Connecting Internationally

By: John Castellani Issue: Global Trade Section: Jewel Of Collaboration

Why the U.S. is Made for Trade

Connecting Internationally In today’s international economy, working together with countries has become a necessity, especially during challenging times. No one country is alone in the problems it faces or the solutions needed to address them; our world is a complex ecosystem with all nations interconnected. More than ever, we are seeing the benefits of such collaboration. Countries are joining forces to promote environmental sustainability, for example, as well as facilitating public health and prosperity around the world.

One particular area where these connections play a key role is the economy. Global interdependence is a reality in our rapidly changing international marketplace. Although the United States is still the largest financial market in the world, U.S. workers, businesses and communities have much to gain from international engagement.

Exports and foreign investment earnings are important drivers of U.S. economic growth and job creation – two areas that remain critically important for preserving America’s position as a global financial leader. American companies are bringing money back home by selling their goods and services abroad; Caterpillar Inc., for example, attributes 67 percent of its sales to customers outside the United States, allowing it to reinvest that money back at home.

At the same time, it’s crucial to recognize that the temptation to close our borders and focus inward in light of our current economic challenges is an extreme risk we can’t afford to take.

Disentangling ourselves from our international web of connections would be impossible, but even more importantly, it would be dangerous and hurt us in the long run.

Truth be told, we need each other. “Connection” and “Collaboration”– the key themes of this publication – are what keep our nation healthy. Economically speaking, international trade and investment is a requirement for America’s own prosperity. If we participate actively in foreign markets, we can promote expansion at home, increase exports from the United States, and create more and better-paying jobs for American workers.

Earlier this year, President Obama noted that “America’s success depends on whether other nations have the ability to buy what we sell,” and I could not agree more. We must oppose isolationism and take swift action to reverse the current decline in international engagement if we are to breathe new life into the U.S. and international economies.

Trade and the Economy

Trade is an inherent part of our economy. Nearly one in five U.S. jobs are linked to trade, and a growing number of American companies have joined Caterpillar in generating significant revenue by selling goods and services abroad. Today, 95 percent of the world’s population and three-quarters of the world’s purchasing power is outside the United States.

As we invest billions of dollars in our domestic economic recovery and competitiveness initiatives, we need to balance these internal policies with international trade and investment approaches that will help our workers and companies compete around the globe. If we don’t, even our best economic recovery efforts will not deliver their full potential, and our workers and communities will suffer.

This risk is surprisingly on its way toward becoming reality. International trade is expected to decline by 11 percent in 2009, following years of growth. It is dropping at a rate far faster than the projected decline in global economic growth. To reverse this decline, America must devise improved policies that enable us to export our goods and services from the United States to foreign markets, market these goods and services in those markets through foreign operations, and import goods and services so that we can offer the best prices and quality to people here at home. It’s easy to get slowed down in the details of how to make this happen; it’s not a simple undertaking.

Blueprint for Change

Addressing this challenge is the subject of a plan released in April by Business Roundtable, an association of chief executive officers of leading U.S. companies. The plan is aimed at revitalizing U.S. trade and investment policy. The plan, Regaining the Initiative: A Blueprint for U.S. Trade and Investment, lays out four key strategies for accelerating our economic recovery by promoting America’s competitiveness in the global marketplace.

At the plan’s core is its first pillar, opposing protectionist and isolationist trade and investment policies. We cannot afford to turn inward; the Great Depression taught us that closing borders will exacerbate an economic crisis, not grow us out of it. The more we export or sell U.S. products through American companies’ foreign affiliates, the more we can create U.S. jobs and drive our own economic growth. One important next step will be for the G-20 to live up to its pledge to condemn protectionist and isolationist policies around the world.

The plan also calls for finalizing our pending trade negotiations, such as the World Trade Organization’s stalled “Doha Round” negotiations and outstanding free trade agreements with Colombia, Panama and Korea. We are already partway there and just need to take these negotiations to the finish line. Protecting our investments from unfair government action abroad is also important; we must complete the treaties we have in progress with China and India to ensure that American companies have the same investment protection as their foreign competitors.

