With national election campaigns shifting into high gear, one subject voters aren’t hearing much about is trade.
With the wars in Iraq and Afghanistan and the domestic economy on the front burners, international trade is shunted aside, to be trotted out when a candidate needs to score points by pointing out how he or she will work to keep so-called American jobs in the United States.
That plays well with voters who might not realize how interconnected global consumers really are, but we should expect more from our elected officials.
Simply stated, international trade is good; it provides markets for the goods we produce and gives consumers choices of products not always readily available here at home. It also allows American workers to do the work they do most efficiently, while still providing them with the goods they need and want.
The biggest hurdle to increased trade is government. Rules, regulations and paperwork slow the movement of goods across borders, costing the global economy billions of dollars a year, according to a recent report on international trade from the Cato Institute.
In one example, the report notes that trade and customs lawyer Steve Creskofi says a pending agreement between the U.S. and South Korea would boost the value of trade between the two nations by $20 billion annually. That’s a pretty hefty benefit to the economies of both countries, but the U.S. can improve its bottom line unilaterally by easing regulations to speed the movement of imports and exports.
According to a report from the World Bank, shaving just one day off U.S. transit time in imports and exports would increase annual trade by $28.9 billion.
Further, laws designed to shelter specific segments of the U.S. economy from competition boost the cost of doing business.
The Merchant Marine Act of 1920 requires that all goods between U.S. ports be shipped on vessels built and registered in the United States, and owned and crewed by Americans. Several other federal laws require shipment of government and goods connected to the Import-Export Bank be accomplished on U.S.-flagged ships.
Although that might be good for the U.S. shipping industry, it hurts consumers by increasing transportation costs. Data provided by the U.S. International Trade Commission shows that in 2005, daily operating expenses for U .S.-flagged container ships were $34,260, while foreign ships’ expenses were only $22,190.
Loosening some of those protectionist regulations could lower shipping costs, allowing companies to direct the savings into more productive endeavors.
Lest anyone think the U.S. is alone with its regulations that take money from the economy, Cato relates the story of Tarik, a Yemeni fish exporter. Tarik can get $5.20 per kilo of fresh tuna sold to Germany, but only $1.10 per kilo for frozen tuna sold to Pakistan.
He’d like to sell more to Germany and less to Pakistan, but excess regulations delay exports, so Tarik must freeze most of his fish to prevent it from spoiling, limiting the amount of fresh tuna he can sell to Germany. He says he can ship only 15 percent of his tuna to Germany. His factory exports 2,000 tons of tuna each year.
“You make the calculation,” he says.
According to the Cato report, if Tarik were able to ship all his tuna to Germany, he’d make about $10.4 million. But he can sell only about 300 tons of fresh tuna to the Germans before it goes bad, netting about $1.6 million.
The rest, frozen to prevent spoilage, he sells to Pakistan for about $1.8 million. His lost revenue caused by regulatory delay is in the neighborhood of $7 million annually. And that’s only one merchant. Imagine the cost across the entire Yemeni economy.
Although they often do better than developing countries, industrial nations hinder economic vitality with regulations, too. In France, the government recently privatized stevedore processes at seven of its nine public ports. Officials estimate the move will nearly triple container traffic by 2015 and create 30,000 jobs in the ports.
National economies vary widely according to many factors, so no one solution exists to improve them across the board. Each nation must experiment to see what works best to facilitate trade across its borders, but there is a strong indication that easing government regulations to allow more producer and consumer choices, and speeding transit times would benefit national as well as global economies.
And the best part is that nations don’t have to rely on reciprocal agreements with others to improve their own bottom lines.