Senior Vice President for International Policy
October 21, 2022
Trade delivers a host of benefits for Americans, as we saw earlier in this series, but what are the benefits for America’s small businesses?
America’s small business owners are hailed as heroes of free enterprise, not least because they have accounted for two out of every three jobs added to the U.S. economy in the past 25 years.
But it’s often overlooked in the trade debate that 97% of the 288,000 American companies that export are small and medium-sized businesses (2019 data, latest available).
In other words, trade is the engine that drives many small businesses. These firms account for nearly one-third of U.S. merchandise exports, according to the U.S. Department of Commerce. The number of small and midsized firms that export has risen about threefold over the past two decades.
However, we can and must do more. Only about one in every 100 of America’s 30 million small businesses export. In countries such as Germany and Switzerland, the share of small firms that sell their products abroad is five to ten times larger.
To expand export opportunities for small businesses and make it easier for them to tap global markets, the U.S. should pursue a robust trade agenda that supports small businesses and broader economic growth.
To this end, the United States has negotiated trade agreements with 20 other countries. These trade deals have created new opportunities for U.S. farmers, ranchers, manufacturers, and service providers of all sizes. They do so by sweeping away foreign tariffs and other barriers that too often shut out American exports ranging from apples to zucchini and airplanes to x-ray equipment.
The benefits for U.S. small businesses are substantial. By value, approximately one-third of all merchandise exports by America’s smaller businesses go to these markets. More small and medium-sized firms export to Canada than to any other market; by value, these small businesses export more to Mexico than to any other country (data).
While some critics argue that trade agreements only benefit large multinationals, the truth could hardly be more different. Trade agreements require foreign governments to eliminate the tariffs that may be small change to multinationals, but they are a big deal to small businesses. Also, multinationals can rejigger their supply chains and shift some parts of their production to other countries to route around tariff walls — which small businesses can't do.
Among the provisions that are particularly helpful to small businesses, U.S. trade agreements:
- Cut red tape and make customs procedures in foreign ports more efficient and transparent;
- Require fair and transparent regulatory procedures for the development of product and technical standards, thus ending many of the “nontariff barriers” that too often shut out U.S.-made products;
- Allow products tested in the United States to be imported, thus saving companies the money they would otherwise be obliged to spend on duplicative testing and certification;
- Promote paperless trading by allowing electronic authentication and signatures;
- Make it easier for businesses to search, register, and protect intellectual property; and
- Criminalize bribery and the theft of trade secrets while ensuring transparency in bids for foreign bidding for government contracts.
One emerging area in trade agreements is especially important to small businesses: Digital trade.
To get a fresh perspective on the issue, the U.S. Chamber recently issued a report entitled Growing Small Business Exports: How Technology Strengthens American Trade, and it uncovered some surprising findings. Based on a national survey of more than 3,800 small businesses and a related economic analysis, the report produced a new estimate that 9% of U.S. small businesses currently export goods or services, a figure considerably higher than indicated by official statistics.
These larger-than-the-official-statistics results indicate that digital trade is already contributing to the expansion of U.S. small business exports and job creation, chiefly in these three ways:
- Digital advertising plays an overlooked but critical role in allowing U.S. small businesses to economically reach potential foreign customers in a targeted fashion. Small businesses simply had no such tools in the pre-internet era: print advertising in newspapers or direct mail were never feasible options for U.S. small businesses trying to tap even nearby and familiar markets such as Canada.
Modern digital tools are revolutionizing payment collection, cited by small business exporters as a top challenge. Uncertainty around international payment collection was a principal brake on small business exports even a few years ago, but such risks and foreign exchange complexities can now be managed in a cost-effective manner by digital payment services.
- International shipment firms, including express delivery companies, today provide comprehensive services that handle customs clearance procedures and costs for small business owners who lack the expertise and time to tackle the minutiae of such matters. The evidence supports the view that online channels reduce transaction costs associated with international trade significantly.
One takeaway is that digital trade allows small business exporters and larger firms to prosper together. Some of the services mentioned above in areas such as digital advertising are fostering new trade ecosystems of mutual benefit.
In addition to trade agreements, tariff relief programs like the Generalized System of Preferences are important to U.S. small businesses that depend on imports — and Congress should act this year to renew the lapsed GSP program.
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 through new trade deals is vital for firms of all sizes.
Read more in our Lead On Trade Series:
- Why Americas Must Lead on Trade
- The Benefits of Trade for America
- The Benefits of Trade Agreements in America