U.S. trade in manufactured goods continued to improve in January 2010, according to the Commerce Department’s trade data released today. The seasonally-adjusted manufactured goods trade deficit decreased slightly in January compared to December 2008, and stood at -$28 billion, or an annual rate of -$337 billion. That stands in sharp contrast to the peak manufactured goods deficit of $520 billion in mid-2006.

Seasonally-adjusted January data show that U.S. exports of manufactured goods were $80.3 billion, up 16 percent over January 2009. Manufactured goods imports were $108.3 billion, up 6.5 percent from last January.

America’s manufacturers continue to account for about 60 percent of U.S. exports of goods and services, so the recovery in manufactured goods exports is good news for the economy and for future job prospects. While the recovery is taking place at a rapid pace, manufactured goods exports are still nearly 20 percent below their July 2008 peak.

The rate at which exports are now expanding puts us in good shape to launch the effort the President has called for to double U.S. exports in five years. That translates into an ambitious 15 percent a year growth rate, and achievement of the goal will require far-reaching changes in U.S. trade policy to open foreign markets more rapidly - particularly through an ambitious program for bilateral trade promotion agreements. An ambitious Doha Round, additional steps to bolster U.S. competitiveness, and other major steps will be needed as well.

The results are in, the judges have made their decision, and the results are final.  U.S. Free Trade Agreements (FTAs) for the second year in a row have turned in a trade surplus for U.S. manufactured goods.  U.S. manufactured goods exports to NAFTA, CAFTA, and the other FTAs exceeded imports by $21 billion in 2008 and extended their surplus to $26 billion in 2009 –- starkly visible in the graph below.

This two-year surplus of nearly $50 billion is pure gold when viewed against the distressing $1.4 trillion dollar deficit for U.S. overall trade in goods and services during that period.  What a great record for U.S. Free Trade Agreements – the brightest spot in the U.S. trade picture!

This reality stands in sharp contrast to what the trade naysayers have been telling Congress, blaming trade agreements as the reason for the trade deficit.  Well, the score is in, the facts are now known, and the deficit is with the countries that DON’T have trade agreements with the United States.

Hopefully winning the “Trade Olympics” gold medal will catch Congress’ attention so they will focus on reality rather than the mythology that has been handed to them for years – and will take up and pass the three pending trade agreements with Colombia, Korea, and Panama.

Thousands of Americans are out of work today rather than being employed by America’s manufacturers who would have expanded sales, production, and employment opportunities if Congress stopped insisting that we should continue to have to pay high tariffs to sell in those countries.

Frank Vargo is NAM’s vice president, international economic affairs.

Great news about the Administration’s new export initiative! The National Association of Manufacturers has long been supportive of a significant effort to boost U.S. exports. Of the 15 major manufacturing nations the United States is dead last in the proportion of production that we export.

So how do we double exports in five years?

The dollar cannot be overvalued. Global currencies should reflect their actual market values.

Modernize export controls. Modernizing the export control system will strengthen national security, focus limited resources on truly sensitive technologies, promote U.S. technological and scientific leadership, and improve economic competitiveness. In addition, modernization creates more than 340,000 new jobs and increases exports by nearly $60 billion over the next 10 years.

Open access to markets. The United States enjoys a manufactured goods trade surplus with countries we have a free trade agreement with. We already have low tariffs, and FTAs work to lower the tariffs of other countries.

Export promotion. Thousands of U.S exporters export to only one or two countries. Adding one or two more to their markets would increase total exports by a third.

We applaud Secretary Locke’s new export initiative and look forward to work with Administration to increase manufacturing exports.

Frank Vargo is NAM’s vice president, international economic affairs.

The U.S. merchandise trade balance improved in October 2009, with the bulk of the gain coming from manufactured goods trade. On the basis of the Commerce Department trade figures released today, the NAM has calculated that seasonally adjusted October trade deficit for manufactured goods was $24.8 billion, compared to $27.6 billion in September.

