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.

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3 Reasons 2015 Will Be A Big Year For Global Trade

2015 is shaping up to be a big year for the global economy. The U.S.-led free trade agreements have new life. The U.S. and China reached a monumental agreement on information and communications technology tariffs. And India and the U.S. came to consensus on food stockpiles that helps bring the World Trade Organization’s Trade Facilitation Agreement (TFA) one step closer to reality. The U.S. cannot squander this opportunity.

Photo courtesy of Reuters.
  1. On the U.S. FTAs: The Trans-Pacific Partnership (TTIP) and Trans-Atlantic Trade and Investment Partnership (TTIP) have returned to the conversation among policymakers as something the President and Congress can accomplish during the lame-duck session. The success of these agreements hinges on the President and Congress re-enacting the Trade Promotion Authority to allow negotiated trade deals to be voted on in Congress without having them picked apart. And, as we noted in our previous report, there are substantial benefits to TPP countries due to intellectual property-intensive industries that are vital to prosperity, innovation, and competitiveness of all countries in the TPP. 
  2. On U.S./China ITA: The U.S. and China finally agreed to adopt an updated Information Technology Agreement (ITA) that eliminates tariffs on trade for hundreds of information and communications technology (ITC) products. These tariff eliminations, which stood at a range from 8 percent for medical devices to 30 percent for video game consoles, are massively important for the U.S. economy and consumers. The ITA expansion is estimated to increase U.S. exports by $2.8 billion, advance revenues of U.S. companies by $10 billion, and create 60,000 new jobs. Overall, the agreement stands to increase global GDP $190 billion annually. 
  3. On the WTO’s TFA: The U.S. and India reached an agreement over food stockpiles that pulls the Group of 20 major economies closer to consensus on the Bali Agreement. The agreement would be the biggest trade deal in the WTO since its inception. The TFA will remove delays at border crossing and ports by bringing uniform standards at customs and ports. The WTO estimates TFA will stimulate the global economy by $1 trillion. 

The opening of global markets beyond the incremental steps taken over the past few years is a great thing for a sputtering global economy. Businesses benefit by having access to many more customers. Consumers gain access to goods and products are lower prices and a greater variety. Washington has a grand opportunity to lead on global trade. It better not spoil it.

More Research About Cities and Economic Growth

The influential economist Alfred Marshall described urban economies and entrepreneurship as working in unison through parallel movements between localization and growth of the capitalist “undertakers”, or entrepreneurs.  Community is a form of currency in the global marketplace and cities matter more than ever. The most recent report from the Kauffman Foundation—authored by Yasuyuki Motoyama, Ph.D. and Jordan Bell-Masterson—measures the rate of business creation in 356 metropolitan areas across the United States. Using three sets of data for metro areas including the startup rate for all industries, high-tech sectors, and high-growth firms, the report assesses the regional factors are associated or unassociated with entrepreneurship. Specifically, the authors seek to understand what drives entrepreneurship at the regional level in high-growth sectors. 

The authors find that population size and the rate of population growth within a metro area are the two most important factors in determining start-up rates. Simply put, cities have a more diverse set of sectors and bringing in a greater number of businesses and startup opportunities. Of course, this is firmly supported in the literature on urban economies through studies on agglomeration in cities (i.e., firms benefit when locating near one another). For example, an important study comparing New York City and Pittsburgh, Benjamin Chinitz (1961) found the measure of inputs, such as independent suppliers and capital, have linked to a stronger “suppler schedule of entrepreneurship.” In short, New York City was a better place for starting and operating a business due to its size, diversity, and network of suppliers.

The most interesting finding from the report, and contrary to multiple previous studies, the authors find few significant factors for the public sector to influence entrepreneurship. The presence of government- and university-funded research and patents has no correlation to startup rates, even within high-tech sectors. The one public sector factor that is associated with higher startup rates is education, namely high school and college completion. However, the authors note that their previous findings have shown 52.6 percent of entrepreneurs having less higher education than a college degree, and thus an exclusive focus on college education and completion suggests a linear relationship between education and entrepreneurship is not likely to be true.

The authors conclude by noting the presence of high-tech sectors leads to higher rates of high-tech startups, but not for all kinds of new firm. While the authors’ research shows that higher start-up rates for high-tech sectors does not necessarily induce greater overall rates of entrepreneurship, their conclusion comes with the recommendation that policymakers shouldn’t promote high-tech companies. This is an odd recommendation, especially when comparing the results of this research to the Milken Institute's annual Best Performing Cities report. The most recent iteration finds that cities known for their technology hubs take more than half of the top-25 best performing cities. In addition, technology growth propelled a number of other metros to improve their rankings compared to the previous year. Talk to the mayor of a major U.S. city and ask what they want: it’s high-growth companies and job creation.

Larger cities are able to support a more diverse set of start-ups across all sectors. However, drawing upon the authors’ conclusions about high-tech start-ups, further study should examine what factors lead to greater start-ups in different sectors and industries. These findings go against research that shows government- and university-funded research and patents are correlated with greater innovation more generally in industries such as pharmaceuticals.

Start-up companies and small businesses look to cities to start their businesses because access to the market is more immediate and demand is greater. Cities are best suited in attracting the diverse skills, abilities, materials, and processes that are required for the birth and growth of entrepreneurial small firms. Growth, new business formation, and free enterprise will do more for a city’s economy than any economic development policy can induce on its own.