U.S. economic growth dipped 2.9 percent in the first quarter of 2014 and is unlikely to exceed 2 percent this year. Projections for the European Union (EU), at 1.6 percent, and Emerging Markets, at 4.9 percent, also remain low, according to the International Monetary Fund (IMF). Nevertheless, Emerging Market projections are considerably higher than the United States’. Consequently, for many U.S. firms interested in higher returns, international expansion is essential.

Markets outside the United States represent 73 percent of global purchasing power, 87 percent of economic growth, and 95 percent of world consumers, reports the U.S. Chamber of Commerce. As a result, U.S. international engagements via trade and investment are becoming an increasingly important factor in the creation of new economic growth. But that’s not all.

On average, U.S. companies that export employ twice as many workers, produce twice as much output, and generally offer better health insurance and pensions than non-exporting companies, reports the Peterson Institute of International Economics, a Washington, D.C. think tank. And according to the Business Roundtable (BRT), an association of chief executive officers of leading U.S. companies, trade accounts for nearly one in every five jobs. It also delivers approximately $1 trillion in benefits annually to the U.S. economy or $10,000 per American household, says Gary Clyde Hufbauer, Peterson Institute for International Economics.

Many U.S. firms need to expand beyond American boarders if they wish to achieve higher growth rates than the country can currently provide.

What's more, globally engaged companies have higher productivity levels, fail less often and pay their workers considerably higher than companies not involved in global business, the U.S. Department of Commerce says. Plus, trade and investment also benefits consumers by enabling them to purchase the best the world has to offer.

Playing Catch Up

In 1950, trade accounted for less than 5.5 percent of U.S. economic growth. Today, it has become an integral part of everyday life, now contributing 30 percent of our economic growth.

New trade agreements that reduce foreign barriers will help U.S. companies export to a greater extent, contribute to overall economic growth, and create more jobs. In fact, U.S. trade-related employment grew 6.5 times faster than total employment from 2004 through 2011, according to the BRT.

Importantly, the United States maintains a manufacturing trade surplus with its free trade agreements partners. This demonstrates that when tariffs and non-tariff barriers — which include unreasonable regulations, quotas, import licensing requirements, special supplementary duties, and border taxes — are reduced or eliminated, American firms can successfully compete anywhere in the world.

In The Spotlight

But there is a problem. The United States currently only has 14 free trade agreements with 20 partners. However, there are approximately 300 free trade agreements around the world without U.S. participation. And the number of free trade agreements being implemented by our competitors is on the rise — giving them a competitive advantage over U.S. companies. As a result, it is important for Congress to pass new agreements.

Unfortunately, this is virtually impossible unless Congress renews Trade Promotion Authority (TPA), also referred to as “Fast Track.” First enacted in 1974, TPA requires Congress to pass or reject trade agreements without making any changes. Without TPA, foreign governments are reluctant to make agreements and concessions that could be changed later by Congress.

TPA is considered necessary to complete and ratify the Trans-Pacific Partnership agreement between the United States and 11 other Pacific-bordering nations. And although economic growth projections for the 27-member EU are at historic lows, the world’s largest trade bloc — which includes 500 million consumers compared to the U.S. population of 317 million — continues to have tremendous purchasing power. As a result, it remains a major market for U.S. exports.

Last year, the United States began negotiating with the EU to establish a free trade agreement known as the Transatlantic Trade and Investment Partnership. If successful, this deal would cover approximately 50 percent of global output, nearly 30 percent of world merchandise trade, and 20 percent of global foreign investment, says the OECD. However, the completion of this deal is fraught with obstacles, and the ability to pass TPA is certainly among them.

The bottom line: many U.S. firms need to expand beyond American boarders if they wish to achieve higher growth rates than the country can currently provide. And the passage of TPA certainly will help U.S. firms reach those markets.

This article appeared in International Insights, a Fifth Third Bank publication.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, emerging risks, competitive strategies and the latest economic trends. He also is founder of the ManzellaReport.com and Chief Strategy Officer of Ignition Life Solutions. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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