The $2.7 billion improvement in the manufactured goods balance accounted for 85 percent of the overall gain in the merchandise trade balance. October manufactured goods exports were 2.8 percent higher than in September, while imports fell marginally by 0.8 percent.

Exports were paced by the vital capital goods sector, which accounts for nearly half of U.S. manufactured goods exports. Capital goods exports rose 3.7 percent over September. The fact that 21 of the 32 capital goods categories showed growth indicates that the export recovery is broadening..

Trade fluctuates monthly, so not too much can be inferred from one-month changes. However, the October figures reinforce the recovering trend evident in that exports have risen in four of the last five months. October manufactured goods exports were 14 percent higher than their trough in May 2009. Though it is clear manufactured goods exports are recovering, there is still a long way to go, as October exports were still 20 percent below the July 2008 peak immediately before the collapse in world trade.

The recovering export growth, coupled with slower imports stemming from reduced U.S. consumer demand, have combined to slash the U.S. deficit in manufactured goods nearly in half. The deficit peaked at $46 billion in February 2007, compared to the October 2009 deficit of 24.8 billion.

Manufactured goods trade with free trade partners (NAFTA, CAFTA, and the other free trade agreements) continued to be in surplus in 2009, which through September was at an annual rate of $26 billion - up from the $21 billion surplus in 2008. As we often point out, contrary to the claims of trade critics, the United States has a [manufactured goods*] trade surplus with the countries with which the United States has concluded free trade agreements.

* Editor’s mistake, corrected 8:55 a.m. Friday. In editing copy, I omitted the important qualifier, “manufactured goods.” Thanks to commenter Karl for the catch.

(Frank Vargo, the National Association of Manufacturers’s vice president for international economic affairs, has blogged from Geneva this week at the ministerial meeting of the WTO.  This is his final report.)

Ah well, the strangeness and wonder of the WTO negotiating process continues. Consider, for example, the Chairman’s report at the conclusion of the 7th WTO Ministerial meeting that ended yesterday. (Report available here as .doc.)

The report states, “There was wide support for building on progress made to date. There was also support for not attempting to reopen stabilized texts.” (My emphasis.) This statement refers, among other texts, to the Non-Agricultural Market Access (NAMA) text that the U.S. has not accepted. The clear implication from yesterday, though, is that many consider the text to be done, agreed, and not to be revisited.

Stabilized texts? Excuse me, but when the NAMA chairman Luzius Wasescha wrote that text at the end of last year, he stated right in his own text that, “Even though the included text is accepted as a basis for further work, we are far from a consensus among Members.” He also added “Anyhow, everything is conditional in the deepest sense.”

Whoa! By what magic elixir do we move from that December statement to the Ministerial Chairman’s statement yesterday that there is strong support for considering the text wrapped up and immutable? Is this sleight of hand? Or does the WTO have all the collective memory of a computer with a fried hard drive?

Example two: Press reports indicate at the end of the conference European officials lamented, “Doha does not seem to be fully on the agenda of the United States … there is no sign today that the Americans are ready to go forward.” (AFP report.) One said, “They want more concessions for a more acceptable package for the US Congress. Now, the problem is to find a way without damaging what has been achieved so far.”

What hypocrisy! In private, European government officials and business representatives are quite free in admitting their analysis conforms perfectly with the U.S. view - they are getting virtually no new market access out of the proposal so far. But they are willing to accept that, because they believe if they were to press for more industrial market access, the developing countries would turn right around and demand more European concessions in agriculture.

That has the Europeans terrified, for they feel they have given all they possibly can in agriculture. One more grain of wheat will break the European back and result in a revolt that will cause them to pull out of the whole deal. So they would rather build Fortress Europe around their agriculture and forgo market access gains in the rest of the world.

