Free Trades in the United States - Essay Example

The Author's Name] [The Professor's Name] [The Course Title] [Date] Free Trades in the United States At the outset, it is useful to gauge where we stand. Almost every way you measure it the American business system is the largest and most successful in the world. Far more often than not, we are the trend setters. In industry after industry U.S.-headquartered companies lead their competitors on a global basis. This is so whether you examine high-tech aerospace design and production where my old company, Boeing, has been in the lead for decades, or low-tech soap and detergents where you encounter that household giant, Procter and Gamble. On a more micro level, individual brands such as Coca-Cola and Microsoft generate instantaneous worldwide recognition. In fact, Cadillac has become an adjective denoting a top-of-the-line product. FedEx often is used as an active verb to indicate delivering an item as rapidly as possible. Nevertheless, all of this good news does not mean that U.S.-based companies--or any other firms competing in the global marketplace--can rest on their laurels. Some historical perspective helps on that score. Back in the middle of the 19th century European companies especially those located in England and France, dominated international commerce, and then a rapidly expanding newcomer in North America elbowed its way into the club of leading world economic powers.1 In absolute terms, the economies on both sides of the Atlantic Ocean continued to expand substantially, but Europe never regained its dominant share of the world market. “The whole point of trade negotiations usually is to reduce barriers to international commerce. Consumers gain, as do U.S. firms that benefit from cheaper imports. The benefits of free trade to an economy overall have been known for more than 200 years. What also is known is that powerful special interests that gain from keeping out the foreign competition will fight tooth and nail to prevent consumers from having access to new and cheaper products.” 2 In the second half of the 20th century, Japan played a role similar to that of the U.S. a century earlier. It became an important member of that club of economically advanced nations. Japanese companies such as Sony and Toyota became strong global competitors. Major Western industries continued growing, often rapidly but frequently losing some market share. Today, we are in the midst of yet another such significant shift in the array of economic and market power. China rapidly has become a major force in the international marketplace. By some measures, it already is number two second only to the U.S. However we measure it, our lead is shrinking substantially--add quite quickly. The fact that this country initiated the most dangerous global credit crisis since the Great Depression does not exactly enhance American leadership in either economic or financial matters. We cannot take much consolation from the sad current experiences of the Euro bloc countries.3 In any event- on a per capita basis, the U.S., by a very substantial margin, still will be the wealthiest large country on the globe. Our domestic marketplace will remain the most attractive. American companies will continue to be worldwide leaders of many key industries, but that precisely is why it is so important to divide our examination of the changing global marketplace into the short- and long-term situations. The differences will be substantial and occasionally startling. In the short ran many nations, certainly including our own still arc straggling to recover from the sharpest economic and financial decline in more than 70 years. The recovery now is significant, but not especially rapid. Despite all the talk from Washington about focusing on employment, job creation in the U.S. continues to be discouraged by a seemingly endless army of Federal initiatives that--intentionally or otherwise--make it more expensive to hire new employees or even maintain the size of existing workforces. The costly and frustrating red tape generated by the detailed roles accompanying the stimulus and health reform legislation has been discussed amply by business executives and in the trade press.4 However that is not the end of the line. The latest Administration proposal to increase the bureaucratization of the workplace has not received the attention it deserves. Apparently the Department of Labor, without any new legislative authority, is developing detailed regulations to require every business to prepare an updated and detailed set of repels showing specifically how they will comply with a host of employment-related laws and rules. These new requirements in the works range in coverage from wage and hour laws to equal employment guidelines to job safety regulations to distinguishing between contract workers and those directly on the company payroll. All this will be reviewed by a new breed of Labor Department compliance officials.5 From a more macro viewpoint, American companies are likely to find it challenging to raise new funds in domestic capital markets that will be dominated by increasing levels of governmental deficit financing. The rising interest rates likely to