Obama and the new Congress: Good prospects for free trade
HomeObama and the new Congress: Good prospects for free trade
By Michael R. Czinkota and Charles J. Skuba
This year may be a dynamic year for U.S. international trade and competitiveness.
President Barack Obama has recently highlighted the importance of exports, innovation, competitiveness and the need to achieve the possible rather than the ideal in creating jobs and boosting economic growth. The president now has the opportunity to work with the new Congress to achieve dramatic policy results for international trade and manufacturing.
America's largest companies and brands are the best in the world. America is the world's leading exporter of aggregated goods and services and continues to be a strong manufacturing country with about a 20 percent share of global manufacturing output. This is mainly due to U.S. strengths in high value added and differentiated products as well as cutting-edge services. With increasing market access to fast-growing emerging economies, U.S. companies can deliver even better global growth.
The issue is whether this success will create domestic jobs. Despite the 17 consecutive months of manufacturing sector growth, U.S. manufacturing jobs have been sliding because of the decreasing labor intensity of American products and gains in productivity. For example, in 1987, there was a common estimate of 18,000 jobs per one billion dollars of U.S. manufacturing exports. By last year, this job creation estimate had declined to 7,000 jobs per billion. With 9.9 percent unemployment in the manufacturing sector, the benefits of international trade and investment have been less apparent than the drawbacks of plant closings and layoffs in labor-intensive businesses.
Obama expects jobs to come from exports and innovation, including from smart, smaller American companies, international companies investing in the United States and larger American companies. To this end, he has presented a vision and policy directive: He wants to double U.S. exports by 2015 and create an environment to stimulate innovation and entrepreneurship. What has been missing is a legislative agenda and votes given the protectionist and anti-business sentiment in the last Congress.
But with the new Congress, the president has real opportunity to convert his vision into action. The first step is to bring the pending free trade agreements with South Korea, Colombia and Panama to the House floor for a vote. With the real impact that these agreements can bring to U.S. exports, having these agreements in limbo since 2008 has been disgraceful.
The auto industry compromise reached with South Korea in November of last year pales against the billions of dollars in lost export opportunities for the U.S. over the three years of hiatus. The path now seems clear for passing the South Korea FTA. But that needs to be a beginning rather than an end. The House needs to work with the president to ensure that the agreements with Colombia and Panama proceed simultaneously. These agreements remove barriers to U.S. products and services.
Next, the administration and Congress should explore the innovation side of the president's agenda. Global U.S. economic leadership and export success require an economy driven by innovation. New business ideas foster dynamism and create jobs. Policy needs to encourage innovation and entrepreneurship.
A starting point would be to eliminate policies that discourage innovation and raise the cost of doing business. Just as free trade agreements eliminate barriers to U.S. exports, business policy and tax rates should eliminate barriers to innovation.
Today, U.S. exports are roughly 8 percent of global trade. To balance the U.S. current account, this share needs to rise to 12 percent. As with the U.S. — South Korea free trade agreement, where we gained concessions in the automotive sector but gave in on beef products, the focus should be on results. The goal must be to provide U.S. firms with the conditions that allow them to succeed. Obama now has the opportunity for an action partnership with Congress to achieve this goal.
Michael Czinkota teaches international business and marketing at Georgetown University. He served in trade policy positions in the Reagan and Bush administrations. Charles Skuba teaches international business and marketing at Georgetown University and served in the Commerce Department under President George W. Bush.