Some Barriers To U.S. Trade Are Self-Inflicted

COMMENTARY Trade

Some Barriers To U.S. Trade Are Self-Inflicted

Apr 13th, 2017 3 min read
COMMENTARY BY

Former Jay Van Andel Senior Policy Analyst in Trade Policy

Bryan served as an advocate for free trade through his research at The Heritage Foundation.
Mexico's free trade agreements give the country an increasingly significant edge in attracting investment from carmakers. HENRY ROMERO/REUTERS/Newscom

Key Takeaways

Washington now habitually spends hundreds of billions of dollars a year more than it takes in from tax revenue.

Since 2008, exports of treasury securities have exceeded combined exports of U.S. aircraft, cars, and agricultural products.

Excessive and hugely expensive regulation also needlessly drives up the cost of doing business in America.

President Donald Trump last week issued an executive order calling for the Commerce secretary and U.S. trade representative to prepare a report identifying the causes of the U.S. trade deficit and policies that have left U.S. businesses at a competitive disadvantage in the global marketplace. The report may prove quite useful — as long as it doesn't overlook harmful policies that are "Made in the USA."

Yes, many other nations have enacted policies designed to give their domestic producers a leg up on foreign competition. But some of the biggest obstacles to U.S. commercial exports result from our own government's destructive policies.

Consider U.S. budgetary policy, for example. Washington now habitually spends hundreds of billions of dollars a year more than it takes in from tax revenue. Last year alone, the federal deficit was over $600 billion.

The government finances these deficits by selling U.S. Treasury securities. Some are bought by domestic lenders, while others are "exported" to people in other countries.

This is a big deal. Since 2008, exports of treasury securities have exceeded combined exports of U.S. aircraft, cars, and agricultural products.

Economists have debated the possible relationship between budget deficits and trade deficits for decades. But everything else being equal, if the $3.6 trillion dollars the government borrowed from abroad since 2008 had instead been spent on privately produced U.S. goods and services, the trade deficit would have been 79% smaller.

Another made-in-the-USA challenge for exporters is that the United States has fallen behind other countries in the race to sign barrier-reducing trade agreements.

For instance, after the North American Trade Agreement (NAFTA) took effect, Mexico negotiated trade agreements that enable European-based carmakers to send parts to Mexico tariff-free and to export autos back to Europe tariff-free. The Center for Automotive Research estimates that Europeans save $2,500 in tariffs when they import a midsize car from Mexico instead of from the United States, simply because Mexico has free trade agreements with the European Union and the European Free Trade Association and the United States does not.

Mexico's free trade agreements give the country an increasingly significant edge in attracting investment from carmakers. As Audi Chairman Rupert Stadler explained when he announced the company's decision to produce its Q5 SUV in Mexico: "With this facility, we have established an important site for the export of our automobiles to customers all over the world. The country has free-trade agreements with more than 50 countries and therefore offers ideal economic conditions. Mexico is a powerhouse for automobiles and automotive components."

There are plenty of other areas where the Trump Administration can do a better job than its predecessors, helping U.S. businesses become more efficient competitors around the world.

For example, U.S. businesses struggle under the highest corporate tax rate in the developed world. According to Heritage Senior Fellow David Burton, "The current tax system is economically destructive, unfair and, due to its complexity, imposes high compliance costs on society. It needs to be substantially reformed."

Excessive and hugely expensive regulation also needlessly drives up the cost of doing business in America. During the Obama era, regulations added more than $100 billion to annual regulatory costs. Heritage's James Gattuso, co-author of the think tank's "Red Tape Rising" report, argues: "Reforms of the regulatory process are critically needed. Without decisive action, the costs of red tape will continue to grow, and the economy — and average Americans — will be the victims."

The export-control system that governs sales of militarily sensitive products is also ripe for reform. Not only is the system itself needlessly complicated, it has erected standards that can be counterproductive, both economically and militarily. As a result, U.S. industries can find themselves at a disadvantage in marketing their products — even to close and reliable allies.

The Trump administration is committed to developing an "America first" trade strategy that makes it more desirable for companies to stay here, create jobs here and pay taxes here. If it is going to succeed, it will first need to tackle U.S. government policies that make it harder for Americans to compete in the global economy.

This piece originally appeared in Investor's Business Daily