Example three: Indian officials still indicate a reluctance to have India participate in sectorals (but not the same degree of “shut-the-door” resistance I saw last year). But at the same time, India has free trade agreements cooking or under discussion with China, Japan, the European Union and Canada - and when India’s Prime Minister visited Washington recently, he indicated a free trade agreement could be possible with the United States as well. So my question is, who’s left? Why can’t you make cuts in the Doha Round?

The problem isn’t that the United States isn’t showing leadership, for it is. I spoke with Ambassador Ron Kirk a couple of times in Geneva this week. He knows the point to the Doha Round is getting meaningful market opening, and he knows the road to Doha goes through Beijing, New Delhi, and Brasilia. The problem isn’t U.S. leadership. The problem is getting others to get off their defensive agendas and join the United States is a commitment to open markets and grow world trade.

(Frank Vargo, the National Association of Manufacturers’s vice president for international economic affairs, is blogging from Geneva this week at the ministerial meeting of the WTO. )

You know, the process here in Geneva is really interesting. It’s like a plane that forever flies at 50,000 feet and can never get lower. The WTO Doha process just can’t seem to get below the big picture. Ministers from WTO countries are gathered here this week to take stock of the Doha Round, state their political will for a conclusion in 2010, and think of what can be done to move forward. And guess what some of them have come up with? Another ministerial meeting!

They would gather together in Geneva in a couple of months to take stock of where things are, issue serious statements about how things have to move faster –- and probably call for yet another ministerial. If the process were facilitated by ministerial meetings and “mini-ministerials,” we could have had three trade rounds by now.

Fortunately, calling another ministerial meeting in a couple of months is an idea that does not seem to have elicited broad support –- and hopefully won’t before the ministers leave Geneva tomorrow. The U.S. Trade Representative, Ron Kirk, has the right idea – let’s do some work, some eyeball-to-eyeball negotiating and horse-trading, with support from the WTO process. You have to have produce something for the stockroom before you can take stock.

It is rather remarkable, I think, that the gulfs that have prevented agreement are well-known, very visible, have obvious solutions, and yet keep being ignored in terms of a work plan. The WTO negotiating process is a managerial nightmare, lacking substantive goals, management strategies, and tactical plans for achievement. Frankly, the process could benefit from fewer PhD’s and more MBA’s.

The goal of negotiating rounds is to liberalize trade by reducing trade barriers. The Doha Round, in addition, has the goal of creating the maximum new market access for the poorest countries. This is not rocket science. You identify where the market access obstacles are, and you devise plans for reducing or eliminating them.

In the industrial trade negotiations, one thing you have to do is cut tariffs. And if you are going to cut tariffs, you have to go where the tariffs are. And by the WTO staff’s own calculus, about 2/3rds of the tariffs assessed on global industrial trade are collected by the advanced developing countries – especially Brazil, China, and India.

Yet instead of pinpointing reduction of those barriers as a key objective back in 2001, when the round started, as the years passed by, the WTO negotiating process continuously reduced the pressure to cut those tariffs. The consequence has been the prospect of less and less market access for everyone – for the least developed countries, the United States, and everyone in between.

(Frank Vargo, the National Association of Manufacturers’s vice president for international economic affairs, is blogging from Geneva this week at the ministerial meeting of the WTO. )

The WTO 7th Ministerial Meeting opened yesterday afternoon, with Director General Lamy calling for unity (remarks), and minister after minister urging that the Doha Round conclude in 2010. U.S. Trade Representative Ron Kirk told the gathering not to confuse process for substance and urged countries to call for a round that would generate greater market access for all. (Kirk’s remarks.) There were some signs of support for this, with some ministers referring to ambition and balance, and some suggesting that we should consider different approaches, since we really hadn’t gotten very far. But despite these welcome signs, there has not been what one could call a rising tide demanding a stronger outcome.

