All business is global: What companies, employees and Congress need to do
Tip O'Neill, former politician and Speaker of the U.S. House of Representatives from 1977 through 1987, coined the phrase "all politics is local." This belief, which encapsulates the principle that a politician's success is directly tied to his or her ability to satisfy the needs of local constituents, is still repeated in the halls of the U.S. Capitol.
But politics may be the only thing that's still local.
For every American company and employee, even those that focus solely on the domestic market, all business is global.
Whether you are a senior executive of a company seeking greater market share, a student trying to obtain the skills that will be required tomorrow, a Wall Street investor trying to predict the stock market's direction, or a Walmart employee trying to get ahead, you can't escape the impact of what's occurring on the world stage.
For the small farmer in Pennsylvania who may feel isolated from global influences, a deeper look may reveal this: the farm machinery is imported or built with foreign parts improving its quality and price. The genetically modified seeds, fertilizers, chemicals and insecticides are the product of intellectual property partly derived from European and American foreign-born scientists on the cutting edge. The farm hands hired during harvest season are from Central America. Or the value of the crops and the dollars used to sell them are influenced by a multitude of international factors including world volatility.
If you think you're not impacted by world trends, which are connected with global economic integration — think again!
The fire of globalization
Today's global trends, which to a large degree are driven by new technologies, are forcing tremendous changes in the U.S. and international economy, and in turn, creating new challenges for all of us. Combined with the impact of the American energy revolution and a more powerful China, these factors are shaping our future. What does this mean to the United States and our companies and employees?
Global economic integration, also known as globalization, is like fire. It can keep you warm, cook your food, or burn your house down.
If a company's products are labor intensive or if an employee's skill base is limited, global economic integration likely will present greater difficulties in the years ahead. But if a company is focused on higher technology, intellectually rich products or services, or if an employee's skill level is continually improved, the world will become a more attractive market. And the benefits are big.
For example, when U.S. companies export, on average they employ twice as many workers, produce twice as much output, and generally offer better health insurance and pensions than non-exporting companies, reports the Peterson Institute of International Economics. International trade also delivered approximately $1.7 trillion in benefits to the U.S. economy or $13,600 per American household in 2013, says Matthew Slaughter, professor and associate dean at the Tuck School of Business at Dartmouth.
Global economic integration, no doubt, can represent forces to fear. But if American companies pursue faster-growing and highly populated markets abroad, and if employees continually upgrade their skills, global forces — which can't be turned off or shut out with a Berlin Wall — will represent opportunities.
But to successfully expand internationally, America must establish more free trade agreements. And for those who question their benefits, consider this: The United States maintains a manufacturing trade surplus with its free trade agreement partners. This demonstrates that when the playing field is leveled, American companies can successfully compete with any country and win.
Unfortunately, the United States has only 14 free trade agreements with 20 partners. But the World Trade Organization indicates there are nearly 400 regional trade agreements around the world without U.S. participation. And the number of trade deals being implemented by our competitors is on the rise, giving them significant advantages over U.S. companies.
As a result, it's imperative for Congress to pass new agreements. But this is virtually impossible unless it renews Trade Promotion Authority (TPA), also known as "Fast Track." First enacted in 1974, TPA requires Congress to pass or reject trade agreements without making any changes. Without TPA, foreign governments are reluctant to make agreements and concessions that could be changed later by Congress.
TPA is considered necessary to complete and ratify the Trans-Pacific Partnership agreement between the United States and 11 other Pacific-bordering nations. And although economic growth projections for the European Union are at historic lows, the world's largest trade bloc, which includes more than 500 million consumers compared to the U.S. population of 321 million, continues to have tremendous purchasing power.
In 2013, the United States began negotiating with the European Union to establish a free trade agreement known as the Transatlantic Trade and Investment Partnership. If successful as envisioned, this deal would cover approximately 50 percent of global output, nearly 30 percent of world merchandise trade, and 20 percent of global foreign investment, according to the Organization for Economic Cooperation and Development.
The United States can ignore today's economic realities and bury its head in the sand. Unfortunately, this will just result in more of the downside globalization offers. Or, we can accelerate global expansion — a strategy that has tremendous benefits for every American. And since today all business is global, no real alternatives exist.