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More Good FTA News, But also a Need to Move Faster

This is my final blog, as I am retiring from the NAM as of 5pm today.  I want to thank everyone for viewing the blog posts I have done over the years, and I hope you have found them useful.

I wanted to conclude by ending on good news, but also issuing a caution.  The good news is that once again, for the month of April 2012, manufacturers continued to run a trade surplus with our Free Trade Agreement – FTA – partners (including Korea). The Commerce Department’s data showed a $14 billion surplus for the year to date (January-April) – that is an annual rate of $42 billion.  This year marks the fifth year in a row of a manufactured goods surplus with FTA partners, cumulating to nearly $100 billion.  

Our FTA partners account for a little under 13 percent of global GDP outside the United States.  Yet they account for over half of our manufactured goods exports.  But note that leaves about 87 percent of the global GDP outside the United States as countries not yet having an FTA with the United States – countries that maintain trade barriers to our exports that could disappear if we had FTAs with them. During the five-year period when we were running a manufactured goods surplus with FTA partners, with these other countries we ran an amazing $2.1 trillion cumulated manufactured goods deficit. 

Since the United States has lower tariffs and trade barriers than just about every other country, the fact is that virtually every FTA we can negotiate is a plus for the United States – lowering the other country’s barriers much more than ours. (continue reading…)

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86.9 Percent of World Market Still Maintains Barriers Against U.S. Exports

On the memorable day that the U.S.– Colombia Trade Promotion Agreement has at long last gone into effect – eight years after its negotiation started, it is useful to recall how beneficial Free Trade Agreements (FTAs) are, and have been, for America’s manufacturers. Far from being the drag on the U.S. economy claimed by many detractors of our trade agreements, these agreements have been a boon for manufacturers in the U.S. and factory workers – as well as for farmers and service providers.

Accounting for just 12.5 percent of Gross Global Product outside the United States, America’s FTA partners (counting Korea, the agreement with which went into effect last year) have accounted for a remarkable 52 percent of the growth of U.S. manufactured goods exports so far this year.

Exports to them are growing faster than to non-FTA partners.  Through March, U.S. manufactured goods exports to FTA partners were 13 percent larger than for the same period of 2011.  Our manufactured goods exports to non-FTA partners during the same time grew 10 percent – meaning that exports to FTA partners grew one-third faster!

And, confounding trade critics, manufactured goods trade with FTA partners has been in surplus for several years – meaning we sell them more manufactured goods than they sell us.  According to the U.S. Department of Commerce’s International Trade Administration FTA report, counting Korea our manufactured goods surplus with FTA partners was $7.5 billion in 2010, $29 billion in 2011, and so far in 2012 was at an annual rate of $47 billion.  In the coming months, the new Colombian agreement will add even more to that figure.

Counting the newly-implemented Colombian agreement, the proportion of Gross Global Product outside the United States accounted for by our FTA partners rises from 12.5 percent to 13.1 percent – but that leaves 86.9 percent of World GDP outside the United States as markets without FTAs with us, markets with trade barriers limiting our exports.  It is high time to open those markets so more American workers can be employed producing high-quality U.S. products to be sold around the world. 

Frank Vargo is vice president for international economic affairs, National Association of Manufacturers.

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Colombia Trade Agreement Certified, Creating New Export Market

The National Association of Manufacturers is happy that at long last, starting next month, manufacturers in the United States will obtain duty-free access to the Colombian market.  Signed six years ago and passed by Congress last October, the agreement opens South America’s third-largest market to us. 

President Obama’s announcement that the U.S. – Colombia Free Trade Agreement (FTA) will go into effect May 15th is good news for manufacturers.  We have been waiting a long time, but are pleased that at last we can utilize our competitiveness and boost American exports and jobs.

Colombia’s tariffs on U.S. manufactured goods are formidable, raising the cost of American products sold in Colombia by 15 percent.  Now, with that disadvantage disappearing on most U.S. products next month, U.S. companies will see growing demand for their products. 

Colombian exporters have long had duty-free access to the U.S. market, but it has been subject to the whims of Congress.  The agreement, while not giving Colombian exporters an added price advantage, does give them and their U.S. customers certainty that import duties on Colombian products will never increase in the future.

The Colombian market for imported manufactured goods is large and growing.  Last year Colombia imported $45 billion of manufactured goods.  Their imports of these goods from the United States was $10 billion – giving us a 22 percent share of their import market for manufacturers.  The NAM expects that share will rise as U.S. exporters recognize that this new market is available. We also call on the Commerce Department to publicize the new opportunities through its extensive network and to increase its trade promotion resources for the Colombian market. 

It was a long road getting here, but rather than looking back at the reasons why it took so long, the NAM looks forward to the new opportunities for manufacturers in the United States which will help create new jobs.

Frank Vargo is vice president of international economic affairs, National Association of Manufacturers.

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Manufactured Goods Exports are Bright Spot in February Trade Data

The February trade data released today by the Commerce Department showed manufactured goods exports significantly outperformed other sectors. 

