As you wake up, get dressed, prepare a cup of coffee, grab breakfast and quickly browse internet before driving off to work, you probably don’t realize how much you are involved in International Trade. The clothes that you wore daily probably came from China, Vietnam, or Indonesia; the coffee that you drank is probably from Latin or South America, or probably East Africa; your vehicle is probably Japanese, Korean, or German; and the web page that you browse? It’s probably built in India. International trade is the exchange of services, goods, and capital among various countries and regions, without much hindrance.
You probably don’t care about the term “international trade”, however, you would more than likely take your living expenses, income, and quality of life very seriously. Therefore, you care about international trade very much, although you probably don’t realize it, yet.
If you are like me, you’d be more than likely to enjoy some stylish low price clothes, or a vast variety of choices in vehicle supply. In general, consumers have access to a greater variety of goods and services from other countries, at a lower cost.
What if you are skilled with sewing, would you be able to compete with the east and southeast Asia workers?
In theory, trade is good. In practice, debate towards whether importing foreign goods and exporting services has an adverse effect on the domestic economy (labor market in particular). In the working paper, The Impact of Trade on Labor Market Dynamics, which Ecomomist Maximiliano co-authored with Lorenzo Caliendo and Fernando Parro, they studied the effects of an increase in imports from China on U.S. labor markets. They reproduced the large increase in imports from China between 2000 and 2007 and analyzed its effects on U.S. labor markets across states and industries. Result was found that increased Chinese competition reduced manufacturing employment by 0.6 percentage points (or about 1 million jobs) over 10 years. The more the industry is exposed to import competition from China, the more job that industry loses.
How does trade help the U.S. then? You may ask. Especially when trade with China (or any developing country) seems to reduce domestic job supply?
While overall U.S. exports dropped 17.9% in 2009, exports to China hardly decreased. Many U.S. manufacturing firms have found comfort in the Chinese market as a shelter against the global financial storm. On the other hand, good value-for-money, labor-intensive goods imported from China have helped keep the cost of living down for Americans especially when they become increasingly cash-strapped. Without consumer goods from China, the U.S. price index would go up an extra two percentage points every year, China Embassy reported. From 2004 to 2008, the U.S. surplus in services with China grew by a phenomenal 35.4% annually. In fact, The United States is the world’s largest economy and the largest exporter and importer of goods and services. Trade is critical to America’s prosperity – fueling economic growth, supporting good jobs at home, raising living standards and helping Americans provide for their families with affordable goods and services.
You may not realize the impact of trade to the U.S., because a large portion of the export items are being used to reproduce end products or provide services. Use China as example, the top export categories in 2013 were: Miscellaneous Grain, Seed, Fruit (soybeans) ($13.8 billion), Aircraft ($12.6 billion), Machinery ($12.2 billion), Electrical Machinery ($11.4 billion), and Vehicles ($10.3 billion). U.S. exports of agricultural products to China totaled $25.9 billion in 2013, the largest U.S. Ag export market, with leading categories include: soybeans ($13.4 billion), cotton ($2.2 billion), hides and skins ($1.7 billion), and distillers grains ($1.4 billion).
If you still have any question, here are some statistics from the Office of the United States Trade Representative, the Executive Office of the President:
• The U.S. is the world’s largest trading nation, with exports of goods and services of nearly $2.3 trillion in 2013.
• U.S. goods and services exports supported an estimated 11.3 million jobs in 2013.
• Every billion dollars of goods and services exports supported nearly an estimated 5,600 jobs in 2013. (Of which, every billion dollars of goods exports supported more than 5,400 jobs in 2013; every billion dollars of services exports supported more than 5,900 jobs in 2013.)
• An estimated 25 percent of all manufacturing jobs are supported by exports.
• U.S. agricultural exports supported an estimated 929 thousand jobs on and off the farm in 2012 (latest data available).
• Every billion dollars of U.S. agricultural exports in 2012 (latest data available) required 6,577 American jobs throughout the economy.
• US jobs supported by goods exports pay 13-18 percent more than the US national average.
• Exports of goods and services full year share of U.S. GDP at 13.45 percent in 2013.
• U.S. goods and private services export to China totaled $141 billion in 2012.
Statistics may sound far for you, how exactly does trade benefit families and businesses such as yours?
If you are in the agriculture industry; if you are working for MicroSoft, Cisco, Dell, Apple or other computer and electronics company; if you work for a chemical company, if you are in the transportation equipment industry; or if you are one of the employees at Nike, Coach, Levis, North Face, chances are, your company has exported to developing countries such as China, and you have benefited from it because, global trade is supporting more productive, higher paying jobs in the export sectors.
Trade keeps our economy open, dynamic, and competitive, and helps ensure that America continues to be the best place in the world to do business.
“When we succeed, we create high quality jobs, improve the quality of life and develop vibrant communities.” – Houston International Trade Development Council.
Miao Guo Smith is the VP of Houston International Trade Development Council, and is the Managing Partner of Xpanding US, LLC.