Academic journal article Economic Perspectives

Big Emerging Markets and U.S. Trade

Academic journal article Economic Perspectives

Big Emerging Markets and U.S. Trade

Article excerpt

"No nation was ever ruined by trade."

- Benjamin Franklin

The preceding quote by Benjamin Franklin is as true today as it was 200 years ago. United States history is steeped in trade and trade debate, from the pivotal role of the Boston Tea Party in shaping the United States as a nation, to the recent debate over the merits of U.S. ratification of the present round of the General Agreement on Tariffs and Trade (GATT) negotiations.

The U.S. Department of Commerce is actively involved in promoting exports. In 1993, President Clinton announced a National Export Strategy for the United States, described as "a comprehensive plan [that] upgrades and coordinates the government's export promotion and export finance programs to help American firms compete in the global marketplace."(1) In particular, the National Export Strategy identifies past problems with U.S. trade promotion efforts and recommends improvements to current ones. This includes enhancing existing trade finance ones such as the Exim Bank and the Overseas Private Investment Corporation and creating a Tied Aid Fund to help U.S. firms compete on a level playing field. As an outcrop of this initiative, Commerce identified ten foreign nations as the big emerging markets (BEMs) of the upcoming century, markets where the potential for trade growth is the greatest.

It has long been recognized that exports play an important role in the U.S. economy because they support jobs and they represent a significant component of gross domestic product (GDP). Over the last few years, U.S. exports have contributed significantly to overall GDP growth. But targeting emerging markets is a new concept for the U.S. In the past, the nation could expect trade to expand steadily with its traditional trading partners - mainly Europe, Canada, and more recently, Japan. As the National Export Strategy was being developed, however, it became clear that the U.S. could not rely on these partners as a source of continued growth. In fact, trade with our traditional trading partners has been, and is projected to continue to be, flat.(2) The next logical step was to determine where growth was likely to occur. Thus was born the BEM initiative.

In addition to growth potential, the ten BEMs have other traits in common. They are all physically large with large populations, have recently undergone some program of economic reform, are politically important to their region of the world, and are likely to spur growth within their regions.(3) Where are these markets? Geographically they represent several parts of the world. In Asia they are China, Indonesia, India, and South Korea; in Latin America they are Mexico, Argentina, and Brazil; in Central and Southern Europe they are Poland and Turkey; in Africa it is South Africa.

Commerce estimates that the BEMs and other less developed countries will be the fastest growing import markets through the year 2010. By then, the BEMs are expected to account for 27 percent of total world imports, three times their 1992 share.(4) U.S. firms will want to capture as much of that market as possible. With accurate knowledge and support from all levels of government, they can realize that goal; to some extent, they are already ahead of the curve. In 1987, U.S. commodity exports to the BEMs accounted for nearly 15 percent of all U.S. exports. By 1994, the BEM market had grown to 20 percent of all U.S. exports - an increase of $65 billion. Total exports to the BEMs increased 177 percent.

State governments also actively promote exports and overseas business opportunities for firms located in their state. In the Seventh Federal Reserve District, which includes all of Iowa and parts of Illinois, Indiana, Michigan, and Wisconsin, efforts by state governments may have helped exports to the BEMs grow from 10 percent of all District exports in 1987 to 13 percent in 1994, an increase of $5.6 billion in goods.(5) Total District exports to the BEMs grew 152 percent over the period, with those to Indonesia, Argentina, and Brazil experiencing the largest growth (425 percent, 334 percent, and 249 percent, respectively). …

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