Instead of unity, the gulf between those who want a strong outcome and those who want to hold back became even more obvious. Rather than offering any indications the time had come to begin serious negotiations, Brazil’s Minister Amorim instead chose to come out attacking the United States and re-writing history. Amorim accused the United States of “delaying the conclusion of the round because they want to have some few dollars more in some specific sections.” Wrapping Brazil in the flag of the least developed countries, he said that reducing trade barriers would hurt tariff revenues in the poorest countries and impair their ability to cope with climate change obligations. (Reuters coverage.)

What’s wrong with this picture? Well, first, once again Amorim implied that the least developed countries will have to cut their tariffs, which is untrue. Aside from the advanced developing countries like Brazil that have become global export figures, the developing countries don’t have to do anything in the Round.

Second, Amorim again is seeking to promote his revisionist view of Doha history by stating the United States is asking for new concessions, ignoring the multitude of negotiating sessions over the past eight years in which the United States has consistently said the industrial package had to be viewed as a whole - the tariff cutting formula, sectoral agreements, and exceptions from tariff cuts.

There is nothing new here. The United States has pressed consistently for both industrial and advanced developing countries to cut their barriers, while Brazil has wanted to keep its tariff protection. Amorim expressed horror that the United States thinks the Doha Round is about opening markets.

Third, Amorim stated that under what’s on the table now, Brazil is already committed to cut its applied tariff rates more than the United States, so “it is unreasonable to expect that concluding the round would involve additional unilateral concessions from developing countries.” That’s not so.

WTO data show that the formulas would have the United States cut its applied tariffs in half, while Brazil would cut its applied tariffs only by about 1/8 - from an average of 11 percent to about 9.7 percent. Moreover, Brazil’s tariffs would stay at an average of 11 percent for nine years, and only ten years out would fall to 9.7 percent. And, get this - even then only about 40% of Brazil’s tariffs would take any cut at all. What kind of market access is that?

This is what caused former Deputy U.S. Trade Representative Peter Allgeier to once quip that he finally understood what NAMA (Non-Agricultural Market Access) stood for - it meant “No Additional Market Access.”

It is time for Brazil to stop the rhetoric, show the leadership worthy of a major global player, and sit down and negotiate a deal that will have Brazil grant significant new market access and get significant new market access in return - and do this in services as well. You think?

(Frank Vargo, the National Association of Manufacturers’s vice president for international economic affairs, is blogging from Geneva this week at the ministerial meeting of the WTO. This is his first report.)

This afternoon, Monday, November 30, 2009, marks the official start of the 2009 Geneva Ministerial Meeting of the World Trade Organization (WTO). Whether by design or coincidence, the Ministerial starts on the 10th anniversary of the failed Seattle Ministerial, which opened on November 30th, 1999. November 2009 is also the 8th anniversary of the launch of the Doha Round of trade negotiations.

I am in Geneva, and I was at Seattle. There are similarities and differences. The anti-globalization protests at Seattle were vicious, lengthy, and very destructive. So far, the protests in Geneva have been relatively mild, with some destruction, but limited to a small minority of the demonstrators. We’ll see what happens today.

There are also similarities in the status of the negotiations. The Seattle Ministerial failed not because of the demonstrators but because of failure to reach agreement - principally between the United States and Europe over agriculture and sectoral agreements in industrial trade. Agriculture seems, after eight years of negotiation, to be agreed but for a handful (albeit a difficult handful) of issues, but the sectoral trade agreements (eliminating tariffs in major industrial sectors) is still an unresolved issue.

The Ministerial meeting that starts today ostensibly is not for the purpose of negotiating the Doha Round. Instead the official focus is on reviewing the WTO’s activities and its contribution to development. In talking with people, though, it is clear that Doha is the big undercurrent. The hope is that with so many trade ministers gathered in one place, informal discussions can lead to a narrowing of differences among countries that can clear the way for negotiations early next year.

If those differences are not narrowed, it will be extremely difficult to wrap up the Doha Round in 2010, which is the current objective (the first goal was 2005). The differences are still profound. In the key area of manufactured goods, which comprise about 70 percent of world trade in goods and services, the gulf that has been there since the round started is still there: The advanced developing countries are unwilling to provide major cuts in their tariffs and trade barriers.

