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1 TRADING UP WITH TRADING UP WITH TRADING UP WITH TRADING UP WITH TRADING UP WITH TRADING UP WITH TRADING TPA UP WITH MANUFACTURERS NEED NEW TRADE AGREEMENTS FOR JOBS, GROWTH AND COMPETITIVENESS February 2015 / Full Report

2 All Photos David Bohrer/NAM.

3 INTRODUCTION The more than 256,000 manufacturers in the United States and their more than 12.3 million employees compete in a global economy. Over the past three decades, advances in technology, telecommunications, transportation and logistics have forged a truly international marketplace and revolutionized how, what and where business is conducted in this country and around the world. These advances are driving innovation, creating new products and segments and increasing the speed and frequency of transactions through complex supply chains. They define the reality of today s business environment. The question for U.S. law and policymakers is how best to enable manufacturers to compete successfully in this environment. Striking new high-standard and market-opening trade agreements with other countries is essential to strengthening America s manufacturing edge. Across the United States, manufacturers of all sizes increasingly are turning to trade to expand their customer base, grow their businesses, access critical inputs from overseas and create and sustain jobs here at home. Thanks in part to past trade deals, U.S.-manufactured exports topped $1.403 trillion in 2014 the highest level in America s history and are contributing to the continued growth of manufacturing in the United States, which also reached its highest level ever, with $2.09 trillion in output in Manufacturers of all sizes increasingly are turning to trade to grow their businesses and create and sustain jobs here at home. Family-owned manufacturers like Marlin Steel in Baltimore, Md., Paulson Manufacturing in Temecula, Calif., and Quality Float Works in Schaumburg, Ill., are leading the way on trade. For these firms, exports account for more than a quarter of their total sales. They produce high-quality products in America and sell them to dozens of countries around the world. Small businesses like these comprise more than 96 percent of all U.S. exporters. But manufacturers are only beginning to tap the full potential of global markets. While they compete directly with overseas firms in a largely open U.S. market, they face a wide array of discriminatory and unfair trade barriers in other countries. New trade agreements are vital to remove these barriers and support manufacturing export growth. Trade agreements provide access to large and growing markets. They level the playing field for businesses and workers in the United States by reducing and eliminating high-tariff and nontariff barriers. They help support and grow good-paying jobs in communities across the country. Trade Promotion Authority (TPA) is critical to conclude and implement strong trade agreements that deliver on their promise for manufacturers. This longstanding and proven procedural partnership between Congress and the executive branch expired in 2007 and must be renewed quickly to ensure America continues to lead in opening new markets and leveling the playing field abroad for manufacturers and their employees in the United States. TPA must be renewed quickly to ensure America continues to lead in opening new markets and leveling the playing field abroad. National Association of Manufacturers 3

