On Your Mark, Get Set, Export

Feb. 16, 2011
Jeffrey Immelt, CEO of GE, made headlines a few weeks ago when President Obama named him to head the new President’s Council on Jobs and Competitiveness

Jeffrey Immelt, CEO of GE, made headlines a few weeks ago when President Obama named him to head the new President’s Council on Jobs and Competitiveness. The average engineer was probably underwhelmed by this development. If you don’t pay much attention to political posturing, your reaction to the news might have been along the lines of, “Just what we need, another government committee.”

But Immelt also made comments in a Washington Post op-ed that have resulted in a lot of head-scratching among those familiar with events within GE. His most notable phrase: “We need a coordinated commitment among business, labor, and government to expand our manufacturing base and increase exports.”

This from a CEO who, among other things, has closed U. S. factories and moved jobs off-shore. But let’s give Mr. Immelt the benefit of the doubt and assume he means what he says, that more U. S. businesses should export. One might get the impression from the tone of his comments that the idea of exporting has never occurred to most U. S. manufacturers. That is far from the case. The reality is that there are a lot of obstacles that simply make exporting impossible for a large segment of U. S. products. One of the biggest snags: Most of our international trade agreements are with countries that don’t want to buy anything from us.

“U. S. trade diplomacy has been dominated by trade deals with so-called emerging-market countries that feature huge low-cost labor forces. These countries were valued by companies like GE as cheap and regulation-free production sites,” explains Alan Tonelson, a research fellow at the U. S. Business and Industry Council, which lobbies on behalf of family owned and closely held U. S. manufacturing companies. “They were not valued because they were markets for U. S. products. By and large, their economies have been too small and their populations too poor to serve that function.”

The U. S. has, in fact, exported goods to emerging-market countries. You might think this is good news. But the trade statistics hide an unpleasant truth. “From everything we know, our exports to those countries have been dominated by intermediate goods that are used in the assembly and production of final goods that are then shipped back to the U. S.,” says Tonelson. “That’s why despite a robust growth in U. S. exports to emerging markets, imports from them to the U. S. have grown much faster. China, needless to say, is exhibit number one.”

There is another phrase in Immelt’s Washington Post op-ed that has relevance here: “I applaud the free-trade agreement recently concluded between the United States and South Korea, which will eliminate barriers to U. S. exports and support export-oriented jobs.” He forgot to add a key qualifier: On paper.

It is widely understood that countries set on keeping out imports can do so despite what’s written in a trade agreement. One trick in their bag is to enact value-added taxes that end up only being applied to imports. “U. S. trade negotiators aren’t allowed to go after these because the World Trade Organization classifies tax systems as part of a country’s domestic economy and, thus, not appropriate for trade talks,” says Tonelson. He adds that trade-agreement provisions that promote U. S. exports are seldom monitored or enforced. “Enforcement involves quarreling with our trade partners and is difficult work,” he adds. “It is much easier to just sign the agreement and clink champagne glasses and pretend all is well.”

Leland Teschler, Editor

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© 2011 Penton Media, Inc.

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