Overall U.S. exports of goods and services rose 9.3 percent over February 2011, considerably slower than the 15 percent annual rate needed to achieve the goal of doubling exports in five years. Manufactured goods exports, however, were up 14.9 percent, on path to meet the goal.  Services exports were up 10 percent.  The drag on exports came from farm products of which February exports were 4 percent lower than in February 2011.

Manufactured goods exports dominated the year-over-year gain in exports, accounting for $12 billion of the total $16 billion gain in exports of goods and services.

Imports of manufactured goods in February rose less than exports, up 9.6 percent from the year-earlier month.  As a consequence, the manufactured goods trade deficit improved marginally, from $32.8 billion in February 2011 to $31.5 billion this February.

Considering the year-to-date figures, i.e., January and February compared to the same two months of last year, manufactured goods exports are below the 15 percent path to double in five years – being up 11.4 percent.  However, if the February figures are not an anomaly, this augurs well for continued growth.

Exports are very important to manufacturers, as the domestic market is growing modestly and faster growth requires greater sales to faster-growing export markets. 

While the dollar is at a competitive rate, a concern is the economic slowdown in some major markets for U.S. exports – particularly the European Union.  January exports to that market were up only 4 percent from the prior year.  However, February exports were up 13 percent, giving some cheer.

Both exports and imports with China grew slowly – each up only about 3 percent over last February.  But because imports from China are so much larger than exports, exports have to grow at a faster percent in order to bring the deficit down.  That was not the case in February, and the February deficit with China was $9 billion larger than a year ago, at a seasonally-adjusted annual rate.

Frank Vargo is vice president for international economic affairs, National Association of Manufacturers.

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Manufacturers Add 37,000 Jobs in March

Today’s Labor Department jobs report showed employment rose 120,000 in March over February, considerably less than analysts had been expecting, and about half the average gain of the previous three months. 

Manufacturing employment, however, was a bright spot in the figures. Outperforming the economy as a whole, the March manufacturing jobs gain accounted for nearly one-third of the entire private sector increase. 

Manufacturing employment rose 37,000 in March, the second-strongest gain in the last 12 months, and continuing the manufacturing jobs gain that began in January 2010.  Since that time, manufacturing has gained 470,000 jobs – and has seen employment grow 10 percent faster than in the rest of the private sector.

Durable goods employment continued its strong growth pattern, gaining 26 thousand jobs in March.  Reflecting resurgent motor vehicle production in the United States, the March employment gain in that sector accounted for nearly half of the entire durable goods employment increase.  Non-durable goods employment rose 11,000.

The strong growth in manufacturing that has been going on since January 2010 is clearly visible in the attached graphs, as is the robust performance of the durable goods sector and the lackluster record in non-durables employment. (continue reading…)

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NAM Applauds Congressional Action on Tariff Bill Process

In a year when many are concerned about whether trade legislation can move, the NAM commends the House and Senate trade leadership for initiating the Miscellaneous Tariff Bill (MTB) process last Friday. The MTB is a process by which import duties can be suspended on essential inputs to manufacturing in America that are unavailable from any domestic source and must be imported.

Import duties on inputs that have no domestic source of supply protect no one and are simply a tax on manufacturers in America – raising the cost of domestic production even higher than it is. 

A recent report from the Manufacturing Institute and MAPI shows that it is already 20 percent more expensive to manufacture in America than it is for our major competitors, and the last thing manufacturers in America need is a tax hike – which is what would happen if the existing duty suspensions on vital inputs were allowed to expire.

We particularly want to commend Ways and Means Committee Chairman Camp, Ranking Member Levin, Trade Subcommittee Chairman Brady, Ranking Member McDermott, and Senate Finance Committee Chairman Baucus for their introduction of the process.  We also thank Representative Tom Reed (R-NY29) for his efforts and for taking the initiative in circulating a “Dear Colleague” letter pointing out that freshman Republicans view the MTB as vital to American manufacturing, and as a jobs bill.  He is truly a pro-manufacturing leader. (continue reading…)

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Finally the U.S.-South Korea Free Trade Agreement Takes Effect

Today, after a five year wait, manufacturers in the United States can finally realize the benefits of the Korea-U.S. Free Trade Agreement (KORUS). Starting today Korea’s tariffs on over 9,000 U.S. products disappear – covering over 80 percent of all of Korea’s tariffs on U.S. products.  The remaining 20 percent will be eliminated in stages over the next few years.

This is a big deal.  Korea is the fourth largest market in the world outside the United States, counting the European Union as a single market, and it  imports nearly $300 billion of manufactured goods annually. Manufacturers in the U.S. have only 11 percent of that market, but are now poised to make gains. 

As KORUS takes Korea’s average 8 percent import duties to zero for manufacturers in the U.S., they are getting an advantage over many of our competitors, and are regaining a level playing field with our European Union competitors, whose free trade agreement with Korea went into effect last year.

The NAM advocated strongly with the Administration and Congress to win passage and implementation of KORUS, and we are very pleased that manufacturers in the United States at long last are obtaining the open access to this market that we have sought.

Large and small firms stand to benefit.  In fact, 90 percent of the companies in the U.S. now exporting to Korea are small or medium-sized firms — 18,000 of them, and almost all of them will benefit.  This is truly a great day for American exporters.