4 Trade Agreements Provide Access to Large and Growing Markets To grow their businesses and create and sustain jobs here at home, manufacturers in the United States need better access to the 95 percent of the world s population and the more than 70 percent of the world s purchasing power beyond our borders. The global market for manufactured goods is enormous and provides a vital source of growth for the U.S. manufacturing sector. As shown in Figure 1, world trade in manufactured goods has more than doubled between 2000 and 2013 from $4.7 trillion to $11.8 trillion. 1 World trade in manufactured goods greatly exceeds that of the U.S. market for those same goods. U.S. consumption of manufactured goods (domestic shipments and imports) equaled $4.1 trillion in 2014, equaling about 34 percent of global trade in manufactured goods. Figure 1: World Trade in Manufactured Goods, (In Billions of U.S. Dollars) $11,848 $9,995 $4,689 $1,092 $2, Source: World Trade Organization (WTO). Manufacturers increasingly are selling into that worldwide market, thanks in part to global, regional and bilateral trade agreements the United States has negotiated, concluded and implemented around the world under Democratic and Republican administrations. 2 Over the past 25 years, U.S.-manufactured goods exports more than quadrupled (see Figure 2). In 1990, for example, U.S. manufacturers exported $329.5 billion in goods. By 2000, that number had more than doubled to $708.0 billion. In 2014, it reached an all-time high, for the fifth consecutive year, of $1.403 trillion, despite slowing global growth. 3 The expansion of U.S.-manufactured goods exports to America s top 10 overseas markets from 1990 to 2014 and the top major manufacturing export sectors are detailed in Tables 1 and 2 at the end of this report. Notably, manufactured goods exports to the five largest markets Canada, Mexico, China, Japan and the United Kingdom increased from a combined $158.0 billion in 1990 to $676.8 billion in 2014, a multiple of more than four times. Manufacturing sectors as diverse as transportation, computers, chemicals, machinery, energy and metals have all seen strong growth. The depth of manufacturing and manufacturing exports on a state-by-state basis is documented in Table 3 at the end of this report. 1 Data from the WTO Statistical Database, accessed on Jan. 29, In addition to the free trade agreements (FTAs) discussed herein, the United States has implemented global WTO agreements, including the Uruguay Round Agreements in 1994 and the Information Technology Agreement in The WTO has grown from its original 123 members in 1995 to 160 members in The top trading partners for U.S.-manufactured goods in 2014 were Canada ($ billion), Mexico ($ billion), China ($91.20 billion), Japan ($54.77 billion) and the United Kingdom ($45.25 billion) (see Table 1 at the end of this report). Similarly, sectors with the largest exports in 2014 included transportation equipment ($ billion), computer and electronic products ($ billion), chemicals ($ billion), non-electrical machinery ($ billion) and petroleum and coal products ($ billion) (see Table 2). 4 Trading Up with TPA

5 Figure 2: U.S.-Manufactured Goods Exports, (In Billions of U.S. Dollars) $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $ Source: U.S. Commerce Department. Manufacturers need better access to the 95 percent of the world s population beyond our borders. Overseas sales increasingly influence the bottom line for manufacturers across the United States, with more than 40 percent of respondents in a recent National Association of Manufacturers (NAM) survey citing them as a primary driver of growth for their company. 4 Those survey respondents who were more positive about their export potential over the next 12 months were also more optimistic in their company s economic outlook, sales and capital spending plans. America, however, lags behind many of its largest trading partners when it comes to export potential. The United States exports roughly 55 percent of its manufacturing output. As such, U.S. exports comprised only 9.5 percent of global trade in manufactured goods in Trade Agreements Level the Playing Field A growing array of trade barriers in other countries is limiting the export potential of U.S. industry and costing jobs, growth and economic opportunity. The U.S. market is already open to the world, and manufacturers in the United States already compete head to head with overseas firms for domestic sales. Indeed, according to the U.S. Department of Commerce, more than two-thirds of all U.S. imports in 2013 (by value) approximately 67 percent entered duty free. The United States has the lowest applied tariff (3.64 percent in 2014) on manufactured goods of any other G20 country. 4 Moutray, Chad, NAM/IndustryWeek Survey: Manufacturers Bullish, But Frustrated with Washington, IndustryWeek, June 9, See industryweek.com/global-economy/namindustryweek-survey-manufacturers-bullish-frustrated-washington?page=1. National Association of Manufacturers 5

