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Increasing U.S. exports through government-industry-academia partnerships.

INTRODUCTION

The fact that the U.S. continues to have a huge trade deficit year after year is a cause of concern to many Americans. The renowned American investor, industrialist and philanthropist Warren Buffett succinctly said (Buffett and Loomis, 2003):
   ... our trade deficit has greatly worsened, to the point that our
   country's "net worth," so to speak, is now being transferred abroad
   at an alarming rate. A perpetuation of this transfer will lead to
   major trouble ... In effect, our country has been behaving like an
   extraordinarily rich family that possesses an immense farm. In
   order to consume 4 percent more than we produce--that's the trade
   deficit--we have, day by day, been both selling pieces of the farm
   and increasing the mortgage on what we still own ... We were taught
   in Economics 101 that countries could not for long sustain large,
   ever-growing trade deficits. At a point, so it was claimed, the
   spree of the consumption-happy nation would be braked by
   currency-rate adjustments and by the unwillingness of creditor
   countries to accept an endless flow of IOUs from the big spenders.


The objectives of this paper are threefold: (1) to provide some highlights on the current U.S. trade statistics; (2) to discuss how the Obama Administration is trying to simultaneously create jobs and reduce trade deficits by increasing U.S. exports; and (3) to report in detail how a state government agency, an industrial firm and a university cooperated in the spring of 2010 to increase U.S. exports. The contents of the paper should be of high interest to U.S. government officials, business executives, and business and economics scholars.

U.S. INTERNATIONAL TRADE IN NUMBERS

The U.S. trade deficit results from the monetary value of the total U. S. exports (including both goods and services) being smaller than the monetary value of the total U.S. imports (including both goods and services). The U.S. had a $374.9 billion trade deficit in 2009, down from $698.8 billion in 2008 (see Table 1). In 2006, the U.S. hit a record $759.2 billion trade deficit. The U.S. was a net importer of goods but a net exporter of services in every year between 1999 and 2009.

In 2009, the top six U.S. trading partners for goods were Canada, China, Mexico, Japan, Germany and the U.K. (see Table 2). A little less than one-third of U.S. exports of goods went to Canada and Mexico, with another 20 percent shipped to China, Japan, the U.K. and Germany. China and Canada accounted for one-third of U.S. imports of goods in 2009, with Mexico, Japan, Germany and the U.K. contributing an additional 25 percent. In 2009, the top fifteen U.S. trading partners together accounted for 71.8 percent of the U.S. international trade in goods.

Among all the countries in the world, China is the country with which the U.S. had the largest trade deficit in recent years. The U.S. had an annual goods-trade deficit over $200 billion with China every year in the past five years (see Table 3). In 2009, the U.S. imported $296.4 billion of goods from China but exported only $69.6 billion of goods to China, resulting in a $226.8 billion trade deficit in goods. One way to reduce the U.S. trade deficit is that the U.S. government and American businesses work closely together to effectively remove Chinese trade barriers and substantially increase U.S. exports to China (U.S. Trade Representative Office, 2009).

The U.S. trade deficit is a complex and controversial issue. Some business executives and professional economists don't think this is a big problem (Mankiw, 2006). Marc Chandler, senior V.P. and global head of currency strategy at Brown Brothers Harriman, opines that too many people focus strictly on the U.S. trade deficit without examining or knowing what is really happening behind the numbers. In his book Making Sense of the Dollar, he said (Chandler, 2009):
   ... When GM makes parts in the United States, sends them to Canada
   to put into Chevy Impalas, and then ships those Impalas back to the
   United States for sale, the company has engaged in two
   international transactions: it exported the parts and imported the
   car. The parts cost less than the finished car, so GM's imports
   exceeded its exports, adding to the U.S. trade deficit; yet all the
   transactions took place within the virtual walls of the same U.S.
   corporation. Essentially, GM is moving goods from one side of the
   corporate factory to the other; it's just that the forty-ninth
   parallel weaves in and out across the floor. (Amazingly, the
   movement of goods and services within the same company accounts for
   half the U.S. trade deficit.) ... The trade deficit is large, but
   it is not a sign of national weakness ... There are various
   explanations for the persistence of the U.S. trade deficit. Some
   people argue that America buys more from the world than it sells
   because its companies are growing less competitive. Others blame
   the trade restrictions and labor policies of other countries that
   may make U.S. exports less competitive or give imported products
   advantages here. The problem is not that the glass is half full or
   half empty, but there is something wrong with the glass. The trade
   balance is no longer a valid scorecard for America's global sales
   and competitiveness. Given a choice, U.S. firms prefer to sell
   goods and services abroad through their foreign affiliates instead
   of exporting them from the United States ... Sales of these
   affiliates outstrip exports by a factor of four to one. How U.S.
   firms compete in world markets, in other words, goes well beyond
   trade ...