It is also time for America to take center stage in the world economy by introducing new approaches to make international trade and investment work better – for us and for our international partners. Connecting Internationally Our new approaches should enhance the enforcement of existing international trade and investment agreements and U.S. trade laws. They should end regulatory discrimination on U.S. exports and modernize the free trade agreement system, which would make it easier for workers and companies to respond to new economic developments and issues such as labor and the environment.

We also should take advantage of a wealth of new, more flexible trade and investment negotiating strategies – such as rolling or plurilateral negotiations and non-binding “best practices” negotiations – to create the foundation for lasting, enforceable agreements. At the same time, we must address adjustment programs so that American workers have the knowledge, skills and support they need to benefit from expanded economic opportunities. Lastly, we must extend our leading role in helping the least developed economies successfully integrate into the global economy.

If we do not establish America’s leadership through strong policies, we will be left behind, and our competitors will shape the economy without us. We are a nation of smart people and innovative ideas; in the spirit of connection and collaboration, let’s share those innovations and, in the process, create a level playing field for American companies and workers that encourages domestic economic growth.

In the end, it comes back to collaboration. The blueprint’s final core theme is bipartisan support; our political parties and the different branches of our government must work together on a comprehensive trade and investment strategy that preserves America’s position as the world’s economic leader.

U.S. Multinationals’ Role

Implementing these strategies will take time, but the benefits of international engagement will be felt by our nation’s employees, businesses and ultimately our communities. To see why, let’s look at the role that U.S. multinational businesses – ones in which a U.S. parent company holds at least a 10 percent direct ownership stake in a foreign enterprise – truly play in maintaining America’s economic leadership and strengthening our domestic economy.

Some critics have voiced concerns that such businesses have “abandoned” our nation by shipping their operations overseas. But research shows that through their innovation, research and productivity, U.S.-based multinational businesses lead the nation’s economy and employ nearly 22 million Americans. A study commissioned by Business Roundtable released earlier this year, in fact, found that U.S. parent companies account for nearly 25 percent of all private-sector output (measured in terms of GDP), or more than $2.5 trillion.

According to the study’s author, Matthew J. Slaughter, Associate Dean of the MBA program and professor of International Economics at the Tuck School of Business at Dartmouth, “U.S. multinational companies are, first and foremost, American companies. These companies strengthen the American economy through a combination of their domestic activity and their international engagement, which together stimulate capital investment, research and development, and trade. These productivity-enhancing activities, in turn, lead to more job opportunities and to larger average paychecks for millions of American workers.”

The study found that in reality, the worldwide operations of U.S. multinational companies are highly concentrated in America, not abroad in foreign affiliates. Specifically, domestic parent companies accounted for nearly 70 percent of the employment of U.S multinationals worldwide – amounting to almost 22 million U.S. workers. In contrast, there were only 9.5 million workers at foreign affiliates, which is a ratio of nearly 2.3 U.S. employees for every one affiliate employee. U.S. parent companies represent about 19 percent of total private-sector payroll employment.

What do these numbers really mean? In short, U.S. multinational companies are truly rooted in America. Their global connections benefit our domestic economy, and in turn, our local communities. These connections have enabled companies to tap into diverse international markets that have experienced faster growth throughout the past generation than the United States has. Through their foreign-affiliate activities, U.S. parent companies have helped drive increased domestic employment, worker compensation and capital investments.

We all stand to benefit from them, but to do so, we need these companies to continue their international engagement as our country seeks to address our current economic challenges. The ability of U.S. multinational companies to stem job losses in the United States and eventually return to hiring more American workers depends on the health, vitality and competitiveness of their worldwide operations.

Trading for our Future

Ultimately, we all seek the same goals. We want to grow our economy, find ways to enhance America’s presence on the international stage, create jobs at home and improve Americans’ standard of living. We cannot accomplish this in a vacuum; some connections are required. There may be some hurdles along the way, but that is to be expected. We now have a blueprint to help us get where we need to be. If we can unite around our common goal, we can collaborate with policymakers and other leaders to ensure economic recovery for American citizens, communities and companies.

John Castellani is President of Business Roundtable, an association of chief executive officers of leading U.S. companies with more than $5 trillion in annual revenues and nearly 10 million employees. Member companies comprise nearly a third of the total value of the U.S. stock markets and pay nearly half of all corporate income taxes paid to the federal government. Annually, they return $133 billion in dividends to shareholders and the economy.