NAM panel: Political rhetoric unfairly pins job losses on trade

Manufacturers in the United States increasingly depend on exports and trade deals like the Trans-Pacific Partnership help even the playing field, bringing down barriers to access foreign markets, according to a National Association of Manufacturers panel.    Free trade is getting a bad rap in the presidential campaigns and being unfairly blamed for all job losses in the manufacturing sector, panelists said at a digital event hosted Wednesday by the National Association of Manufacturers (NAM). Voters, instead, need to understand that trade has produced a net benefit for the United States for the past 20 years, they argued.
   In fact, the United States tends to benefit more from free trade deals because its economy is mostly open to foreign competition, while overseas markets are often closed to American firms, according to the panel.
   The average import tariff in the United States is 2 percent compared to much higher tariffs in the 11 other countries that are signatories to the Trans-Pacific Partnership, a regional free trade agreement (FTA) negotiated by the Obama administration that most nations are now working to get approved in their respective domestic legislatures.
   Some TPP members have duties of up to 59 percent, according to Carla Hills, the U.S. Trade Representative under George Herbert Walker Bush and now head of her own international consulting company. 
   “It’s very tough to be competitive when you have a 59 percent tax on your products,” she said during the discussion, which was broadcast live on Twitter and Periscope.
   U.S. manufacturing output is at its highest level ever, contributing $2.17 billion to the U.S. economy, and world trade in manufactured goods provides huge opportunities for U.S. companies to grow. Global trade in manufactured goods has increased to $12.3 trillion from $1.1 trillion in 1980 and the United States quadrupled exports in that sector to $1.4 trillion as of 2013. Overall, the United States has about a 9 percent share of the global market in manufactured goods trade.
   In a recent NAM survey, 36 percent of manufacturers said exports make up at least 10 percent of sales, nearly 20 percent said exports make up a quarter of sales, and for some, exports represent more than half their revenues.
   But manufacturers face high barriers and competition in overseas markets.
   And it’s not just high tariffs that are a problem. Cumbersome customs rules, or restrictions on market access or use of services such as logistics, make it difficult to do business in other countries and discourage small-and-medium size companies from exporting. Even in an era of digital commerce, for example, it can be difficult for small e-tailers to reach customers if there is a requirement that foreign companies set up a server in-country to do business there.
   The United States has 14 free trade agreements covering 20 countries, but is not keeping up in taking advantage of trade deals so companies can more easily reach customers around the world, Hills and others complained.
   Mexico, for example, has 44 free trade agreements. The European Union has almost three dozen bilateral and regional FTAs, and recently inked a new deal with Vietnam.
   “I’m very worried that if the EU is able to move first and implement that agreement with Vietnam they are going to get a piece of that market and our manufacturers are going to lose in terms of high tariffs,” Linda Dempsey, NAM’s vice president of international economic affairs, said.
   That’s exactly what happened after the United States struck a deal with the Republic of South Korea in 2007, said Chuck Wetherington, president of medical device maker BTE Technologies. Congress didn’t ratify the U.S.-Korea FTA until 2012. The European Union, however, signed and implemented a trade deal with Korea by 2009 that lowered tariffs for BTE’s German competitors.
   “We saw sales drop by 40 percent during that lull period,” before they increased 130 percent back to base-year levels following implementation, Wetherington said. “The reduction of tariffs going into that country played a major impact in our ability to increase sales.
   “The market is being defined by the world. If other countries are getting together and defining these marketplaces, and we’re not participating in it, we’ll be cut out of that,” he added.
   BTE, a NAM member, has dramatically grown its exports from zero in 2000 because people in other countries are hungry for better healthcare.
   “We just need to create a fair and level playing field to make that trade happen,” said Wetherington.
   The United States has a trade surplus in manufactured good exports with all countries with which it has free trade agreements, according to NAM. Bringing down trade barriers allows U.S. companies to sell to the rest of the world, where 95 percent of the global population resides, the association argues.
   The United States already has trade agreements with six of the TPP members, but has seen a 15 percent loss in market share for manufactured goods over 15 years in the five other countries even though absolute exports have increased there, according to a recent trade-flow analysis by NAM. U.S. manufactured goods represented about 26 percent of imports in those five markets and now are only 10 percent of the pie.