6 Manufacturers in the United States face steeper trade barriers abroad than nearly any other major market. Yet, manufacturers in the United States face steeper trade barriers abroad than nearly any other major market (see Figure 3). With some of America s 11 partners in the ongoing Trans-Pacific Partnership (TPP) negotiations, manufacturers face tariffs as high as 83 percent on automotive products, 70 percent on machinery and capital equipment and 30 percent or more on chemicals, health and medical equipment and infrastructure products. Figure 3: Tariffs Faced Ranking by Country, 2014 (Out of 138 Countries) Country Tariffs Faced Ranking (From Least to Most Tariffs) Chile 1 Mexico 28 Brazil 51 South Korea 55 China 58 India 59 Canada 72 Germany and all EU countries 73 Russia 115 United States 130 Source: World Economic Forum, Global Enabling Trade Report (2014). In the European Union, with which the United States is negotiating the Transatlantic Trade and Investment Partnership (T-TIP) agreement, U.S. manufacturers face tariffs as high as 20 percent on electrical equipment, 15 percent on consumer goods, 14 percent on information technology products and 10 percent on machinery, capital equipment and metal goods. 5 Beyond tariffs, manufacturers face a wide range of other discriminatory barriers around the world from cumbersome customs regulations and local production requirements to investment restrictions and weak protection and enforcement for ideas, brands and inventions. America s 20 existing trade agreement partners buy 13 times more manufactured goods from the United States than other countries. Trade agreements level the playing field for U.S. industry by reducing and eliminating these barriers. While global agreements with WTO partners set baseline rules that limit some barriers, the United States 14 FTAs 6 with a total of 20 countries provide much deeper and stronger commitments by countries to eliminate barriers and level the playing field. And where there is a level playing field, manufacturers are succeeding. 5 WTO, World Tariff Profiles 2014, accessed at 6 The United States has two multicountry FTAs: the North American Free Trade Agreement (NAFTA) with Canada and Mexico, and the Central American- Dominican Republic-U.S. Free Trade Agreement with Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua. The United States also has FTAs with 12 individual countries: Australia, Bahrain, Chile, Colombia, Israel, Jordan, Morocco, Oman, Panama, Peru, Singapore and South Korea. 6 Trading Up with TPA

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8 Figure 4: Share of U.S.-Manufactured Goods Exports by FTA and Non-FTA Markets, 2014 For example: U.S.-manufactured goods exports to Canada and Mexico have more than doubled since NAFTA entered into force in 1994, from $200 billion in 1993 to $486 billion in 2014; 48% 52% U.S.-manufactured goods exports to Chile have grown six-fold since the U.S. Chile Free Trade Agreement entered into force in 2004, from $2.5 billion in 2003 to $15.0 billion in 2014; and U.S.-manufactured goods exports to Australia increased nearly 90 percent since the U.S. Australia Free Trade Agreement entered into force in 2005, from $13.0 billion in 2004 to $24.6 billion in FTA Partners Nearly half of U.S.-manufactured goods exports are purchased by our 20 FTA partners. Source: U.S. Department of Commerce. Rest of the World Taken together, America s 20 existing trade agreement partners buy 13 times more manufactured goods from the United States than other countries. While these countries represent just 6 percent of the world s consumers and less than 10 percent of the global economy, they purchased nearly half of all U.S.- manufactured goods exports in 2014 (see Figure 4). The United States enjoys a $55.0 billion manufacturing trade surplus with its trade agreement partners, compared with a $579.2 billion deficit with other countries. Trade Supports Good-Paying Jobs for America s Diverse Manufacturing Workforce The manufacturing sector generated more than 10 percent of all of the net new jobs created in the economy in the first two years after the recession. U.S. value-added manufacturing reached $2.1 trillion in 2014, up from $1.7 trillion in Exports have played a significant role in the ongoing manufacturing recovery. For many manufacturers small and large, exports have been critical to sustain domestic employment in the face of reduced demand in the mature U.S. economy and grow jobs as access to foreign markets has increased. Since the end of 2009, export-intensive sectors with substantial export growth have seen the largest job gains. Those sectors include transportation equipment (260,000 jobs increase), fabricated metal products (215,000 jobs increase), machinery (163,000 jobs increase), plastics and rubber products (63,000 jobs increase) and primary metals (62,000 jobs increase). Since the end of 2009, export-intensive sectors with substantial export growth have seen the largest job gains. 8 Trading Up with TPA

