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May 17, 2010

Why Trade Policy Matters to Small Business

Summary

Delivered by FedEx. "When it comes to international trade, actually it's not the Great Depression. It's worse." That's what No

Delivered by FedEx.

"When it comes to international trade, actually it's not the Great Depression. It's worse."

That's what Nobel Prize-winning economist Paul Krugman told the World Business Forum conference in October 2009. Krugman, widely known for his op-eds in The New York Times, may have been guilty of a columnist's flair for drama, but he had a point. Trade tumbled in the second half of 2008 and the beginning of 2009; global output growth was cut in half, and for the first time since World War II, the global economy actually shrank.

For a world that had grown accustomed to ever-expanding access to new markets and suppliers, this was a huge, albeit temporary, shock -- one not felt since, well, the Great Depression. The financial collapse short-circuited demand for almost everything, which in turn led to the dramatic decline in trade. The only good news is that trade is reviving along with demand.

But the fallout offered a stark glimpse of what the world might look like if protectionists had their way. It's a world where consumers have access to fewer goods of lesser quality, where ancient geopolitical grudges are more likely to overwhelm shared economic interests, and where everyone is worse off.

So what's next?
We dodged a bullet. But going forward, how can people and businesses reach other markets when foreign tariffs, taxes and subsidies -- not to mention myriad non-tariff barriers to trade, such as inefficiency and corruption at customs -- stand in the way? This is an especially acute problem for small and medium-size businesses, which tend to lack overseas offices or partners. So they need the U.S. government -- embassies, the Commerce Department, the Office of the U.S. Trade Representative, even Congress -- to help them get market access.

Putting the U.S. trade agenda back on track is going to take smart, aggressive negotiations and political will. It's also going to take a philosophical shift. We tend to want to improve access to our products abroad, while restricting it at home. There's a name for this philosophy: mercantilism, and Adam Smith explained why it was flawed all the way back in 1776. As he put it in The Wealth of Nations, "The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor." So too with countries: They are better off when each is doing what it does best.

In other words, expanding access for U.S. companies abroad ought to mean expanding it for foreign companies in the United States, too. All too often, there's a fear that foreign competition will take away U.S. jobs. But most economists will tell you that trade creates far more jobs than it destroys.

Blake Hounshell is managing editor of Foreign Policy and a contributor to Access Now, the annual FedEx magazine that explores the force of Access.

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