   By contrast, China, which has trade agreements with several of those Pacific Rim countries, increased its market share during that time from under 15 percent to over 30 percent.
   “They are outselling us in that market and a big piece of it seems to be those FTAs,” Dempsey said.
   The 20 nations engaged in trade reciprocity with the United States represent 6 percent of the global population and 10 percent of global GDP. In the manufacturing sector, 50 percent of sales go to those 20 countries.
   “They are outsize buyers of manufactured goods because a lot of these barriers have been struck down,” Dempsey said.
   Although NAFTA (North American Free Trade Agreement) has become a punching bag for presidential candidates interested in dramatizing trade woes, the reality is that 800,000 manufacturing jobs were created in the United States after 1995 until the Great Recession hit in 2008.
   Dempsey said U.S. trade with NAFTA countries is up fourfold and trade with Mexico alone has increased by a factor of six. Mexico is the United States’ second largest export market.
   “The amount we sell to Mexico is more than all of Latin America. It’s more than we sell to Germany, France, England and the Netherlands combined,” she said. “Plus every dollar we import from Mexico contains 40 percent U.S. content and every dollar they export of theirs includes 50 percent U.S. content” because of the intertwined nature of supply chains on both sides of the border.
   “So they are our agent for exports,” Dempsey added.
   Many people look at trade through an unrealistic lens and expect the United States to dominate as it did a half century ago, Tony Fratto, deputy assistant and deputy press secretary to George W. Bush, said. Trade creates winners and losers, but on balance it boosts the economy and the standard of living.
   “We fall in this habit of comparing America’s role as an exporter in a post-WWII period where all of countries that became our great competitors were on their back. As those countries got their capacity up and were able to produce again, they were able to compete and take some share of trade” and now newly developed countries are doing the same thing, he said.
   “They are going to produce more and have some share in that trade. That’s why we’re interested in growing that pie so that everyone is better off,” said Fratto.
   Now a partner at communications and government relations firm Hamilton Place Strategies, Fratto noted that many manufacturing jobs have been displaced over time by technology or better management practices that improved productivity. 
   Finding skilled workers is a big priority of manufacturers and Hills recommended the government develop better workplace programs to retrain people, including paying them to go to school as long as there is proof of attendance.
   Wetherington said trade agreements force American companies to compete, which raises their performance level.
   “Innovation is in our DNA. And the greatest driver to force innovation is competition,” he said. “So, yes, when you have a trade agreement, you immediately open up new competition. And that’s a positive thing.
   “The day [a trade deal goes into effect] if there’s a manufactured good made more efficiently by trading partner, you’re at a disadvantage. But that disadvantage is not long term because we’re Americans and we innovate. We figure out how to make it better, to make it with better features, to enhance it, to make it cheaper.
   “And in most cases that happens. Not in every case. But you have to look at it at macro level,” he said.
   South Carolina, Wetherington said, is an excellent example of adaptation to new economic realities. Most of the states’ textile jobs were outsourced to Southeast Asia, but the automotive industry saw a highly skilled, trained workforce and, with state assistance, set up shop and provided strong training to help the workers transition to making automobiles.
   “Sometimes it takes time and sometimes there’s change, but were’ not making buggy whips either,” he said.
   Hills said the public needs to be educated about the importance of exports to manufacturing and employment, which is drowned out in all the anti-trade rhetoric.
   She suggested that every W-2 tax stub, provided by employers to document one’s annual wages, should also include a box showing workers what percentage of their paycheck was a result of the company’s foreign sales.
   Meanwhile, the manufacturing sector is up against negative conditions in 2016, including a strong dollar and economic weakness in countries such as China and Brazil that is dampening demand for U.S. products outside the borders. 
   In its latest economic outlook survey, 56.6 percent of participating NAM members had a positive outlook for the next six months – the fifth consecutive quarter that sentiment has decelerated. Respondents indicated that they are pulling back on activity such as exports, hiring and capital spending.
   U.S. government statistics for January showed the wholesale inventory-to-sales ratio at 1.35, the highest it has been since April 2009. Sales are sluggish overall, and the survey forecast only 0.4 percent growth during the next six months. 
   Manufactured goods exports fell 6.1 percent last year and the survey forecast a 0.6 percent decline in the next six months.