Exporting nonsense

Scott Lincicome International trade attorney
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Desperate to resuscitate the U.S. workforce and his lagging poll numbers, President Obama has reluctantly called on the global economy for help. Unfortunately, he dialed the wrong number.

The White House’s first serious attempt at international trade policy—the National Export Initiative—seeks to create millions of American jobs by doubling U.S. exports within the next five years. It’s a goal that would be difficult to reach through even the most sweeping and remarkable of economic proposals, but the NEI will try to achieve its ambitious export targets by merely expanding two things that the federal government already does: export promotion and enforcement of global trade rules. (Good luck, as they say, with all that.)

Overly optimistic goals aside, the NEI’s two-pronged plan has plenty of other problems. Basically, there is simply no evidence that throwing more taxpayer dollars at government export promoters or trade enforcers actually increases U.S. exports. And one must question the seriousness of a U.S. export plan that doesn’t prioritize the ratification of signed free trade agreements or the resolution of current trade disputes that force American exporters to pay billions of dollars in retaliatory tariffs.

Yet despite these very real concerns, the NEI actually suffers from a far more fundamental and disquieting flaw: a blinkered focus on increasing U.S. exports without any concomitant liberalization strategy for imports and investment. This mercantilist approach—that exports are what’s good about trade, and imports are the bad thing we reluctantly accept to secure new markets for our goods and services—has been debunked since the days of Adam Smith and is wholly disconnected from today’s globalized economy, yet it permeates all of the administration’s international trade endeavors, including the NEI.

Imports have no place in the President’s export plans, despite a blatant interrelationship. According to the Bureau of Economic Analysis, a strong, positive correlation exists between import growth and export growth—a statistic that makes perfect sense when one realizes that over half of all U.S. imports are capital goods and equipment used by American manufacturers to produce globally-competitive products.

Such data are helpful signals of imports’ vital role in the U.S. economy, and they undermine a U.S. export policy that ignores access to foreign goods. But to really understand just how divorced the NEI is from modern economic reality, one need look no further than a real-world example offered by the program’s chief cheerleader, Commerce Secretary Gary Locke. In his speech unveiling the NEI, Locke praised the government’s magical export-boosting powers, but never once mentioned imports. He then closed with an “export success story” about a small Texas company—Air Tractor—that used government assistance to increase foreign sales of its aircraft. Air Tractor, Locke asserted, was the embodiment of the Obama administration’s pithy message to struggling American companies: “Look abroad.”

In Air Tractor, Locke drew a simple, black-and-white portrait of an American company exporting its products all over the world, all because of Uncle Sam’s export promotion efforts. But Locke’s doodle reflects a basic ignorance, willful or otherwise, of how today’s economy actually works, and thus what a 21st century trade policy should look like. Indeed, a closer look at Air Tractor’s commercial endeavors reveals just how disconnected the administration’s policies are.

First, the aviation engines in all of Air Tractor’s planes are manufactured by Pratt & Whitney Canada and then imported into the United States duty-free. Pratt & Whitney Canada is a sibling of U.S.-based aerospace manufacturer Pratt & Whitney, and both companies are subsidiaries of United Technologies, one of the United States’ largest manufacturing conglomerates, with production and sourcing worldwide. Second, Air Tractor has itself become “multinational” with the opening of Air Tractor Europe, an affiliated sales division headquartered in Spain and selling Air Tractor planes throughout Europe and North Africa.

So the poster-child for the President’s new export initiative is a multinational company that relies on duty-free access to imported engines to produce an internationally -competitive product. The firm also uses an affiliated foreign sales office to sell its products overseas, the profits from which are either reinvested in the foreign operations or repatriated to the company and its 200 American employees—designers, marketers, salespeople, management and, of course, manufacturing and assembly workers. And the aforementioned engines are made in Canada by a subsidiary of a U.S. multinational with operations all over America and the rest of the world.

In this light, the story of Air Tractor’s commercial operations becomes a lot more complex than the NEI coloring book that Secretary Locke is trying to sell us—one about a mom-and-pop store that’s just desperate for the federal government’s export promotion assistance.

Air Tractor’s business model also raises fundamental questions about the White House’s current, export-only approach to international trade: How does this modern company fit into a “new” mercantilist U.S. trade policy that ignores—and even denigrates—imports and their value to the future competitiveness of the U.S. economy? And how do Air Tractor and larger American companies like Pratt & Whitney and United Technologies, with their many U.S. employees and overseas operations, fit into the President’s oft-heralded plan to “end tax breaks for U.S. companies that ship jobs overseas”?

The obvious answer: they don’t fit. At all.

Until the White House realizes this fact—that today’s globalized economy is incompatible with a simplistic, mercantilist approach to trade—and until it develops policies that embrace import and investment liberalization just as much as export expansion, companies and investors looking to thrive through sound, 21st century free trade policies should heed Locke’s advice:

Look abroad.

Scott Lincicome is an international trade attorney in Washington, D.C. He is the author of the 2009 Cato Institute Study, “Audaciously Hopeful: How President Obama Can Restore the Free Trade Consensus,” and blogs at http://lincicome.blogspot.com