President Obama gave a speech in Tokyo Saturday announcing the Administration’s plans to engage with the Trans Pacific Partnership countries to shape a regional agreement, an engagement that could produce real benefits for U.S. exporters and manufacturers. The Asia-Pacific region is the world’s fastest growing both in terms of trade and in the number of trade agreements being negotiated.  The NAM has long called for a trans-pacific trade agreement that would open up the region to U.S. exports.  America’s manufacturers cannot afford to be on the outside of an Asian trade wall looking in.

Reacting to the President in a statement, U.S. Trade Representative Ron Kirk made the case that a high-standard regional trade agreement under the Trans Pacific Partnership could help generate American jobs and economic prosperity.  (USTR fact sheet.) Exports will be the driver of U.S. economic recovery, but only if they have open access to world markets.

Strong U.S. leadership will be necessary to achieve a regional Pacific agreement that includes the highest standards already incorporated in U.S. bilateral agreements.  The United States currently has bilateral agreements with four of the seven Trans Pacific partners – Australia, Chile, Peru, and Singapore. (The others are New Zealand, Brunei, and Vietnam.) None of the gains for American manufacturers that were negotiated in those agreements should be abridged in any way, including intellectual property and investment protections and market access commitments. 

We were also pleased to see President Obama’s urging other nations to join the United States in demanding an ambitious and balanced Doha agreement, “not any agreement, but an agreement that will open up markets and increase exports around the world.”  This is the only road to success for the Doha Round.

The President’s focus on trade and trade agreements highlighted in his Asian trip should not, however, push other trade priorities off the table. On the contrary, they should produce a concerted effort to resolve any last issues with the three pending trade agreements – Colombia, Korea, and Panama – so these can be sent to Congress for approval.

News coverage…

• Associated Press, “APEC urges new growth model, climate pact progress“
• Reuters, “Obama pledges greater US engagement in Asia“
• Radio New Zealand, “Free trade deal may be in place in two years, says PM“

Frank Vargo is Vice President, International Economic Affairs, National Association of Manufacturers

In the November 4, 2009, Toronto Globe and Mail, World Trade Organization (WTO) Director General Pascal Lamy was quoted as saying that a Doha round deal can be concluded soon: “We are nearly there,” he said, “but there remain a few nuts to crack, mostly the U.S.”

The National Association of Manufacturers (NAM) finds this comment unfortunate and distressing. The United States, which was instrumental in creating the post-World War II trading system that has served the world so well, which has led other nations - sometimes kicking and screaming - to liberalize world trade and open their markets in every negotiation since the Geneva Round of 1947, and which is pressing so hard for global market opening in the Doha Round, is not a “nut to be cracked.”

Rather than singling out the United States and seeking to pressure the Obama Administration to accept a deal the Bush Administration had already rejected, Mr. Lamy should focus his efforts on those WTO members who are still reluctant to offer substantial new market access. U.S. negotiators have been working tirelessly for a deal that creates significant and genuine new market openings that would benefit not just American firms, but firms in all countries - including in the poorest countries, who are key intended beneficiaries of the Doha Round.

Based on the recent estimates of the prestigious Institute for International Economics, without the sectoral tariff cutting agreements the U.S. is working so hard to achieve, the current (un-agreed) Doha Round text would barely increase world manufactured goods exports one percent. Furthermore, most of that gain would not occur for up to 10 years. And the situation in the services negotiations is even worse.

For over eight years the U.S. has been consistent in saying that only a balanced and ambitious outcome - not just for U.S. producers, but for all producers globally — is acceptable. The Doha Round is not there yet, and will not get there if Mr. Lamy continues to view the U.S. as a nut to be cracked rather than reinforcing the U.S. effort to obtain more trade liberalization globally.

Frank Vargo is Vice President, International Economic Affairs, National Association of Manufacturers