Globalization Under Review but States Continue to Expand Trade
International trade was a frequent issue of debate during the 2016 presidential election and the results demonstrated a growing concern among voters around the impact of trade agreements and globalization. Many trade experts will point to Great Britain’s vote to leave the European Union in 2016 as the first indicator in the shift of global trade policy, and reevaluating the impact of international trade agreements. As federal leaders debate the direction of trade policy, states continue to expand exports and attract investments into their respective states; while continuing to improve the coordination with federal agencies to make the trade process easier for their businesses.
About the Author
Andy Karellas is the director of federal affairs at The Council of State Governments, and also serves as director of the State International Development Organizations.
President Trump wasted no time making his position on international trade agreements clear. On the first official day of his presidency, he issued a memorandum formally withdrawing the United States from the recently negotiated Trans-Pacific Partnership, or TPP, trade agreement,1and to renegotiate the current trade agreements. The swift action against the multilateral free trade agreement set the tone for the new administration’s approach on international trade policy.
What this means for specific directives and changes is yet to be determined. Will this increase the tariff for a certain product or service being exported? Will there be a new tax on imported products? Will there be new customs and documentation procedures for shipment? These are questions that many states and businesses are closely monitoring as changes in trade policy can have an enormous impact on their supply chain and overall business operation.
While states are closely monitoring the actions of the Office of the U.S. Trade Representative and federal policymakers, they are on the front line steering companies to new export opportunities and attracting investment into their respective states. State international trade offices helped support the export of over $2.2 trillion in goods and services, which helped support millions of jobs. Moreover, the United States remained the top destination for foreign investment, attracting over $3.1 trillion. The investment helped support over 6 million jobs by majority foreign owned firms.2
The role of state international trade offices in promoting exports and attracting investments continues to strengthen. The recent reauthorization of the State Trade Expansion Program,3or STEP, helped provide the resources for states to assist more small businesses in exporting, while also serving as a key bridge to coordinate with federal trade agencies. In addition, the implementation of the State-Federal Trade Coordination Plan4 will help develop the framework for state and federal trade agencies to better coordinate their resources and services.
The Future of Free Trade Agreements
During the campaign and into his first 100 days in office, President Trump voiced his desire to strengthen the enforcement against countries that practice unfair trade, such as China. In addition, President Trump has stated his intention to renegotiate the North American Free Trade Agreement, or NAFTA, which is a free trade agreement with Mexico and Canada.
Currently, the United States has free trade agreements with 20 countries: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru and Singapore.5 The United States is also officially still in negotiations with the European Union on the Transatlantic Trade and Investment Partnership, or T-TIP, however many trade experts do not expect the new administration to act on this agreement in the near future.
The USTR, is a part of the Executive Office of the President and is the principal trade advisor, negotiator and spokesperson on international trade issues. The front page of the USTR website has the headline “America First Trade Policy” and goes on to state, “USTR is working to reshape the landscape of trade policy to work for all Americans… this new America First trade policy will make it more desirable for companies to stay here, creates jobs here, pay taxes here, and rebuild our economy.”6
States and businesses will be watching to see what exactly the new “America First Trade Policy” looks like and means for their supply chain and business operations. It’s difficult to forecast what exact executive actions will take place, but it is clear that reviewing international trade agreements is a top priority for the new administration.
State’s Role in Promoting Exports and Investment
States play a leading role in promoting exports, attracting investment and developing trade policy on behalf of their businesses and state.
They understand their state’s competitive strength, demographics, economic goals and resources needed to compete in the global economy. State trade offices also understand companies that are engaged in international trade grow faster, are more diverse, and are able to be more competitive in the long term. According to the International Trade Commission, or ITC, small businesses who exported averaged a 37 percent revenue growth compared to a decline of 7 percent for non-exporting firms.7
State trade offices provide a wide variety of services and resources to assist their businesses and state. According to a survey conducted by the State International Development Organizations, or SIDO, more than 80 percent of state trade directors provide counseling to exporters, conduct market research, identify foreign buyers, develop training programs for businesses, lead trade shows and missions, and serve as the point of contact for the governor on trade policy.
The role and structure of state trade promotion agencies depends on a number of factors. In general, states structure their offices to complement the resources and objective unique to their individual state. This includes utilizing federal resources, universities, organizations and other partners to coordinate services and products for businesses. No state is structured the same.
To better understand the staff allocation by state, the Trade Promotion Coordination Committee, or TPCC, and SIDO have conducted surveys of state trade promotion agency staffing. The following was reported in 2015:
0-1 staff……………13 states
2-3 staff……………12 states
4-6 staff……………12 states
7-11 staff……………8 states
>11 staff…………….3 states
The STEP grant program has been vital for states’ effort to increase exports from small firms, including new-to-export firms. Despite the continued growth in the economy, less than 1 percent of U.S. companies sell their product or service abroad. The STEP grant program helps companies take the first step in exporting their product or service by providing resources toward learning how to export, participate in a foreign trade mission or show, and develop marketing materials. Congress appropriated over $18 million in fiscal year 2016, which was competitively awarded to 40 states.8
State and Federal Trade Coordination
States continue to work closely with federal, local and private partners to coordinate their services. The recently passed Trade Facilitation and Trade Enforcement Act of 20159 (P.L. 114-125), included language that mandated the development of a Federal and State Export Promotion Coordination Plan. This coordinated plan will include an outline of the role of federal and state agencies, a process to coordinate metrics and client information, and a framework to coordinate on trade events, such as training, trade missions and trade shows. The development of this plan will increase the efficiency between state and federal trade agencies, therefore increasing the productivity and quality of services used by businesses.
One of the first steps is to identify and outline the role of federal resources in each state. Currently, there are over 20 federal agencies that play a role in the international trade process. State trade agencies work the closest with the U.S. Department of Commerce’s U.S. Commercial Service, the U.S. Department of Agriculture’s Foreign Agriculture Service, the U.S. Small Business Administration, the Export-Import Bank, U.S. Customs and Border Protection, and the Small Business Development Centers.
Federal agencies play an important role in assisting the exporter and business; and having a clear and coordinated plan allows states to better understand where to allocate their resources to best serve their businesses.
In addition, federal trade agencies located abroad play a key role in assisting the state with executing the sale and attracting investment for the state. The most common federal offices include the U.S. embassies, U.S. Foreign Commercial Service and the Foreign Agriculture Service. Their services include identifying prospective buyers and investors, arranging key visits, coordinating trade missions and supporting the state’s mission.
According to the SIDO survey, over 65 percent of states maintain international trade offices in foreign countries to help drive more exports and identify investment for their individual state.
With stronger coordination between federal trade agencies, state trade offices will be able to structure their operations to uniquely complement their strategy, resources and overall goal of helping more businesses export and attracting more investment.
1 The White House, available at https://www.whitehouse.gov/the-press-office/2017/01/23/presidential-memorandum-regarding-withdrawal-unitedstates-trans-pacific.
2 The United State Department of Commerce, SelectUSA, available at https://www.selectusa.gov/FDI-in-the-US.
4 The Trade Facilitation and Trade Enforcement Act of 2014, P.L. 114-125.
5 The Office of the United States Trade Representative, available at https://ustr.gov/trade-agreements/free-trade-agreements.
6 The Office of the United States Trade Representative, available at https://ustr.gov/.
7 United States International Trade Commission, Small and Medium-Sized Enterprises: Characteristics and Performance (2010), xi, available at http://www.usitc.gov/publications/332/pub4189.pdf.
8 The U.S. Small Business Administration, available at https://www.sba.gov/managing-business/exporting/state-trade-expansion-program-step.
9 Ibid. 4