Friday, February 5, 2010

Irony Watch: Poster-child for Export-only US Trade Policy Depends on Imports

I've already done my fair share (stop laughing) of complaining about the Obama administration's new National Export Initiative, blathering about, among other things, its unrealistic and potentially counterproductive focus on expanding US exports without a concomitant focus on the critical importance of imports (and free access to them) for US exporters and the US economy more broadly.  I've laid out my theoretical, political and economic arguments at length (seriously stop laughing), but nothing sells my point as well as a very simple real-world example, provided yesterday by none other than the NEI's chief cheerleader, Commerce Secretary Gary Locke. 

In his speech unveiling the NEI, Locke praised the government's magical export-boosting powers through (as I've already covered) export promotion and increased trade enforcement, while never once mentioning imports or domestic market liberalization (or certain dust-covered FTAs, for that matter).  He then closed with the following:
We want to help write more export success stories like the one we saw from a company called Air Tractor in Wichita Falls, Texas.

Working with the Export-Import Bank and the Commerce Department’s Export Assistance Center in Fort Worth—Air Tractor relied on growing foreign sales to not only survive but thrive in the midst of last year's recession.

Over the last decade, the company has seen its exports grow from 10 to 45 percent of its business. And they’ve doubled their workforce from 100 to 200.

This small company in a rural area of Texas is now selling its crop-dusters and firefighting aircraft to countries like Spain, Brazil and Australia. And along the way, they’ve relied on the Export-Import Bank to provide financing for their customers that private sector banks would not. To date, Export-Import has assisted with the completion of some 70 deals.

Now if Air Tractor can do this, there's no reason that thousands of other companies across America can't do the same. They can grow their sales abroad, create new jobs here in America and get our economy moving.

And the message I want to send to all these companies that are struggling to find customers, or to hire new people, or to increase the hours of their workers is this:

Look abroad. There are opportunities there. And the National Export Initiative is a clear signal that the Obama administration is committed to helping you find it.
Locke draws a simple, black-and-white portrait of an American company exporting its products all over the world, all because of Uncle Sam's export promotion efforts.  But (leaving aside the blatant government self-glorification involved here) Locke's doodle reflects a basic ignorance, willful or otherwise, of how a 21st century economy actually works, and thus what a 21st century trade policy should look like.  See, if you look just a little more closely at Air Tractor and its commercial endeavors, you'll quickly see just how simplistic and archaic the administration's new trade policy really is:
  • First, we find that perhaps the most important component in all of Air Tractor's planes is an aviation engine (the P&W PT6A) manufactured by Pratt & Whitney Canada and then imported into the United States duty-free (HS 8407.10).  P&W Canada is a sibling of American-owned aerospace manufacturer Pratt & Whitney, and both companies are subsidiaries of of United Technologies, one of the largest manufacturing conglomerates in the United States (with, of course, production and sourcing worldwide).
  • Second, we discover that Air Tractor has itself become "multinational," with the opening of Air Tractor Europe, an affiliated sales division headquartered in Spain and handling sales of Air Tractor planes in Spain, France, Portugal, Greece, Italy, Croatia, Israel, Turkey, and North Africa.
So to recap: the poster-child for the President's new export initiative is a multinational company that relies on duty-free access to imported engines (and I'm sure other imported things like parts, equipment, materials and machinery) to produce its globally competitive product.  And this company uses an affiliated foreign sales office to sell its products overseas, the profits from which are either reinvested in the foreign operations or repatriated to the company and its 200 American employees (designers, marketers, salespeople, management and, of course, manufacturing and assembly workers).  And-oh-by-the-way, the aforementioned engines are made in Canada by a subsidiary of a US multinational with operations all over America and the rest of the world.

Seen in this light, the story of Air Tractor's commercial operations is a lot more complex than the coloring book Secretary Locke's trying to sell us - one about a mom-and-pop store that's just desperate for Uncle Sam's export promotion assistance - now isn't it?

Even more importantly, Air Tractor's business model completely undermines the White House's current approach to trade.  I mean, how on earth does this 21st century company fit into a "new" mercantilist US trade policy that ignores - and even denigrates - imports and their value to the future competitiveness of the US economy?  And how do Air Tractor and larger American companies like P&W and United Technologies, with their many US employees and overseas operations, fit into the President's oft-trumpeted plan to "end tax breaks for US companies that ship jobs overseas"?

The answer: they don't fit.  At all.

Until the White House realizes these facts - that today's globalized economy is simply incompatible with a simplistic, mercantilist trade policy - and until it develops policies that embrace import and investment liberalization just as much as export expansion, companies and investors looking for sound, 21st century free trade policies should heed Locke's closing advice:

Look abroad.

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