Is “more trade” the answer?

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Cordell Hull [Secretary of State under President Franklin D. Roosevelt] once said, ‘where trade crosses borders, armies do not.’ Let me add to his thought: Where trade crosses borders, millions of people can see a better future, and that makes all of us safer. You may call me naive, but I truly believe we must continue the long march to more trade and prosperity. And we have to pick up the pace.” –Scott Davis, chairman and CEO, United Parcel Service, from a speech at the annual National Defense Transportation Association meeting in Phoenix last week

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There are many solutions being touted out there to help revive the moribund U.S. economy, the most visible being President Obama’s proposed $447 billion jobs creation package, which includes about $140 billion worth of infrastructure spending.

Yet there’s a distinctively different curative being proposed out in the private sector – one focused on findings ways to boost global trade, largely by reducing tariffs and other barriers between nations.

Now, many in working class America are suspicious – and not without cause – concerning efforts aimed at generating trade, largely as our nation has watched millions of jobs, particularly in the manufacturing sector, depart these shores for the lower-wage climates of China, India, and other far-flung locales.

Then there’s the technological modernization of manufacturing processes to consider: how robotics and software are replacing the need for humans to operate assembly lines and staff factories, a trend that protects people from harm but reduces the need for jobs as well.

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Yet in a positive twist of fate, many of those jobs might be starting a long voyage home to the U.S., as worries about fiscal and other forms of national instability rising right alongside growing transportation and logistics costs. For those reasons, among others, “near-shoring” is looking more attractive to many private firms these days – a topic touched on in this space before.

“The U.S. is looking more and more like a ‘safe haven’ for many manufacturers around the globe,” noted Kristine Kubacki, a senior research analyst with Avondale Partners at FTR Associates’ annual Transportation Conference in Indianapolis last week.

“Capital is flowing back into the U.S. as Europe’s sovereign debt crisis makes the U.S. look safer, the dollar is cheap, and U.S. manufacturing [plants] have the technology to operate cheaper too,” she added.

But it’s not all about “being cheap,” I should stress. In a speech before the National Defense Transportation Association’s annual meeting in Phoenix last week, Scott Davis, chairman and CEO of United Parcel Service, called for the creation of what he dubbed a “global trade framework” to spark the creation of not just jobs in the U.S. but healthier economic footing as well.

“One was proposed 10 years ago in Doha [the capital of Qatar] but hasn't moved ahead,” Davis said. “Instead, nations have paired off and formed bi-lateral deals to lower barriers. In many cases, old political rivals have signed new trade deals – for instance, China and Vietnam. It also happens that the countries doing these trade agreements have strong economic growth. Coincidence? I don't think so.”

He went on to note that the U.S., of course, has its own network of allied nations that sport growing economies. “But we should convert more alliances into more robust trading partnerships,” Davis stressed. “A case in point is South Korea. Back in 2006, the U.S. signed a trade deal with this ally, our fifth largest trading partner. A free trade deal with South Korea would create 70,000 jobs – but Washington won't approve it.”

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While the U.S. procrastinates, he said, the European Union – desperate to regain economic traction as well – is moving fast, recently closing a trade deal to give their businesses first crack at millions of customers in South Korea.

“Unfortunately, job creating trade agreements with South Korea, Colombia, and Panama are stuck in the mud of partisanship,” Davis (at right) said. “So we wait and wait and the biggest losers are the American people. We pay a steep price in terms of lost economic growth, potential exports, new jobs, and ultimately security.”

The “security” piece of the trade equation is simple to calculate, he pointed out. “Around the world, while millions of people move into the middle class, millions of others remain in trouble spots of poverty. And we know that terrorism often takes root in the parched soil of economic despair,” Davis noted.

He added, too, that no other country has invested more than the U.S. to secure and protect the lanes of global commerce. Yet, though the U.S. has 17 free trade agreements in all, it’s signed none in the past four years.

That’s why he pointed to the example set by Cordell Hull, Secretary of State under President Franklin D. Roosevelt for 11 years – the longest serving such secretary in U.S. history.

“Hull said, ‘Where trade crosses borders, armies do not.’ Let me add to his thought: Where trade crosses borders, millions of people can see a better future, and that makes all of us safer,” Davis explained. “You may call me naive, but I truly believe we must continue the long march to more trade and prosperity. And we have to pick up the pace.”

The hard part, however, is convincing the majority of Americans that trade is good, he added.

“Too many people in this country consider trade a four letter word – especially in Congress,” Davis said. “Antipathy toward trade may be our nation's greatest challenge, and weakness. Unlike Germany, where exports represent half of their GDP [gross domestic product], exports are only 11% in our country. We need to grow that number to bring down the unemployment rate and get our economy back on track.”

For example, he pointed to efforts to streamline export controls. “The U.S. has rules to keep sensitive, military use technology out of enemy hands and I agree we should protect sensitive technology,” said Davis. “But the rules are so broad they prevent U.S. exports that have little or no bearing on national security. As a result, firms in other countries win more business than U.S. companies and with it we lose jobs.”

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He believes the Pentagon has proposed a sensible solution to balance the needs for national security and economic growth: an idea to build "higher fences around fewer products."

“Would this change make a difference? Absolutely,” noted Davis. “If we modernize U.S. export controls, over the next eight years our nation could enhance real GDP by more than $64 billion dollars. And we'd create 160,000 manufacturing jobs. And that's low hanging fruit.”

Now, many might not agree with Davis’ vision here. And frankly, the U.S. has been sorely burned in the past with trade deals, watching companies take jobs overseas to capitalize on cheaper labor. But now, with security and simplicity becoming more watchwords within the global business community, many jobs – and the freight those jobs produce – might now perhaps be poised to come back to U.S. shores.

Such movement would also unlock the capital resources many companies are sitting on as they wait to see if the current economic climate improves – capital that wouldn’t have to come from the already well-depleted coffers of the U.S. government, shackled as it is with neatly $15 trillion in debt.

It’s something worth thinking about, at the very least.

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