Tap the potential of international trade
By Gerhard Apfelthaler
I have been in international business for most of my life. My multiple and often parallel careers as an educator, a university administrator, a diplomat and an entrepreneur have enabled me to look at the same topic from a variety of angles.
When I discuss the landscape of global trade with my American students, they are often proud to see that the United States has been among the top three exporting countries worldwide for decades. Trade statistics are a tricky affair, but with exports of goods in excess of $1.5 trillion in 2015, according to the U.S. Census Bureau, the U.S. is second only to China.
But then, I deliver the disappointing news: Yes, in absolute terms, the U.S. is a global force. But in relative terms, it is a dwarf. With only about 13 percent of the national gross domestic product stemming from international trade, the United States’ export sector ranks along that of countries like Egypt, Nepal and Rwanda. These results are even more shocking when one looks at the structure of U.S. trade. The only markets that take a significant share of U.S. exports are Canada (about 20 percent) and Mexico (about 15 percent).
Of course, there’s always a story behind statistics and there is always a rational explanation. For instance, the U.S. has a large internal market that is driven by domestic consumption, and, therefore, isn’t as dependent on exports as smaller countries are. However, such explanations only justify the status quo, and don’t provide any guidance for the future.
With all the talk about opportunities in overseas markets, the question arises, why aren’t U.S. companies seizing them? And, first of all, should they? The answer to the latter question is simple.
Yes, they should. From a macro perspective, growth in exports increases aggregate demand, creates employment across all sectors and helps balance the trade deficit.
From the micro-perspective of business, the answer is also affirmative. Engaging in international trade is good insurance against domestic recession, and companies can learn from the experience.
In dealing with customers in other countries, companies become more agile and innovative, which enhances their local competitiveness.
So, why aren’t U.S. companies seizing the opportunities? In times of domestic growth, they are usually too busy to think about expanding into foreign countries. And in times of an economic slowdown, they become risk-averse or assume it is too late to develop global markets. Very often, however, it is simply a lack of awareness of the many benefits of international trade, a lack of trust in one’s own ability to compete across borders and a perceived lack of assistance — ranging from market intelligence to hands-on help.
Help is readily available, from government organizations such as the U.S. Commercial Service and the U.S. Small Business Administration as well as economic development associations, specialized consulting firms and universities. In some cases, the aid just needs to be made more accessible. We need to do better in educating our workforce and assisting our companies in regard to international business. Individuals and corporations need to understand the benefits and risks of doing business internationally and learn strategies to deal with them.
It’s a good time for businesses to begin looking at international trade as the U.S. and European Union negotiate the Transatlantic Trade and Investment Partnership. Reducing regulatory barriers and regulatory convergence, which are at the heart of the TTIP, are a logical continuation of a process that started with signing the General Agreement on Tariffs and Trade in 1947 and creating the World Trade Organization in 1994. As numerous studies have shown, closing borders to the world is a short-term measure that generates long-term problems.
• Gerhard Apfelthaler is a professor of international business and the dean of the School of Management at California Lutheran University.