Protecting US Manufacturing Exports = Protecting US Manufacturing Jobs

Manufacturing exports make up $1.45 trillion or 7.8% of US GDP.  Today more than 20% of all US manufacturing jobs depend on exports.  The United States is currently renegotiating trade agreements with a number of its trading partners, potentially threatening billions of dollars of US exports and millions of jobs across the country.  The top 10 states with the most jobs are California, Texas, Ohio, Michigan, Pennsylvania, Illinois, Indiana, Wisconsin, New York, and North Carolina.  Protecting US exports protects US manufacturing jobs.

Protect Manufacturing Exports.png

Backing out of KORUS hurts the U.S.

KORUS.png

Threatening to withdraw from the US Korea Trade Agreement (KORUS) should not be taken lightly.

South Korea is an important U.S. trading partner, providing parts and services to American manufacturers and affordable quality products to US consumers.  The potential impact of withdrawing from KORUS would be noticeable, especially when it comes to consumer electronics, transportation equipment and chemicals where South Korea ranks fifth, sixth and ninth, respectively, in terms of U.S. imports from individual countries. While some of these products are sold straight to consumers (TVs, cars, smart phones, etc.), other items are purchased by manufacturers to produce goods in the U.S. For instance, chemicals are used by U.S. manufacturers to create anything from packaging to medicines. 

Withdrawing from the agreement would increase prices for those goods in the U.S., and there would be no meaningful impact on the trade deficit.

The digital economy: data centers deserve some of the spotlight, too

When we talk about the digital economy we tend to focus on the newest and most innovative products and services coming to market. The digital economy is huge and growing rapidly, but everyone knows that. What’s less well known is the innovation and growth in infrastructure to support the digital economy, specifically, large data centers.

Large data centers are standalone facilities filled with servers and IT equipment that support the massive amounts of data and data communication capabilities that we rely on every day (in contrast, small data centers are basically server rooms in an office setting). In order for the digital economy to grow, the storage capabilities in data centers must keep up. Here are three things to know about the industry:

  1. Companies are making significant investments in data centers, and data capacity is growing rapidly. In total, $171 billion is spent on data centers worldwide. Capacity is expected to grow almost five times from 2015 to 2020.
  2. Data centers attract more data centers. Take a look at Ohio. A local news report recently announced Facebook will invest $750 million to build a data center outside Columbus; Google has spent over $1 billion on its data centers in the same region last year; and the tech company Cologix plans to invest $130 million, also in Columbus. That is nearly $2 billion total. The jobs to construct and maintain these data center are local jobs, which means the investment in this area will continue for years to come (read more on that here).  
  3. Data centers are leading innovation in energy efficiency and environmental sustainability. Power is the primary ongoing expense of a data center. Companies, like Apple, are investing in renewable energy, like solar and wind, and inventing environmentally sustainable systems, such as cooling techniques that reduce water usage. These investments advance and inform innovation in sustainability across industries and communities. 

Expect to see continued innovation and investment in data centers throughout the U.S. as states and regions follow Ohio in opening its doors to capitalize on the investments in technology, infrastructure and economic growth.

Regulations disproportionally hurt small businesses

Federal agencies created 29,014 new federal regulations, averaging 70 a week over the past eight years. These regulations range from importation of kiwis from Chile, cost of living adjustments of royalty rates pay for published musical works, reporting and recordkeeping requirements, to health insurance and environmental protection. The Office of Information and Regulatory Affairs (OIRA), an agency within the Executive Office of the President, determined approximately 10% of these regulations adversely affect the economy by at least $100 million a year (i.e., economically significant rules).

 The Regulatory Flexibility Act requires federal agencies to determine if a rule would have a significant effect on a substantial number of small businesses. During the past eight years, federal agencies created 5,340 rules that affected small businesses, 841 of those were economically significant. In other words, small businesses have to use their limited resources to navigate 13 new federal rules every week. Centers for Medicare & Medicaid Services, Food and Drug Administration, and Environmental Protection Agency were among the most active agencies and the most common topics included reporting and recordkeeping requirements, administrative practices and procedures, and government procurement.

 Regulations are necessary to the society. Businesses have to comply with law and regulations to produce safe and sound products and services for their customers. But excessive regulations and red tape have shown to have severe adverse effects on consumers, competitiveness, and economic growth. Small businesses, the backbone of the U.S. economy, should not be using their scarce resources on dealing with red tape but rather to maintain, improve, and innovate products and services to compete at home and abroad. Deregulation and cutting red tape should be top policy priorities for federal as well as local governments to boost economic growth.

