FAQ: How important is international trade to the U.S. economy?

Talking Points:

International trade enables producers of goods and services to move beyond the U.S. market of 296 million people and sell to the world market of 6.4 billion. This is very good news, since exports support millions of higher-paying U.S. jobs, strengthen companies and farms, and improve our tax base, while sending export revenue to local communities through restaurants, retail stores, etc. 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, accounting for 25 percent of economic growth in 2004.

As stated earlier, in 2005 Gary Clyde Hufbauer of the Institute for International Economics, said trade and globalization have generated an increase in U.S. income of approximately $1 trillion annually, measured in 2003 dollars. This translates into an income gain of about $10,000 for the average American household per year. Further liberalization that achieves global free trade and investment, he said, could produce another $500 billion in U.S. income annually or $5,000 per household each year. And a May 2005 OECD report estimates reforms that enhance market competition, reduce tariff barriers and ease restrictions on FDI would boost GDP per capita 1 to 3 percent in the United States, 2 to 3.5 percent in the European Union, and an average of 1.25 to 3 percent in OECD member countries.

According to Howard Lewis III and J. David Richardson’s report Why Global Commitment Really Matters!, companies that export grow faster and fail less often than companies that do not. And their workers and communities are better off. According to this report, published in October 2001 by the Institute for International Economics, U.S. exporting firms experience 2 to 4 percentage points faster annual growth in employment than their non-exporting counterparts.

But there’s more to the story. Exporting firms also offer better opportunities for advancement, expand their annual total sales about 0.6 to 1.3 percent faster, and are nearly 8.5 percent less likely to go out of business. These gains are not dependent on any specific time period or export volume. Furthermore, sales abroad spread risk should the domestic market enter a period of slow growth or recession.

FAQ: Are workers in trade-related jobs paid less than the average wage?

Talking Points:

According to Why Global Commitment Really Matters!, workers employed in exporting firms have better-paying jobs. For example, blue-collar worker earnings in exporting firms are 13 percent higher than those in non-exporting plants. Wages are 23 percent higher when comparing large plants and 9 percent higher when comparing small plants. White-collar employees also earn more—18 percent more than their non-exporting counterparts. Furthermore, the benefits for all workers at exporting plants are 37 percent higher and include improved medical insurance and paid leave.

Why Exports Matter: More!, a report by J. David Richardson and Karin Rindal published by the Institute for International Economics and The Manufacturers Institute, states that less skilled workers also earn more at exporting plants. How does globalization impact the wages of workers in non-trade related jobs? According to the International Monetary Fund, “Nearly all research finds only a modest effect of international trade on wages and income inequality.” Note: since the late 1970s, the wages of less skilled American workers have decreased relative to those of more skilled workers. Similar patterns are occurring in the United Kingdom. In contrast, countries with relatively rigid wages, such as France, Germany and Italy, have experienced higher unemployment rates.

FAQ: How do U.S. companies that invest abroad or are recipients for foreign direct investment compare with firms not internationally involved?

Talking Points:

According to Lewis and Richardson’s report, U.S. companies that have investments abroad use more advanced manufacturing technology than U.S. non-multinationals or U.S. firms without investments abroad. And this has led to greater labor productivity. In fact, worker productivity is 11 percent higher in large U.S. multinationals and 33 percent higher in small ones as compared to their U.S. counterparts not invested abroad.

In addition, average annual earnings of employees at large U.S. multinationals abroad are 18 percent higher than at their U.S. non-multinational counterparts; at small multinationals this number increases to 25 percent. Even though analysis indicates difficulty in separating out white-collar job gains at American-owned multinationals, blue-collar job gains are significant.

On the other hand, U.S companies that are recipients of foreign direct investment also perform better. According to the report, U.S. plants that are recipients of foreign direct investment employ workers with 19 percent higher productivity, provide them with more machinery and equipment, and use more cutting-edge technology than their counterparts not globally engaged. Also noteworthy, these benefits accrue at plants with an equity stake as low as 10 percent and as high as 100 percent. Overall, the report says blue- and white-collar jobs at these plants pay 7 and 2.5 percent more, respectively, when comparing plant size, industry and location.

This section appeared in Part III: Frequently Asked Questions and Talking Points of the book Grasping Globalization: Its Impact and Your Corporate Response, 2005.
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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, competitive strategies and the latest economic trends. He also is CEO of World Trade Center BN, chair of the Upstate New York District Export Council, and founder of The Manzella Report and Manzella Trade Communications Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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