be required to accommodate the unprecedented amounts of Treasury borrowing inevitably will make it more difficult for private firms to borrow at reasonable rates. On the bright side--this will be much shorter--we can anticipate that, sooner or later, American companies will learn how to overcome this new array of obstacles facing them and to resume a path of growth and penetration of overseas markets. However, there is no guarantee that the outcome will be as successful as it has been in the past. I say that because, in the longer ran, internationally-oriented businesses will be facing key changes in the composition of global markets. Perhaps the most fundamental will be the rising tendency of East Asian companies to buy as well as sell in East Asia itself. This is not an unusual or unexpected development. Just examine the experience of the older parts of the modern industrial world. Since the creation of the European Common Market, rising shares of "foreign trade" of the member nations have been staying in the European Union area. Of course, the elimination of trade barriers within the EU helped move this process along. However, the tendency of countries to focus their foreign trade with neighbors is a longstanding practice.6 Closer to home, major shares of the exports and imports of the U.S., Canada, and Mexico are staying in North America. The creation of the North American Free Trade Agreement surely helped encourage that development. Nevertheless, that close economic relationship reflects the importance of obvious geographic factors that always have been present.7 We are witnessing a similar regionalization of trade in Asia--without a formal intergovernmental structure. It is not surprising that the economic importance of geographic closeness continues to be strong, despite the reduction of transportation and communication costs resulting from technological advance. The strength of cultural and political ties surely exerts powerful influences on patterns of commerce. Nevertheless, a special and vital factor is underscoring the significance of the continuing regionalization of international wade: By a substantial margin, East Asia and, especially, China, is the major growth area of the globe. On any comparative basis, the cost structure of the area is very competitive. Thus, U.S. companies likely will be facing a rough time in the years ahead in maintaining their current large shares of worldwide markets.8 In this regard, fundamental changes in our public policy--positive and negative--can be vital in strengthening (or weakening) the American position in international commerce. “The 2010 Trade Agenda is a recipe for economic failure and stagnation. Much of the focus is on enforcing rules to restrict other countries’ access to the U.S. market. It’s a begger-thy-neighbor approach in which we would sell more to other countries while restricting their ability to sell to us. Such a model is unsustainable internationally: not every country can run a trade surplus.”9 In the short ran, we are in the midst of a rapidly growing tendency for the Federal government to influence business decision making directly How far this trend will go is anybody's guess. However, history tells us that the policy pendulum does not always move in one direction. Rather, it swings back and forth--often at unexpected times. In that connection, it is imperative to remind the public of the vital importance of enhancing American competitiveness in foreign markets. Our nation needs to focus on fundamental factors that transcend political and business cycles. One of those key factors is the continued expansion of science and technology and especially of the professional workforce that produces the major advances and breakthroughs. Since the early 1980s, an important, but undramatic, crossover has occurred. From the conclusion of World War II until the end of the 1970s, Federal government agencies, especially the Department of Defense, provided the majority of the funds to perform research and development.10 Since then, private industry has become the major financial backer of R&D, as well as the major sector performing R&D.11 The differences are profound. In the earlier period, the Federal government, especially the military establishment, set the key priorities for the nation's R&D efforts. In more recent years, the great majority of the R&D conducted in this country has responded to the needs and views of private enterprise. It is not surprising that the last couple of decades have witnessed unexpectedly large increases in the productivity of the American economy. The accelerated flow of new and improved products and production processes are the expected results of large and continued investments in R&D.12 Substantial shares of American exports have been in high-tech products such as aerospace, electronics, and scientific instruments. A beneficial side effect is that the design and production of high-tech products generate a large portion of the demand for highly skilled and paid professional employees. That has been a major factor in rising living standards in the nation.13 In that regard, it is sad to see the relatively small numbers of American-born college students now majoring in