International trade is back at the top of the global agenda, spurred by a realization that barriers to cross-border commerce are increasingly a tax on one’s own competitiveness.
After something of a lull during President Obama’s first term, liberalization of international trade and investment is back at the top of the global economic agenda. In the past few months we have seen:
- the launch of talks on a Transatlantic Trade and Investment Partnership between the United States and the European Union
- action in the World Trade Organization to harvest some of the low-hanging fruit from the stalled Doha Round
- continued progress on the Trans-Pacific Partnership talks
- and most importantly, strong bipartisan support for renewed U.S. Trade Promotion Authority.
There are many reasons for this “trade renaissance.” One is continued slow growth in the United States and many of our trading partners. Another is strong business advocacy, both in the U.S. and overseas, in support of opening up trade as a “cost-free” stimulus. Hats off to USCIB’s chairman, Terry McGraw, who recently took on the chairmanship of the International Chamber of Commerce, for pushing an ambitious trade policy at home and abroad, including championing the ICC World Trade Agenda (see page 4), which seeks to mobilize support for a variety of liberalizing measures in and around the WTO. But a critical factor in this newfound activity on trade is the realization among policy makers that, in a world of increasingly sophisticated global value chains, countries that don’t act to remove barriers to imports (and, in some countries, exports) as well as investment, or who fail to streamline their regulatory and administrative procedures to make it easier for foreign companies to set up shop, are shooting themselves in the foot. The OECD has been an important catalyst in this realization, serving as a central “brain trust” for research on what is being called “trade in value added,” or TiVA. At the OECD Forum in May, I participated in a panel discussion on TiVA that reviewed the findings of a new OECD paper on global value chains. Data from the OECD gives us a lot to think about. For example:
- When services imbedded in manufactured goods are counted in our trade data, the overall services component of U.S. trade rises from about 20 percent to 40 percent.
- The import share of U.S. export value has tripled in the last 30 years from 7 percent to 22 percent, while the global import content of exports is approaching a staggering 40 percent.
It is clear that the traditional “arm’s length” model of trade is increasingly a thing of the past. As Pascal Lamy, the outgoing director general of the WTO, has observed, when intermediate goods cross borders multiple times before becoming final products, protectionism “is even more stupid than we thought it was,” because import barriers essentially become an ever-increasing tax on one’s own exports.
Augmenting the OECD’s excellent work, we at USCIB recently joined with the Business Roundtable to publish new research from Matthew Slaughter of Dartmouth, examining how American companies participate in global supply networks, and documenting the significant economic and employment gains this participation brings to the United States (download the report here). This research, along with the OECD’s work on TiVA, can serve to better illuminate a path forward for policy makers.
A recent forum at the Peterson Institute for International Economics in Washington, D.C. examined the potential payoff from the ICC World Trade Agenda, which puts forward seven concrete, multilateral goals that could be achieved by 2015. These include concluding a WTO trade facilitation agreement, negotiating a new plurilateral agreement to free up trade in services and expanding trade in information technology.
Peterson experts Gary Huffbauer and Jeffrey Schott concluded that by simplifying customs procedures – through trade facilitation measures – alone, WTO member countries would deliver global job gains of 21 million, with developing countries gaining more than 18 million jobs and developed countries increasing their workforce by three million – and global GDP would be increased by almost $1 trillion. A services agreement would generate some eight million new jobs worldwide, including 1.4 million in the U.S.
Speaking at the Peterson event, Robert Zoellick, the former World Bank president and who earlier served as U.S. trade representative, applauded the ICC initiative as “a great pathway” to expanded trade in a world where global output is now evenly split between developed and developing countries, and where significant South-South trade barriers still remain.
It’s critical that countries take the right approach, and craft the right policies, to accommodate emerging global value chains and generate new jobs connected to burgeoning global markets. In particular, it’s important to address new and emerging issues like forced localization requirements, restrictions on the cross-border flow of data, unfair competition from state-owned enterprises, and customs impediments or barriers at the border.
These new trade initiatives provide ample opportunity to do this, but only so long as business leaders and policy makers can continue to demonstrate the leadership and wisdom to choose the right course, and tear down the barriers to growth and jobs.
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