It is almost unimaginable to consider what China has done in the global marketplace in the past decade. In 1999, China’s total exports were a paltry $195 billion. It’s laughable to see that number in print. The total amount of trade China did with the world then was a mere $361 billion. That is less than the total trade China has conducted with the U.S. in each of the last two years.
In 2008, China was the epicenter of nearly $2.6 trillion in trade worldwide. The country exported $1.4 trillion in goods.
That’s more than a sevenfold increase in trade in just ten years.
During those ten years, the United States’ trade deficit with China increased just as rapidly. In 1999, the U.S.’ trade deficit with China was $69 billion. Now, it’s more than $266 billion and growing.
As China has cemented itself as an economic powerhouse, the United States hasn’t remained static. The nation has ramped up its foreign trade initiatives and exports have practically doubled this decade. But the U.S. is still running a trade deficit with the rest of the world. With the globe made smaller by technological advances and available shipping methods, the United States is not letting up on the push to get more American businesses, particularly small- and medium-sized enterprises (SMEs), involved in exporting.
The first problem is that U.S. businesses have historically benefited from a large, local and happy to spend customer base. The need to export has basically been moot for decades. But the American domestic market is only a thin slice of a much larger pie.
“Exporting is literally a world of opportunity,” said Senator Amy Klobuchar (D-MN), chairman, Senate Subcommittee on Competitiveness, Innovation and Export Promotion. “Over 95% of the world’s customers are located outside the United States. Increasing our exports will mean more business, more jobs and more growth for the American economy.”
As the downturn has eroded growth, the government has tried to entice small- and medium-sized U.S. businesses to test the waters overseas. When the dollar is weak, foreign markets become a haven for U.S. goods. And last week, the United States Trade Representative (USTR) Ron Kirk announced new policymaking initiatives to motivate American businesses to explore the opportunities of exporting, including an investigation by the International Trade Commission (ITC) to determine obstacles and benefits to SMEs.
“American companies of all sizes must export their goods and services to get our economy growing again," said Ambassador Kirk. The USTR will also be partnering with the Department of Commerce and the Small Business Administration (SBA) to draft small business export programs, and the agency announced it will seek new trade agreements and set priorities in existing trade agreements to better facilitate small business trade.
According to the National Association of Manufacturers (NAM), as it stands, 95% of all U.S. exporters to North American Free Trade Agreement (NAFTA) partner nations are small- and medium-sized businesses, representing some $630,000 in exports per year per company. Almost 45% of exporting companies to the U.S. Central American Free Trade Agreement (CAFTA) partners are small- and medium-sized business. And more than 80% of U.S. exporters to China are SMEs.
Nonetheless, while small businesses represent 97% of all exporters, currently only 1% of all U.S. small businesses are exporting. International trade is still dominated by large companies that make up about 75% of the U.S.’ total export volume.
“America has always reached out around the globe, through its exports,” said Senate Committee on Commerce, Science and Transportation Chairman John D. Rockefeller (D-WV). “However, small- and medium-sized businesses in particular have not taken full advantage of potential markets abroad. But that can and should change.”
The Senate Subcommittee on Competitiveness, Innovation and Export Promotion is currently holding hearings on promoting export success for small businesses. Rockefeller believes that as the U.S. economy struggles, overseas markets will continue to represent opportunities and spur growth. “Firms that engage in overseas trade tend to have higher rates of productivity growth and pay higher wages,” said Rockefeller. “By leveraging U.S. competitiveness and tapping new markets, we can narrow our trade deficit and create quality jobs.”
Unfortunately, some of the biggest obstacles to small business participation in international markets are tariffs, duties and taxes that are imposed by other nations. This has been the main driver behind free trade agreements, like those pending with Panama, Colombia and South Korea.
“There are roadblocks for U.S. companies, big and small, when they export products internationally,” stated Brad Pierce, president, Restaurant Equipment World. “For example, an American product that has a dealer cost of $35,000 when it leaves our shores can have a final cost reaching $60,000 to $70,000 when it reaches its destination. U.S. innovation and product quality can overcome many obstacles, but a doubling in price can be crippling.”
The other difficulty is informing small businesses of their options. This year, the Export-Import Bank of the United States (Ex-Im) experienced a banner year, helping small businesses with over $4 billion in transactions, 29% more than fiscal year 2008. And Small business transactions accounted for 88% of those supported by the bank. Though the bank knows there is still work to be done.
“We estimate that there are 259,000 actual small business exporters in the U.S.,” explained Alice Albright, executive vice president and COO, Ex-Im. “With a business development staff of less than forty, Ex-Im is working incredibly hard to reach these companies, however speaking candidly, we have work to do in terms of raising our profile.”
Ex-Im made other considerable contributions to international trade by filling in financing gaps. For example, it provided more than $1 billion in guarantees because U.S. lenders were reluctant to take on Korean bank risk related to export letters of credit. The bank says that as the risk appetite of U.S. lenders increases, Ex-Im will be able to gradually withdraw its support.
Matthew Carr, NACM staff writer. Follow us on Twitter @NACM_National