9 Manufacturing exports support millions of American jobs, including, for example, 212,000 in Michigan, 189,000 in Pennsylvania, 185,000 in New York and 107,000 in New Jersey. In Oregon, Delaware and Maryland, manufacturing accounts for more than 80 percent of all state exports. According to the Department of Commerce, exports now support more than 6 million manufacturing jobs across the country. 7 Exports support higher-paying jobs for an increasingly educated and diverse workforce. Jobs supported by exports pay, on average, 18 percent more than other jobs. 8 Employees in the most trade-intensive industries earn an average compensation of nearly $94,000, or more than 56 percent than those in manufacturing companies that were less engaged in trade (see Figure 5). 9 Rather than a cause of inequality, trade is part of the solution by supporting higher-paying and more skilled jobs. 10 Figure 5: Manufacturing Compensation and Trade Engagement, 2013 $93,952 $82,046 $60,552 Top Third Most Trade-Engaged Manufacturing Workers Middle Third Most Trade- Engaged Manufacturing Workers Lower Third Most Trade- Engaged Manufacturing Workers Source: MAPI Foundation, using data from the Bureau of Economic Analysis. Some claim that trade agreements like NAFTA have cost or threatened millions of U.S. jobs. But those claims are based on faulty assumptions and abstractions rather than facts. For example, U.S. manufacturing output increased steadily since NAFTA was concluded, only declining at times of broader downturns in the U.S. economy. Manufacturing value-added increased from $1.13 trillion in 1993 to $2.08 trillion in Between 1993 and 1997 the four years after NAFTA entered into force U.S. manufacturers added nearly 800,000 jobs according to the Bureau of Labor Statistics. This growth had followed the pre-nafta period ( ) when the United States lost nearly 2 million manufacturing jobs. Also, the United States more than doubled manufacturing goods exports to both Canada and Mexico after NAFTA s implementation. In 2014, the United States had a $21.6 billion trade surplus in manufactured goods with its NAFTA partners. Jobs supported by exports pay, on average, 18 percent more than other jobs. 7 Chris Rasmussen and Jeffrey Hall, Jobs Supported by State Exports: 2013, International Trade Administration, U.S. Department of Commerce, September 2013, accessed at 8 David Riker, Do Jobs in Export Industries Still Pay More? And Why?, International Trade Administration, U.S. Department of Commerce, July 2010, accessed at 9 Calculations from the Manufacturers Alliance for Productivity and Innovation (MAPI) Foundation, using 2013 input-output data from the Bureau of Economic Analysis, accessed at Impact-on-Compensation.aspx. 10 See Ed Gresser, Trade and Inequality: Cause, Cure Diversion? (Dec. 11, 2014), accessed at Christopher Wheeler, Evidence on Wage Inequality, Worker Education, and Technology, Federal Reserve Bank of St. Louis Review (May/June 2005); Craig K. Elwell, Is Globalization the Force Behind Poor U.S. Wage Performance?: An Analysis, Congressional Research Service, Short Report for Congress, Updated Jan. 12, See also Robert Lawrence, Blue-Collar Blues: Is Trade to Blame for Rising U.S. Income Inequality? Peterson Institute (2008). National Association of Manufacturers 9

