How Do U.S. Companies Benefit From Trade?
by Lauren Trulik
The foundation of a diverse yet developed international organization is trade. International trade, both imports and exports, has historically enabled companies to grow, innovate and expand beyond their national borders. There is definitive and compelling evidence that U.S. companies that actively trade do prosper and are able to compete much more effectively in the world economy. Trade promotes growth, and growth creates wealth and opportunity. The U.S. has prided itself in being a strong advocate of free and fair trade, and it is only through this attitude and approach that the U.S. companies have and will continue to be the strongest in the world.
Trade is a two way street, where goods and services are exchanged internationally via importing and exporting. In free and fair trade, the participants encounter a `win-win' situation, each benefiting and gaining through this exchange. U.S. companies can and should utilize both trade mechanisms (imports and exports) as a way to maximize their potential. With continued globalization, U.S. companies need to implement strategies to utilize trade to maintain their competitiveness and profitability. One key way to accomplish this is to actively be involved in both sides of trade, imports and exports.
Importing key products and services is a crucial strategy for companies to be able to excel in the world economy. There are advantages to importing; it can provide comparable goods at less expensive prices and foreign sourcing can result in higher profit margins to provide companies the resources for added growth and development. Importing also provides companies with access to resources and products that may not otherwise be available in the U.S. marketplace. This leads to a more diversified supply chain. The more U.S. companies can scour the world markets for import opportunities, the more goods there are available to support their organizations and the customers they serve. The world is an international marketplace and it is critical to tap into what the world has to offer.
Exporting also greatly affects U.S. companies and their ability for domestic and international growth. President Obama's NEI (National Export Initiative) has a very simple goal; double the U.S. exports within a time span of five years. The U.S. is working its way out of a period of slow economic growth, but the unemployment rate continues to stay stubbornly high. However, by working to increase exports, more jobs could be created which would trigger domestic growth and bring the U.S. economy back to life. There is clear evidence that exporting promotes job creation. It is these jobs that carry a wage premium of 13 to 18 percent, when compared to companies that do not export. The benefits to exporting are clear; the creation of more jobs, higher paying jobs, and an expanded and more resilient customer base.
There are advantages to using these two trade mechanisms together. U.S companies who employ a growth strategy that involves both importing and exporting can partially protect themselves from currency fluctuations. Currency fluctuations in the world can make it cheaper to import certain goods and services rather than produce them in the U.S. The same holds true on the export side. If the U.S. currency weakens, exports may have a competitive cost advantage.
Over the last thirty years, the share of gross domestic product (GDP) in the U.S. fueled by consumption has risen by seven percentage points while in other large developed countries, domestic consumption has stayed at a constant share of GDP. In these large developed countries, it is exports that are supporting GDP growth, while in the U.S., it is primarily domestic consumption that is generating growth. It is clear that the U.S. is falling behind on the export side. The U.S. alone only makes up 5 percent of the world's population or ‘customers’ and it is time for the U.S. to cater to the other 95 percent Exports only make up 13 percent of the U.S. economy, and if the U.S. wants to develop and grow, then it needs to become more marketable to customers throughout the world. Obama's NEI plan seems ambitious, but in the long run it will help U.S. companies grow and create more jobs. Trade is the ultimate mechanism for creating jobs. The U.S. cannot continue to primarily rely on borrowing and domestic consumption to fuel domestic growth. For the economy to improve, U.S. companies should develop an export-based strategy.
During the last three decades, greater globalization has occurred. As globalization has become more pronounced, tapping into and supplying world markets are a way to maximize natural resources, manufacturing capabilities and human capital. However, there are pressures on the global trading system which come from increasing claims on limited natural and environmental resources, volatility of commodity prices, unfair trade practices and even stalled multilateral trade negotiations. Trade can and will elevate companies and world economies. However, in a competitive and evolving world economy, it is mandatory for companies to be proficient in two-way trading. In fast moving global economies, the ‘fast eat the slow’, the ‘innovators dominate the passive’, and ‘entrepreneurs upend the absent’.
There are also challenges when supply chains change, sourcing becomes less constant, manufacturing locations move and jobs are disrupted. Therefore, a dynamic trade program within any country does require those who benefit the most to support those that have been left behind. Trade can be disruptive, but through proper planning and with an effective national policy, resources must be brought forward so that cutting edge training and support systems are in place to take advantage of the evolving global landscape.
U.S. companies with strong two-way trade and manufacturing capabilities will be better able to protect themselves against disruptions in the supply chain. In 2011, when the Tohoku earthquake and tsunami hit Japan and major flooding occurred in Thailand, both countries were devastated and manufacturing facilities were destroyed. This resulted in a severe and even a stoppage in the supply chain, idling manufacturers for significant periods of time. In this time of need, it would have greatly benefited those manufacturers that had backup infrastructure. These disasters show how vulnerable manufacturers are to supply disruptions, since their global operations rely on a myriad of sophisticated parts. Strategic planning has a place to address these problems, that being the development of dual sourcing capabilities. With dual sourcing, U.S. companies are able to keep a constant supply chain if a natural disaster or economic problem arises. Should disruptions in the supply chain occur, they can be quickly fixed or the impact minimized.
More jobs, especially higher paying ones create many opportunities for employees, which result in a thriving community. The government will be able to collect more taxes from these people, and there will be additional funding for government sponsored programs. Technical training programs and initiatives will excel, which in the long run will create opportunities for all. This will result in U.S. companies having the resources and human capital to innovate, which will increase exports, making U.S. goods and services more marketable to the rest of the world.
It is evident that these two trade mechanisms are needed to help the U.S. economy prosper. Both imports and exports create economic growth for U.S. companies. If U.S. companies prosper, then this ultimately leads to job growth, which leads to a thriving American economy. Trade, if utilized properly and strategically by U.S. companies, will increase profitability and improve the livelihood of their employees.
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