Korean firms also will gain by U.S. duties being eliminated, but U.S. tariffs on Korean products were already low – averaging only 1.5 percent.  Additionally, it is likely that many Korean gains in the U.S. market will come by displacing imports from other countries, as is also likely to be the case for American exports to Korea.

KORUS will benefit the economies of both countries and is truly win-win. Five years in the waiting, but the day is here at last. Now we need to move on to open more markets.

Frank Vargo is vice president of international economic affairs, National Association of Manufacturers.

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NAM Welcomes Quick Fix to Offset China’s Subsidies

The NAM welcomes the quick bipartisan, bicameral Congressional work in tandem with the Administration to fix a critical flaw in U.S. trade policy – the inability to defend against Chinese subsidized exports to the United States. Legislation is needed to correct a court’s finding that the Commerce Department currently lacks the authority to offset the harm done to U.S. manufacturers by these trade-distorting subsidies.  

Legislation is now being introduced in both the House and Senate to solve that problem, and this legislation needs to be passed on an urgent basis.  Failure to make it plain that the Commerce Department has this authority would leave manufacturers in the U.S. defenseless against rampant deep pocket Chinese and other government subsidies. 

World Trade Organization (WTO) provisions prohibit subsidies, saying subsidies should have no place in world trade.  U.S. law needs to apply equally to subsidies from non-market as well as market economies, and that’s what the new legislation would do. 

Some groups have amazingly has come out against this legislation, saying it restricts economic liberty.  Being concerned about economic liberty, they should have come out strongly in support of the bills because the legislation is about removing government distortion of trade.

When China or another non-market economy provides government subsidies to promote unfair trade and take jobs away from American manufacturers, the U.S. countervailing duty laws offset that subsidy and return trade to the market-oriented basis where it should have been in the first place.  How these groups could come out in favor of Chinese subsidies and against free markets is truly baffling. 

Countervailing duties aren’t anti-growth – It is Chinese and other non-market economy subsidies that are anti-growth – anti our growth.

The NAM seeks urgent Congressional action not just to allow manufacturers in the U.S. to be shielded from new subsidies, but to avoid taking away the 24 existing countervailing duty orders against non-market economies that are already in effect.  Were these orders to evaporate, hundreds – possibly thousands – of American manufacturers, including the supply chains of directly affected companies, and many thousands of workers would be put at immediate risk.

Frank Vargo is vice president of international economic affairs, National Association of Manufacturers.

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Trade Numbers Show We Need to do More to Increase Exports

The full-year 2011 trade figures released today by the Commerce Department showed that the overall deficit in Goods and Services trade grew to $558 billion, up $58 billion from 2010.  The manufactured goods deficit was $450 billion.  Petroleum trade was also in deficit, by $150 billion.  These deficits were partially offset by surpluses in services trade and agriculture.

As has been the case for the past three years, manufactured goods trade was remarkably different with U.S. Free Trade Agreement (FTA) partners and non-partners.  Manufacturers in the U.S. racked up a $50 billion trade surplus with FTA partners – more than doubling the 2010 surplus of $21 billion.

Manufactured goods trade with non-partners, unfortunately was in deficit by $500 billion.  Over the past three years, the manufactured goods surplus with FTA partners cumulated to $100 billion.  During that same three year period, the manufactured goods trade deficit with non-partners totaled to $1.3 trillion.

Manufactured goods exports to the world reached $1.26 trillion in 2011, up 15 percent over 2010.  FTA partners were the highlight, with exports to them growing one-fourth faster than to non-partners.

The rate of growth for the whole year was on the 15 percent annual growth track needed to double in five years, but a troublesome sign was that the growth fell to an annual rate of 12.5 percent in the fourth quarter – the first quarter to be below the needed path.  An important part of the reason was that manufactured goods export growth to the important European Union market (second only to NAFTA) slipped dramatically, to only 6.6 percent in the fourth quarter.  This shows that the European economic difficulties are already impacting the United States. (continue reading…)

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Manufactured Goods FTA Surplus On Track to Double This Year

The evidence keeps rolling in about the value of having free trade agreements (FTAs) that open up foreign markets to American exports.  The Commerce Department data on FTAs that the International Trade Administration just posted shows that we are on track for a fourth straight year of manufactured goods trade surpluses with our FTA partners.

Moreover, based on their data through October, that surplus has already reached a record $40 billion.  If that rate continues for November and December, the U.S. manufactured goods trade surplus with FTA partners will be $46 billion in 2011 – double the 2010 surplus of $23.4 billion.

The manufactured goods surplus with NAFTA is running at a $12 billion annual rate, and with CAFTA at a $3 billion annual rate. 

The record with FTA partners is in sharp contrast to U.S. manufactured goods trade with countries that do not have FTAs with us.  Based on January-October data, it looks like U.S. manufactured goods trade with non-FTA partners will register a deficit of close to $500 billion in 2011. 

The facts are clear -  we need more FTAs to let our manufactured goods into more foreign markets – and we need them as fast as we can get them.

Frank Vargo is vice president of international economic affairs, National Association of Manufacturers.

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