Our Global Economic Leadership Is at Stake
Two trade battles are raging in Washington: one on the Trans-Pacific Partnership (TPP) and the other on reauthorization of the US Export-Import Bank (Ex-Im Bank). The TPP is a trade agreement between the United States and 11 other trade partners in Asia and Latin America (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam). The Ex-Im Bank is the US export credit agency, which provides financing to US exporters. For trade supporters, both the TPP and the Ex-Im Bank promote US leadership in the global economy and help ensure that the United States remains the best place in the world to do business.
Debates over both are heating up as time is running out. While the Obama administration and our trade partners would like to conclude TPP this spring, they must wait for Congress to grant Trade Promotion Authority (TPA). The Ex-Im Bank’s charter expires at the end of June 2015, but House leaders are refusing to bring it to a vote.
The global economic landscape has shifted dramatically since 2000, and both TPP and a strong export credit agency are necessary to support the competitiveness of US goods. In 2013, $18.5 trillion in goods was traded globally—roughly triple the value in 2000. This phenomenal growth was driven by emerging markets. Developing economies made up 42 percent of global merchandise trade in 2013, up from one-quarter in 2000. At the beginning of the millennium, the United States was the largest exporter in the world followed by Germany and Japan; and of the developing economies, only China was in the top 10. In 2013, China was number one, with Russia also among the top 10.
The Obama administration would like to ensure that US businesses have all potential tools to compete in this increasingly competitive global market. The TPP will lower trade barriers in foreign markets, giving American businesses better access to markets from Chile to Vietnam. Setting rules in these growing markets now will give the United States and its TPP partners a first-mover advantage in global trade policy in terms of writing labor and environmental standards and building patent protection laws and investor rights into global trade rules. It will also help pry open services markets, an export area where the United States is still number one, and is growing even more rapidly than trade in goods. The TPP will create a large open market for goods and services regulated by 21st century rules, balancing the interests of some of the rising leaders in trade who might prefer a different set of laws.
The emerging markets are not only the fastest growing exporters, they are also the fastest growing importers. Their share of imports has increased in line with their export share, now accounting for 40 percent of global imports, up from 23 percent in 2000. China is the world’s second largest importer and India is the tenth, while Mexico, Russia, Turkey, and Thailand are in the top 20. US exporters seeking to do business in these rapidly growing markets need to be competitive with a range of other global producers.
This is where the Ex-Im Bank comes in. The problem is that working with importers in these foreign markets requires expertise, which many private banks do not have. US businesses are also competing with exporters from other countries that have aggressive export credit agencies behind them, eager to tap these rapidly growing markets. Without the Ex-Im Bank, US exporters are at a distinct disadvantage and will lose out to foreign competition in many of the fastest growing economies in the world.
It is worrisome then that an assortment of Congressional representatives from the extreme right and extreme left have lined up against both. The far right’s dispute is about the appropriate reach of government. Members of this group would like to see the Ex-Im Bank shuttered because it would be a feather in the cap of smaller government; they are opposed to the TPP because TPA, the authority needed to complete the deal, gives “undue power” to the executive. The far left is concerned with the Ex-Im Bank’s financing of some of the largest companies in the United States and worried that TPP will hurt American workers in import-competing industries.
The center has its eyes on a bigger prize: the country’s future. Globalization is here, so it is better to lead than to watch. The TPP and Ex-Im Bank reauthorization are two opportunities to promote US leadership in trade, and it would be a grave mistake if our elected leaders don’t seize them.
Caroline Freund, senior fellow at the Peterson Institute, is a member of the Export-Import Bank Advisory Committee.