information and communication technology products. Yet while the high-tech sector has exploded since the ITA came into force — with hundreds of new and improved products now available — the product scope of the agreement has never been expanded.

The time has come to take the next big step in promoting trade in high-tech products. We would like to see ITA product coverage expanded this year, and we think this is feasible.

Conclusion

To conclude, the United States cannot afford to sit on the sidelines while others set the rules of world trade. To create the jobs, growth, and prosperity our children need, we need to set the agenda. Otherwise, our workers and businesses will miss out on huge opportunities. Our standard of living and our standing in the world will suffer.

We need a laser-like focus on access to foreign markets. We need to renew the president’s Trade Promotion Authority and pursue new trade agreements to ensure that international commerce is fair.

The trans-Pacific and trans-Atlantic trade agreements now being negotiated represent a once in a lifetime opportunity to tear down the walls that have shut American goods and services out of foreign markets for so long. We need to seize this opportunity with both hands.

And with all our trade agreements — old and new — we need to ensure they are fully enforced. The trade agreements we enter into aren’t worth the paper they’re written on if they aren’t fully enforced.

The United States is home to many of the best workers and companies in the world. We create many of the world’s most innovative products. We’ve also got tougher competition facing us than ever before. But our productivity is high, and our energy costs are going down. The facts show we can compete and win.

The U.S. Chamber looks forward to working with all of you to advance a bold trade agenda to generate growth, opportunity, and jobs.

Thank you very much, and I look forward to your questions.