Small Businesses Must Export East to Maintain U.S. Leadership
Cosigned by former SBA Administrators Karen G. Mills , Steve Preston, Hector Barreto, and Aida Alvarez
By 2030, more than 2 billion Asian consumers are expected to join the global middle class. In 15 years, the Asian market is projected to be six times larger than the U.S. market. Increasingly, we see an exploding Asian middle class adopting many of the same tastes and appetites for consumer goods that have long been hallmarks of American middle class life. Mexico and several Latin American economies are not far behind.
More than 95 percent of the world’s consumers live outside of the United States, and only one percent of our small businesses are selling to them. If we’re going to maintain our global economic leadership as a nation, that must change.
We come from different political parties, and we have led the U.S. Small Business Administration (SBA) at different junctures, but on this point we all agree: Congressional approval of Trade Promotion Authority (TPA) and completing the Trans Pacific Partnership (TPP) sought by President Obama would constitute a significant victory for America’s small businesses.
One out of every five American jobs is tied to exports. These jobs generally pay better, nearly 20 percent better. Passing new trade agreements would be critical to our smaller exporters, which don’t have offshore affiliates to help them overcome trade barriers and gain market access.
That’s why granting trade promotion authority to the President is so important. Trade promotion opens doors for small businesses that would otherwise remain closed. TPP would be our first trade agreement with a specific chapter dedicated to growing our small business exports. The significance of this cannot be overstated; the barriers to accessing new markets are often more daunting for small business owners who have less resources than their larger counterparts.
Most entrepreneurs don’t have sufficient cash flow to risk common delays in payment. Others have trouble getting financing for riskier foreign sales. Some small firms face tariffs as high as 35 percent, while others are encumbered by duplicative product testing requirements. These are exactly the barriers new trade agreements would address.
Past trade agreements have opened new markets for smaller exporters. In the National Small Business Association’s 2013 Exporting Survey, more than 85 percent of respondents said their company benefited from free trade agreements. Nearly half of all of the goods that America exports go to our 20 trade agreement partners. Last year, 28 states had record-high exports to these 20 countries. Since 2009, our exports have grown far more rapidly to our trade agreement partners (64 percent) than countries with which we have no deal (45 percent).
TPP is important because China, India and the European Union already have greater access than U.S. companies in Pacific Rim countries. TPP intends to eliminate or reduce tariffs with key trading partners, which matters because a tariff of just a few percent can mean the difference between success and failure for a small business. TPP intends to cut red tape and address costly customs delays at the border and reduce some of the complex regulations that make it cost-prohibitive for many small businesses to export.
Trade agreements like TPP also benefit small businesses that may not export but supply companies that do. For instance, small firms make up more than 30 percent of the U.S. auto industry’s supply chain. But the push to increase our auto exports is hindered in countries like Malaysia, where American motor vehicle manufacturers face tariffs of 30 percent, while Japan and Turkey face no tariffs at all. TPP seeks to address this imbalance and would help open up new opportunities for the tens of thousands of small firms that supply the Big Three and other motor vehicle manufacturers.
Small businesses today benefit from what some call the “economies of unscale,” meaning mass production and distribution systems are no longer the only path to success in global markets. Thanks to technological advances, small businesses are in a stronger position than ever before to meet consumer demand for specialized goods and services. Small businesses drive U.S. innovation, producing 13 times more patents per employee than their larger counterparts. In the 21st century, nimbler small companies that tailor unique products for discerning consumers are finding a global demand for what they’re selling.
When our 28 million small businesses succeed, America succeeds and our economy grows. Last October, Federal Reserve Chair Janet Yellen called small business ownership one of the cornerstones of economic mobility. The Trans Pacific Partnership offers a unique opportunity to change the analysis for small businesses who believe the costs of exporting outweigh its benefits, and in doing so, create greater opportunity for millions of Americans they employ. We must seize it.
Contreras-Sweet is the current Administrator of the U.S. Small Business Administration. Mills led SBA from 2009 -2013; Preston from 2006-2008, Barreto from 2001-2006; and Alvarez from 1997-2000.