subjects vital to research and development, notably science, math, and engineering. By no means is this a plea to reduce the number of foreign students enrolled in U.S. universities. My point is that it would be desirable if greater numbers of our native sons and daughters studied those "difficult" subject areas. On the other hand, my concern also reflects the shortcomings of our traditional immigration policies. At the present time, it is easier for a low-skilled but relatively distant relative of a legal resident of the U.S. to stay here rather than a highly educated prospective immigrant, even with a degree from an American university.14 Over the longer run, it also would be helpful if the public, and especially governmental decision makers, would take more enlightened positions on the vital role of private enterprise, especially companies involved heavily in international trade and investment. Specifically, officials in both the Legislative and Executive branches need to be better informed about the positive contributions of multinational business to the domestic American economy. Here are just a few points that participants in the public policy arena should consider before launching yet another assault on the alleged shortcomings of business: American factories owned by multinationals tend to be larger and more efficient than their domestically-oriented competition; are less likely to close than purely local firms; and create more U.S. jobs than in their overseas operations. They export from the U.S. far more than they import.15 Multinational companies around the globe score better than purely domestic firms in various measures of business performance. U.S. firms, in particular, are rated as better managed than those in other countries, including companies in China and India.16However, the gap is not overwhelming. Contrary to widely held opinion, multinationals operating in poor developing countries usually pay more than local employers and their workplace conditions tend to be better. I can underscore the last point from my own experience as an outside inspector of factories in China producing for American companies.17 On reflection, the single most important point that comes out of any comprehensive analysis of the outlook for American companies heavily engaged in international business is the growing competition from Asia and especially China. For instance, a decade ago, the U.S. was the world's leading exporter and China was ninth. In 2009, America remained number one, but China had jumped over several major European countries to rank number three. Even more significantly, China's exports grew at a compound annual growth rate of 20% over the decade, compared to 4.3% for the U.S.18 Surely, Americans love competition. We certainly pay homage to that powerful force. In that regard, the rise of China is a positive development. The shift in that nation's practical focus from economically backward Communist-style production patterns to modern capitalistic techniques has been a positive development. So was the opening of that vast nation to international investment and trade and thus to Western culture and ideas. Those changes also provide a striking reminder to the U.S. that the specific effects of greater competition also can be painful. We cannot coast along, depending on past achievements. In retrospect, the rise of East Asia's economic power led to a renewal of European competitiveness as well as our own. 19China should have that overall positive effect on the West in the years ahead. The ultimate beneficiaries will be consumers enjoying higher standards of living.20 As a final thought, let me state that the most fundamental result of the expansion of international trade and investment--or, to use the common shorthand, globalization--is not economic at all. By enabling more people to use modern technology to move and communicate across national boundaries, globalization empowers individuals and does so more fully. Globalization makes possible a far greater exchange of the most powerful of all of our resources--people with new ideas. Works Cited 1. James Roberts. Less Talk, More Action. (2010) Retrieved from http://heritage.org/Research/Commentary/2010/06/Less-Talk-More-Action 2. James Sallie. "Obama's First Trade Move: No Big Deal," Investor's Business Daily, December 28, 2009 http://www.cato.org/agricultural-trade 3. Wildavsky, Ben. No Barriers to Free Trade in Minds (2010) U.S. Higher Education. Retrieved from http://www.brookings.edu/opinions/2010/0514_global_university_wildavsky.aspx 4. Markheim, Daniella. Free Trade: The Fairest Trade Policy for America. 2008 Retrieved from http://heritage.org 5. Markheim, Daniella Free Trade Agreements: Promoting Prosperity in 2008. 2008 Retrieved from http://heritage.org 6. Lipford. W, Jody, Yandle Bruce. NAFTA, Environmental Kuznets Curves, and Mexico’s Progress. 2009. Retrieved from perc.org 7. Miller, Terry. China Job Loss Claims Miss the Big Picture. 2010 retrieved from heritage.org 8. Miller, Terry. Obama’s Mercantilist Approach to Trade. 2010. in American Leadership, retrieved from heritage.org 9. Fitzgerald Sara Fighting for America's Economy with Free Trade. 2001, retrieved from heritage.org Read More