COMMENTARY: An export by any other name

With Trump administration reportedly considering statistically separating re-exports, let’s not ignore positives of such trade    An interesting report emerged in the Wall Street Journal over the weekend suggesting that the Trump administration asked staffers in the Office of the U.S. Trade Representative to recalculate U.S. export statistics to exclude the impact of so-called “re-exports.”
   Re-exports, of course, are goods that have first been imported into a country (for the purposes of this discussion, we’ll talk about U.S. re-exports) to eventually be re-exported to a third country. The purpose of re-exporting is to provide activities like partial or final assembly, or some value-added service.
   If accurate, the goal of this recalculation seems clear: President Donald Trump and his team want to minimize the volume and value of exports to, in effect, widen the U.S. trade imbalance. This effort is, on its face, disingenuous because exports need not be “pure” exports to have a material impact on the U.S. economy.
   In other words, there is value in being part of a global supply chain. The benefit to the U.S. economy is not completely lost if all aspects of raw material sourcing, manufacturing, production, and assembly are not conducted here.
   More insidiously, though, recalculating our trade deficit to exclude re-exports sets a potentially harmful precedent. It segregates this activity from “pure” exports in a way that would allow policy and public opinion to dictate where and how a company might source and assemble its goods.
   This is, of course, a major component of Trump’s platform: to restore the U.S. manufacturing sector, seemingly at all costs.
   But there are unintended impacts of initiatives like this. Let’s think about a hypothetical: say a manufacturer conducts 50 percent of its manufacturing “purely” in the United States. That is to say, all its raw materials are sourced and all its production is conducted in the United States.
   Another 25 percent of its production is partially conducted in the United States – raw materials and components are sourced from abroad but final assembly is handled in the United States. The other 25 percent of its production is done entirely abroad.
   Presumably, this hypothetical company, which sells into the United States and abroad, has structured its supply chain in this way for several reasons:

   • Access to reliable, cost-effective suppliers in a diversity of regions
   • The ability to flex production to different regions depending on demand, cost, and other dynamics, like political climates
   • The ability to reach its various global markets in more cost-effective ways

   If re-exports are segregated in a statistical way, then they can be demonized more effectively. So politicians could use this fictional company’s 50 percent of production that is wholly or partially conducted abroad to vilify the company for not doing everything in the United States.
   Let’s focus on that 25 percent attached to re-exports. If the Trump administration were to decide that volume doesn’t qualify as “true” U.S. export volume, it could potentially be exposed to tariffs, taxes, or non-tariff burdens (even a midnight Tweet).
   But shunning that volume is the essence of cutting off your nose to spite your face. If this U.S.-based global manufacturer is using the United States to perform value-added services or final assembly for a portion of its products going to overseas markets, vilifying that company for not conducting all activities in the United States would be counterproductive.
   If those goods are meant for markets outside the United States, this manufacturer is likely to be more inclined to bypass the United States to serve those export markets, rather than accede to threats. In other words, shaming companies into relocating all aspects of their global supply chains to the United States won’t work in most cases.
   And nor should it. Rather than focus on the negative impact of lost manufacturing or assembly jobs, why not focus on the positive impact of these value-add jobs tied to re-exports? Why not focus the discussion with global manufacturers on ensuring that they pay corporate taxes in the appropriate markets, or that the profits of operating a global supply chain are funneled into 21st century U.S. jobs?
   There are ways to put pressure on companies with global supply chains to increase employment in the United States without asking them to rip up those supply chains they’ve spent three decades creating.
   Re-exports should be celebrated, not vilified. This is trade volume that could bypass the United States, and it will if global manufacturers see the policies of the United States as a political threat they previously ascribed to more unstable governments abroad.