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11 Figure 6: U.S. Manufacturing Trade Balance, 2014 (FTA vs. Non-FTA, in Billions of Dollars) $55.0 All FTA Countries Non-FTA Countries The United States experience with developing a trade surplus with its NAFTA partners is not isolated. In fact, U.S. FTAs have been powerful in promoting an overall U.S.-manufactured goods surplus with our FTA partners. As the data demonstrate in Figure 6, the United States maintained a $55.0 billion manufacturing trade surplus with its FTA partners in 2014, compared with a $579.2 billion deficit with non-fta countries. For those concerned about trade deficits, FTAs play an important role in the solution. By eliminating barriers overseas and ensuring the fair treatment of our manufacturers and their products, FTAs have propelled substantial quantities of manufacturing exports because manufacturers in the United States succeed in open markets. Given the fact that the global trade in manufactured goods -$579.2 is nearly three times the size of the U.S. market for Source: U.S. Commerce Department. such goods and its extraordinary growth over the past decades, efforts to level the playing field and eliminate barriers overseas will only become more important as the mature U.S. market provides insufficient opportunities for sustaining and growing manufacturing employment. To Open New Markets, Manufacturers Need TPA TPA is essential to conclude and implement new, high-standard and market-opening trade agreements that provide access to new markets, level the playing field abroad and support good-paying jobs here at home. TPA is a longstanding and proven mechanism that has been used to implement the Uruguay Round Agreements creating the WTO and 13 U.S. bilateral trade agreements negotiated since TPA enhances congressional oversight of trade negotiations. TPA enhances congressional oversight of trade agreements. It enables Congress to set negotiating objectives for the Administration and guarantees lawmakers a seat at the table as new deals are struck. The NAM strongly supports the enactment of TPA legislation to ensure U.S. negotiators bring back strong, market-opening and high-standard agreements that will eliminate barriers overseas and boost manufacturers exports and opportunities in the global economy. Ambitious new trade agreements will: Eliminate discrimination and other barriers against foreign goods and services; End special advantages that other countries give their own producers; Set rules to provide transparency in government action, protect intellectual property rights and promote fairness; and Create enforcement mechanisms to ensure that governments keep their promises. National Association of Manufacturers 11

12 Failure to move forward on TPA and new trade agreements would deal a damaging blow to a recovering U.S. manufacturing sector facing significant barriers and competitive challenges overseas. Without TPA, the United States with its already open market is unarmed in its ability to eliminate foreign tariffs and other major obstacles to fair and open competition in a global market for manufactured goods nearly three times larger than domestic demand. As other countries negotiate trade agreements that exclude the United States, manufacturers are also losing ground in overseas markets where their competitors benefit from lower tariffs and other removed barriers. Of the more than free trade and similar agreements negotiated worldwide, the United States is party to only 14. U.S. exporters now face higher tariffs than our competitors in most major trading countries, which have been able to negotiate eliminated tariffs for their producers, creating an even greater disadvantage to our own exporters (Figure 3). Similarly, as China, the European Union, Canada, Mexico and others negotiate new agreements without the United States, their producers will face substantially greater access and lower barriers, while U.S. manufacturers increasingly will be shut out of markets overseas, where demand is substantial. Time is of the essence. America can no longer sit on the sidelines. Other major economies are already negotiating dozens of agreements that exclude the United States, which will put manufacturers and workers in the United States at a significant competitive disadvantage. Manufacturers urge Congress to move expeditiously to pass TPA and ensure the United States continues to lead in striking the strongest possible market-opening trade deals that are increasingly critical to drive manufacturing growth and sustain and grow jobs. A win on TPA is a win for American manufacturers. 11 WTO, Regional Trade Agreements, accessed at 12 Trading Up with TPA

