Tuesday, January 19, 2010

The Startling Incoherence of US Trade and Economic Policy

I've written a few times about how 2009 exposed inconsistencies in the Obama administration's trade and economic policies, but I'm not sure that anything compares to the last few days.  Over that time, a confluence of events provides us with two crystal clear examples of a White House that either has no idea what it's doing on trade, or simply doesn't care.  Allow me to explain.

(1) US Policy on Exports and Small and Medium-sized Enterprises (SMEs). Today the non-partisan US International Trade Commission (ITC) released Small and Medium Sized Enterprises: Overview of Participation in U.S. Exports, which found:
U.S. small and medium-sized enterprises (SMEs) accounted for about 30 percent of known U.S. merchandise exports between 1997 and 2007....

The most heavily exported goods were computer and electronic products, machinery, and chemicals, with the biggest share of merchandise exports going to Canada and Mexico, according to the report.

The USITC, an independent, nonpartisan, factfinding federal agency, completed the report at the request of the U.S. Trade Representative. As requested, the USITC provided an overview of SME characteristics, including their role in generating domestic jobs and economic activity; described the value of overall SME exports; listed the principal products, industries, and destination markets involved; and highlighted data gaps that inhibit a complete understanding of SMEs' role in U.S. exports. Highlights of the report follow.

* SMEs accounted for approximately 30 percent of known U.S. merchandise exports between 1997 and 2007 and about half of private nonagricultural gross domestic product (GDP) between 1998 and 2004.

* Top merchandise export categories for SMEs in 2007 were electrical products, machinery, and chemicals; these goods were primarily exported to Canada and Mexico. Wood products and apparel and accessories were the sectors with the highest concentrations of SME exports.

* Canada and Mexico were the largest destination markets for U.S. merchandise exports from firms of all sizes, including SMEs, in 2007.

* Much of the growth in SME merchandise exports between 1997 and 2007 was attributable to an increase in the number of net new market entrants SMEs that were new to exporting. Export growth from large firms, by contrast, resulted almost exclusively from increases in the value of exports by existing firms.

* Judging by patterns of cross-border exports and the operations of U.S. affiliates abroad, it is likely that Canada and the United Kingdom were among the largest markets for U.S. SMEs' services exports in two important fields (finance/insurance and professional services) in 2006-2008....
The full text of the study is available here (PDF).  The whole thing is worth a skim, but most interesting for the purposes of this blog post are the top foreign markets for American SME goods.  As mentioned, NAFTA partners Canada and Mexico are the top destinations (21.8% of all SME exports), and the report also shows that the other leading markets are (in reverse order) Malaysia, Israel, Italy, Singapore, Australia, India, Switzerland, France, Brazil, Belgium, Taiwan, Hong Kong, Netherlands, Korea, Germany, United Kingdom, Japan and China. Thus, of the top 20 SME export destinations, five are current FTA partners (Canada, Mexico, Australia, Singapore, Israel), one has a completed FTA (Korea), and one a suspended FTA (Malaysia).  The rest are relatively rich (Europeans and Japan) or huge (China, India and Brazil) markets.

Two days after the ITC report's release, the Office of the United States Trade Representative - which requested the ITC study - will hold a big dog-and-pony show here in DC in order to show that "USTR is committed to supporting economic recovery through export-oriented growth... [and] works to make trade policy work for America's small- and medium-sized businesses - America's biggest job creators and a wellspring of export potential."  This forum reflects, as I've noted repeatedly, a key component of the President's economic recovery strategy: increasing US exports, especially by SMEs.

Now, I've questioned the likelihood of an export-based recovery, but let's assume for now that the strategy is sound.  What has the White House actually done to push this strategy, other than hold on a forum on SMEs and exports?  I mean, we have a new ITC study showing that SMEs ship disproportionately to US FTA partners, and a White House strategy to increase SME (and all other) exports, yet the White House nonsensically refuses to advance pending FTAs with Panama, Colombia and South Korea (already one of the SMEs top export markets).  Even worse, the White House has openly admitted that it will not soon resolve antagonistic disputes (Buy American and Mexican trucks) with the top two purchasers of SME exports in Canada and Mexico.  Indeed, because of the trucking dispute, US exports actually face $2.4 billion in Mexican retaliatory sanctions.

How does this make any sense at all?  The contradiction between pro-export, pro-SME rhetoric and trade obstructionist reality is simply stunning.  (Except from the most basic - and cynical - political perspective, of course.)

(2) The NAFTA Bridge to Nowhere.  On a more comical level is the joint US-Mexico ceremony last week opening the first "international bridge" between the two nations in ten years. Here's the AP with the news:
Mexican President Felipe Calderon and the U.S. trade representative have inaugurated a new bridge on the U.S.-Mexico border, the first new land port of entry on the southern U.S. border in 10 years....

"It's the bridges that unite the people and elevate the competitiveness of economies," Calderon said.

The new bridge route, three miles west of the existing Hidalgo-Reynosa International Bridge, bypasses downtown Reynosa, and is expected to cut about 30 minutes off the drive to Monterrey.

The route runs 3.2 miles (5.1 kilometers) between the U.S. and Mexican ports of entry and it is open to noncommercial traffic only.

U.S. Rep. Henry Cuellar of Laredo, Texas, heralded the bridge as an example of efforts to ease legal movement on the border and Calderon said commerce would help build the economy.

"The best opportunity we have to create jobs on both sides of the border is to strengthen ties between Mexico and the United States," Calderon said.

U.S. Trade Representative Ronald Kirk called the bridge opening "a potent symbol of our connectedness."
Unfortunately for US and Mexican exporters, the bridge can be little more than a "symbol" of "economic competitiveness" for two very basic reasons: (i) it's for non-commercial use only; and (ii) even if commercial trucks were allowed on the bridge, they couldn't pass over it because the White House has refused to allow Mexican trucks on US roads - in direct violation of NAFTA. So here we have the USTR lauding the opening of a bridge that will do almost nothing to, you know, actually increase trade between the United States and one of its biggest trading partners (and SMEs second largest export market).

You cannot make this stuff up. Seriously.

Sadly, these contradictions reflect the current state of US trade and economic policy. The President and his economic team speak of expanding exports, particularly SME exports, yet they pursue policies that expressly thwart those goals. Their USTR inaugurates a bridge between the US and Mexico, while expressly preventing Mexican trucks from traveling over it.

And American small business owners (and the rest of us) are left wondering, "what the....?"

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