30% of holiday sales are imported products

Holiday sales in the U.S. are expected to be $655.8 billion during November and December 2016, according to National Federal Retail forecasts, a 3.6% increase from 2015. Approximately 30% of holiday sales are imported products, ranging from 96% in footwear, 94% in computer products, 92% in apparel and textiles, 86% in communications products to 65% in toys.

 Approximately half of all non-agricultural goods entering the United States are duty free while the rest of imported goods aggregate to around 2% tariffs (trade-weighted average rate), calculated by the Office of the United States Trade Representative. Tariffs are customs duties that are levied either on a percentage of the product’s total value or on a specific basis per unit. The U.S. Harmonized Tariff Schedule contains 7,872 tariff lines.

 Recent policy discussions of a border adjustment tax includes a tax on all imported products. Like any tax, consumers will bear the burden. A 5% import tax on imported products would raise imported product prices by 5%. To put a 5% import tax into context, consumers would have to pay an additional $3.40 tax for a $68 pair of sneakers imported from Vietnam or an additional $5 for a $100 child’s bicycle imported from China. For $1,000 holiday spending this year, 30% representing imported products, Americans would have to pay an additional $15 tax. In addition to consumers, imported taxes could negatively affect jobs and businesses throughout the entire supply chain from transportation to retail stores. Furthermore, an imported tax would trigger retaliations from U.S. trading partners, which will harm U.S. exports.

Nam Pham is Managing Partner at ndp | analytics.

The Benefits of NAFTA on U.S. Trade

Americans export and import over $3.8 trillion of products a year with their trading partners around the world. The positive economic benefits of trading are well documented in every industry. Consumers have more choices at lower prices while producers are able to specialize on their comparative advantages to make products better and cheaper. Low prices mean low inflation which translates in accommodative monetary policy. With low interest rates, consumers and businesses are able to borrow at lower costs. Overall, open trade promotes economic growth.

 The North American Free Trade Agreement (NAFTA), a trilateral trade bloc, is no exception. U.S. exports to Canada and Mexico accounted for 33% of U.S. total exports (averaging nearly $517 billion a year) while U.S. imports from Canada and Mexico accounted for 27% of U.S. total imports (averaging over $606 billion a year). NAFTA provides American consumers with more choices at lower prices as Americans export and import goods of the same industry. For example, the U.S. motor vehicle industry is among the top five export industries to Canada and Mexico and is also among the top five import industries from Canada and Mexico, accounting for 42% of U.S. total motor vehicle exports and 49% of U.S. total motor vehicle imports, respectively. The motor vehicle part industry and oil and gas industry are examples of producers specializing in their comparative advantages along the supply chain within NAFTA. Americans export auto parts and import auto vehicles from Canada and Mexico (77% of U.S. total exports of auto parts); similarly, Americans import raw oil and gas and export petroleum and coal products to Canada and Mexico (30% of U.S. exports of total petroleum and coal products).

 The trading patterns confirm NAFTA benefits both American consumers and producers. NAFTA is vital to the U.S. economy and American consumers. NAFTA drives U.S. trade and economic growth.

Nam Pham is Managing Partner at ndp | analytics.

Innovation Comes from Small Businesses

Innovation is proven to be the growth engine for the economy. American companies are spending more on research and development (R&D) than anywhere else in the world. With innovative products and services, U.S. companies are more competitive in the global markets. More than 65,000 U.S. companies, large and small, invested over $376 billion in R&D in 2013, the latest data reported by the National Science Foundation. The R&D expenditures of U.S. companies accounted for 2.8% of their global sales, ranging from 0.1% of utilities companies to 14.4% of semiconductor machinery manufacturing companies.

Recent data also shows small U.S. manufacturing and non-manufacturing businesses employ four times more R&D personnel than large ones -- small businesses added four R&D employees, for every $10 million in sales revenue, compared to only one R&D employee in large businesses. Consequently, the share of R&D personnel is three times in small business than in large ones -- 12 out of 100 workers are R&D employees in small businesses compared to 6 out of 100 employees in large businesses.

Small businesses take risks to incubate ideas to create new products and services which benefit the U.S economy. They are a workplace for millions of innovators such as software programmers, biotechnology research scientists, semiconductor engineers, and digital artists, just to name a few. To maximize the economic and social benefits, smart and efficient policies are needed to promote small businesses and protect their innovations.

 

Nam Pham is Managing Partner at ndp | analytics, a strategic economic consulting firm.