Wednesday, June 13, 2007

The Large Stake of U.S. Small Business in an Expanding Global Economy

A Trade Agenda for U.S. Small Business

America’s small companies need a trade policy that expands their freedom to sell, invest and buy in a growing global economy. In general, U.S. small businesses can grow and compete most effectively in a domestic economy that avoids uncompetitive tax rates and burdensome paperwork and regulations. Small businesses also need flexible labor markets that allow them to hire the workers they need to meet the needs of their customers. Comprehensive immigration reform and an increase in visas for highly skilled workers would enhance the ability of U.S. companies to meet global competition.

On the trade front, U.S. small businesses benefit when the United States signs bilateral, regional, and multilateral trade agreements that reduce trade barriers with our major trading partners. Those agreements not only reduce barriers to trade but they also establish predictable and enforceable rules that increase transparency when smaller U.S. companies venture abroad. Free trade agreements with the countries of Central America, Chile, and other trading partners have already stimulated an increase in U.S. exports and have opened up new opportunities for U.S. companies to reach new customers, just as the North American Free Trade Agreement has expanded opportunities in Canada and Mexico. Absent trade agreements, Congress should reduce remaining U.S. trade barriers unilaterally.

What U.S. small businesses do not need are higher trade barriers to our domestic market or more federal subsidies to supposedly promote exports or foreign investment. Punitive tariffs against a country such as China would threaten to drive up costs for U.S. small businesses that import intermediate products from that country. A trade war would also jeopardize export opportunities in growing markets abroad. Antidumping orders and other tariffs against such imports as steel or agricultural commodities drive up costs for domestic producers, many of them small businesses, who use those imports in their final products.10 For the same reasons, a dramatically weaker U.S. dollar, while benefiting certain U.S. exporters, would drive up the costs U.S. small businesses pay for imported energy, parts and capital machinery.

Nor do U.S. small businesses need a larger share of federal subsidies for international trade. While small and medium sized companies do qualify for such programs as the Export-Import Bank and the Market Access Program, they account for a small dollar share of total federal support. U.S. companies do not need federal subsidies to compete effectively in global markets. Our research at Cato has shown that U.S. exporters have outperformed their counterparts in Great Britain, Germany, France, Canada and Japan even though the share of U.S. exports receiving government support is much lower than exports from those countries. Most U.S. export subsidies go to firms that do not experience subsidized competition abroad.11 U.S. and global markets are currently awash in private capital ready to finance new trade and investment opportunities. Federal export subsidies do not promote more exports but only reshuffle the export pie in favor of larger U.S. companies, crowding out smaller exporters.

If Congress and the administration want to increase opportunities for U.S. small businesses to compete and thrive in a global economy, they should work together to reduce barriers to international trade and investment wherever they exist.

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