13 Table 1: U.S.-Manufactured Goods Exports by Top 10 Major Markets, (In Billions of U.S. Dollars) Canada $73.46 $ $ $ $ $ Mexico $24.70 $41.41 $ $ $ $ China $3.67 $9.10 $13.69 $31.93 $64.20 $91.20 Japan $35.54 $51.41 $55.56 $45.65 $48.53 $54.77 United Kingdom $20.61 $25.69 $37.65 $34.23 $41.78 $45.25 Germany $16.46 $19.96 $26.89 $31.32 $43.30 $43.91 Brazil $4.40 $10.47 $14.53 $14.49 $32.69 $38.69 Netherlands $11.14 $14.03 $20.15 $24.24 $31.58 $38.55 South Korea $11.15 $21.16 $25.12 $24.30 $31.62 $37.41 Hong Kong $6.01 $12.66 $13.43 $15.20 $23.47 $36.70 Source: U.S. Commerce Department. Table 2: U.S.-Manufactured Goods Exports by Top Major Sectors, (In Billions of U.S. Dollars) Transportation Equipment $66.82 $91.57 $ $ $ $ Computer and Electronic Products $68.75 $ $ $ $ $ Chemicals $40.35 $60.97 $80.01 $ $ $ Machinery, Except Electrical $46.81 $64.51 $89.93 $ $ $ Petroleum and Coal Products $6.12 $5.84 $9.05 $18.07 $61.44 $ Miscellaneous Manufactured Products $10.19 $16.46 $24.52 $39.53 $61.08 $82.26 Food Manufacturing $14.86 $23.72 $25.33 $29.61 $51.89 $70.72 Primary Metals $12.26 $18.89 $21.50 $29.76 $53.54 $64.34 Electrical Equipment, Appliances and Components $10.89 $19.09 $27.12 $30.04 $37.58 $60.31 Source: U.S. Commerce Department. Fabricated Metal Products $10.10 $16.28 $23.05 $25.31 $35.77 $49.13 Plastics and Rubber Products $5.98 $10.83 $17.69 $19.89 $25.92 $34.01 Paper $8.70 $15.09 $15.93 $17.35 $23.65 $24.94 Nonmetallic Mineral Products $3.36 $5.19 $8.17 $7.03 $9.82 $11.85 Textiles and Fabrics $2.76 $4.44 $7.27 $8.77 $8.16 $10.02 National Association of Manufacturers 13

14 Table 3: Manufacturing Output, Firms, Employment and Exports Across the 50 States Total Manufacturing Output (In Billions of Dollars, 2013) Manufacturing Firms (2012) Manufacturing Employment (In Thousands, December 2014) Manufactured Goods Exports (In Billions of Dollars, 2014) United States $2, ,363 12,239.0 $1, Alabama $34.4 3, $17.63 Alaska $ $0.58 Arizona $24.0 4, $16.75 Arkansas $16.6 2, $6.39 California $ ,331 1,254.3 $ Colorado $21.6 4, $7.71 Connecticut $27.8 4, $15.35 Delaware $ $4.93 District of Columbia $ $0.84 Florida $ , $54.01 Georgia $52.5 6, $35.93 Hawaii $ $1.24 Idaho $7.6 1, $4.60 Illinois $ , $61.64 Indiana $95.3 7, $34.93 Iowa $28.4 3, $12.73 Kansas $22.9 2, $9.63 Kentucky $33.6 3, $26.97 Louisiana $59.3 2, $45.94 Maine $5.7 1, $1.62 Maryland $19.9 2, $11.19 Massachusetts $45.1 6, $25.75 Michigan $ , $51.78 Minnesota $43.7 6, $19.74 Mississippi $15.1 2, $10.88 Missouri $36.3 5, $12.84 Montana $2.9 1, $1.01 Nebraska $14.0 1, $6.49 Nevada $5.8 1, $6.92 New Hampshire $7.7 1, $3.95 New Jersey $45.9 7, $32.63 New Mexico $5.6 1, $3.63 New York $ , $68.12 North Carolina $98.3 8, $29.25 North Dakota $ $2.24 Ohio $ , $48.57 Oklahoma $18.3 3, $5.96 Oregon $65.4 4, $17.80 Pennsylvania $ , $36.59 Rhode Island $4.1 1, $1.68 South Carolina $31.8 3, $28.90 South Dakota $ $1.47 Tennessee $45.7 5, $31.76 Texas $ , $ Utah $21.0 3, $11.58 Vermont $ $3.55 Virginia $42.3 4, $16.25 Washington $58.8 6, $74.98 West Virginia $7.2 1, $4.27 Wisconsin $53.4 7, $22.01 Wyoming $ $1.25 Source: U.S. Department of Commerce, U.S. Census Bureau and Bureau of Labor Statistics. 14 Trading Up with TPA

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