Too many U.S. policymakers, from Capitol Hill to the various executive branch agencies in Washington, tend to focus on foreign policies and foreign barriers when considering how best to improve the competitive prospects for U.S. firms. The presumption is that the major impediments to the success of U.S. firms are foreign born. Closed foreign markets, complex laws and regulations, overt flaunting of the trade rules, subtle protectionism, and unfair trade are the primary culprits that subvert the success of U.S. firms, discourage investment and hiring, and encourage offshoring of production.

But that premise is myopic and, frankly, irresponsible. It reinforces arguments for nonsensical policies, such as preserving our own barriers to trade and investment, which are nothing more than costs to U.S. businesses and families. Policies that raise the cost of doing business in the United States—such as our tariff regime and the trade remedies duties that the U.S. government imposes on broad swaths of industrial inputs—encourage manufacturers to at least consider moving operations abroad, where those materials are available at better prices.

Governments are competing for business investment and talent, which both tend to flow to jurisdictions where the rule of law is clear and abided, where there is greater certainty to the business and political climate, where the specter of asset expropriation is negligible, where physical and administrative infrastructure is in good shape, where the local work force is productive, and where there are limited physical, political, and administrative frictions.

This global competition in policy is a positive development. But we are kidding ourselves if we think that the United States is somehow immune from this dynamic and does not have to compete and earn its share with good policies. The decisions made now with respect to our policies on immigration, education, energy, trade, entitlements, taxes, and the role of government in managing the economy will determine the health, competitiveness and relative significance of the U.S. economy in the decades ahead.

We live in a globalized economy where more and more U.S. jobs depend upon transnational collaboration—through integrated supply chains and cross-border investment. Most Americans enjoy the fruits of international trade and globalization every day: driving to work in vehicles containing at least some foreign content; communicating, shopping, navigating, and recreating on foreign-assembled smart phones; having higher disposable incomes because retailers like Wal-Mart, Best Buy, and Home Depot are able to pass on cost savings made possible by their own access to thousands of foreign producers; earning paychecks on account of their companies’ growing sales to customers abroad; and enjoying salaries and benefits provided by employers that happen to be foreign-owned companies. Nearly 6 million Americans work for foreign subsidiaries in the United States.

Still, too many Americans are of the view that exports are good, imports are bad, the trade account is the scoreboard, the trade deficit means the United States is losing at trade, and it is losing because our trade partners cheat. Many point to the trade deficit as the obvious explanation for the much exaggerated death of U.S. manufacturing.

According to polling data, Americans are generally skeptical about trade and its impact on jobs, manufacturing, and the U.S. economy. And come to think of it: why shouldn’t they be? After all, the public is barraged routinely with misleading or simplistic coverage of trade issues by a media that is too often heavy on cliché, innuendo, and regurgitated conventional wisdom, and lacking in analytical substance or balance. And demagogic politicians only fan the flames of misconception and misgiving.

The Obama administration has not been particularly helpful about correcting these misperceptions. In fact, the president is prone to using these scoreboard metaphors to describe trade, exhorting U.S. exporters to “win the future” or to secure foreign market share before other countries’ firms get there or to beat the Chinese in developing this technology or that. This encouragement, with its incessant emphasis on exports as the benefits of trade and imports as its incidental costs, only reinforces the misconception that trade is a zero-sum game with distinct winners and losers.

But trade does not lend itself to scoreboard metaphors because both parties to a trade are made better off. There are no losers, else the transaction wouldn’t occur.

The centerpiece of the administration’s almost indiscernible trade policy is the National Export Initiative, with its goal of doubling U.S. exports over five years (to $3.12 trillion by the end of 2014). That would be fine, except that nowhere in the administration’s 68-page plan to double exports is the word “import” mentioned, except with respect to the section that speaks about strengthening the trade remedies laws to better discipline “unfair” imports. Some of the components of the NEI—such as streamlining U.S. export control procedures and concluding and signing trade agreements—are laudable ideas. But the plan is simply not good enough.

