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Seventh in a series
Previously: Trade Agreements and Services
What are the benefits of America’s free trade agreement (FTAs)? With debate over the renewal of Trade Promotion Authority (TPA) now underway in Washington, the Chamber is publishing this series of blog posts examining the benefits of the trade agreements that TPA makes possible. Here is the full report on the benefits of America’s free trade agreements.
Often overlooked in the U.S. trade debate is the fact that more than 98% of the nearly 300,000 American companies that export are small and medium-sized enterprises (SMEs). These firms account for one-third of U.S. merchandise exports, according to the U.S. Department of Commerce. The number of SMEs that export has risen about threefold over the past two decades.
It comes as no surprise that FTA markets are top export destinations for SME exporters. By value, approximately 40% of all merchandise exports by American SMEs go to FTA markets. More SMEs export to Canada than to any other market; by value, American SMEs export more to Mexico than to any other country.
While some critics argue FTAs only benefit large multinationals, the truth could hardly be more different. Consider how the kinds of trade barriers addressed by FTAs impact entrepreneurs and smaller firms — and how these agreements can open the door to their success:
- Many of the countries where the United States does not have an FTA in place have already implemented FTAs with other countries. In this context, a multinational corporation may be able to serve a market that levies steep tariffs on goods from the United States by sourcing from its affiliates in other countries. America’s small businesses have no such luxury.
- Non-tariff barriers are especially harmful to smaller companies because they add disproportionally to their fixed costs of doing business. A $10,000 permit may be a nuisance for large firms, but they can usually absorb the added expense with relative ease; it can be a show-stopper for small businesses.
- By opening government procurement markets and ensuring transparency in bidding, FTAs give small exporters expanded access to lucrative opportunities. These contracts for health care equipment, schools and IT services are often too small for multinationals to perform profitably, but they are just the kinds of contracts that smaller medical equipment providers, distance learning companies and others can fulfill beautifully.
In sum, policymakers should think globally as they consider how to foster a business environment in which entrepreneurs and small businesses can flourish. Tearing down trade barriers is vital for firms of all sizes.
The principal rationale for FTAs is to unleash new flows of mutually beneficial trade between Americans and the citizens of these 20 countries — and do so in a way that is fundamentally fair. With regard to America’s small business exporters, and in other ways, these FTAs have been a big success.
Next time: The Trans-Pacific Partnership (TPP)