As currently executed, the NEI systemically neglects a broad swath of opportunities to facilitate exports by contemplating only the export-oriented activities of exporters. It presumes that U.S. exporters are born as exporters. But they are not. Before those companies are exporters, they are producers. And as producers, they are subject to a host of domestic laws, regulations, taxes, and other policies that handicap them in their competition for sales in the U.S. market and abroad.

According to a World Economic Forum survey of 13,000 business executives worldwide, there are 52 countries with less burdensome government regulations than those of the United States. Those regulations impose additional costs on U.S. businesses that sell domestically and abroad. As put by Andrew Liveris, chairman and CEO of the Dow Chemical Company, “How we operate within our own borders, what we require of business here, often puts us at a competitive disadvantage internationally.” By neglecting these domestic impediments, the administration pretends that the obstacles to U.S. competitiveness and export success are all foreign-born.

The policy reform focus must be broadened to include consideration of the full range of home grown policies—such as taxes, regulations, tariff policy, and contingent protectionism—that affect U.S. producers and put them at a disadvantage vis-á-vis foreign competitors. As producers first, most U.S. exporters are consumers of capital equipment, raw materials, and other industrial inputs and components. Many of the inputs consumed by U.S. producers in their operations are imported or the costs of the inputs are affected by the availability and prices of imports. Indeed, “intermediate goods” and “capital equipment”—items purchased by producers, not consumers—accounted for more than 55 percent of the value of all U.S. imports last year—and 57 percent through the first half of 2011.

This fact alone indicates that imports are crucial determinants of the profitability of U.S. producers and their capacity to compete at home and abroad. Yet the NEI commits not a single word to the task of eliminating or reducing the burdens of government policies that inflate import prices and production costs.

The president exhorts U.S. exporters to “win” a global race, yet he ignores the fact that the government’s hodgepodge of rules and regulations has tied their shoes together.

If the administration were serious about helping U.S. companies become more competitive and making the NEI a long-lasting institution committed to U.S. international competitiveness, it would compile an exhaustive list of laws, regulations, policies, and practices that are undermining the stated objectives of increased competitiveness, economic growth, investment, and job creation through expanded trade opportunities.

Near the top of that list would be America’s self-flagellating treatment of imported intermediate goods and other industrial inputs required by U.S. producers to make their final products. Last year, U.S. Customs and Border Patrol collected $32 billion in duties on $2 trillion of imports, over $1 trillion of which were ingredients for U.S. production—such as chemicals, minerals and machine parts. Normal tariffs and special trade remedies duties (i.e., antidumping and countervailing duties) added roughly $15-20 billion to the overall price tag, which would have been even higher had companies not been compelled to shutter domestic operations and, in some cases, relocate abroad on account of the higher input costs.

What is so frustrating is that President Obama understands this dynamic. Last year, when signing into law the Manufacturing Enhancement Act of 2010, a bill to temporarily reduce or eliminate duties on certain imported raw materials, the president said the following:

“The Manufacturing Enhancement Act of 2010 will create jobs, help American companies compete, and strengthen manufacturing as a key driver of our economic recovery. And here’s how it works. To make their products, manufacturers—some of whom are represented here today—often have to import certain materials from other countries and pay tariffs on those materials. This legislation will reduce or eliminate some of those tariffs, which will significantly lower costs for American companies across the manufacturing landscape—from cars to chemicals; medical devices to sporting goods. And that will boost output, support good jobs here at home, and lower prices for American consumers.”

This article appeared in Impact Analysis, November-December 2011.

Daniel Ikenson
About The Author Daniel Ikenson [Full Bio]
Dan Ikenson is an author, speaker and Director of The Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, focusing on WTO disputes, regional trade agreements, U.S.-China trade issues, steel and textile trade policies, and antidumping reform.

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