PRESIDENT OBAMA'S NATIONAL EXPORT INITIATIVE

In his State of the Union address on January 27, 2010, President Obama officially launched the National Export Initiative (NEI), whose goal is to double U.S. exports over the next five years. The basic idea behind this initiative is very simple: if the U.S. can significantly increase its exports to other countries, the companies in the U.S. have to produce more. To produce more, these companies must hire more workers--that means creating jobs in America. With more people employed in America, the demand in the U.S. consumer market will increase, leading to a stronger U.S. economy. When the increase of U.S. exports exceeds the increase of U.S. imports, the U.S. trade deficit will decline. U.S. Commerce Secretary Gary Locke put it this way (U.S. Department of Commerce, 2010): "Increasing the export of American products and services to global markets can help revive the fortunes of U.S. companies, spur future economic growth and support jobs here at home. This initiative will correct an economic blind spot that has allowed other countries to chip away at the United States' international competitiveness."

In order to maximize the chance of accomplishing NEI's goal, top leaders from the Commerce, Agriculture, State and Treasury Departments, the U.S. Trade Representative Office, the Small Business Administration and the Export-Import Bank have formed an Export Promotion Cabinet to coordinate and integrate their efforts. More resources have been allocated for export promotion activities. For example, the Commerce Department's International Trade Administration (ITA) has been given new resources to (U.S. Department of Commerce, 2010):

1. Bring on as many as 328 trade experts to serve as advocates for U.S. companies;

2. Assist more than 23,000 clients to begin or grow their export sales in 2011;

3. Put a special focus on increasing the number of small- and medium-sized businesses exporting to more than one market by 50 percent over the next five years;

4. Increase its presence in emerging high-growth markets like China, India and Brazil; and

5. Develop a comprehensive strategy to identify market opportunities in fast-growing sectors like environmental goods and services, renewable energy, healthcare and biotechnology.

Bad plans being poorly executed almost certainly lead to failures. Good plans being poorly executed or bad plans being well executed beget troubles. Good plans being well executed typically result in successes. U.S. Undersecretary of Commerce for International Trade Francisco (Frank) Sanchez plays a key role in both planning for and executing President Obama's NEI. Undersecretary Sanchez said (Maggs, 2010):
   We will focus on emerging technologies and emerging opportunities.
   Emerging technologies will take us into new markets as well as more
   traditional and mature markets. Some of the technology areas
   include smart electrical grids, health care technology, clean
   energy--essentially, those areas where the U.S. private sector has
   already made heavy investments in research and development and
   innovation, and where we have a competitive advantage. The emerging
   opportunities fall into the area of infrastructure projects. With
   the economic downturn in many countries, you've seen an increase in
   public expenditures on everything from housing and highways to
   ports and telecommunications ... With the new-to-export companies,
   we are going to partner with the Small Business Administration
   (SBA). The SBA has small-business development centers all over the
   United States with very competent counselors/mentors. We are going
   to have the SBA work more with those companies that are not
   export-ready but have an interest in exporting. We, in turn, will
   be able to focus on those companies that are export-ready, and take
   them to new markets."


A GOVERNMENT-INDUSTRY-ACADEMIA PARTNERSHIP CASE

In the summer of 2009, the Marketing Department of a university in Virginia started planning for an MBA-level Global Market Research (GMR) course to be offered in the spring semester of 2010. This course was intended to provide MBA students an opportunity to gather and analyze relevant, accurate and up-to-date information about selected foreign markets for the purpose of enabling a real business firm to successfully enter or expand in specific foreign markets. A marketing professor, who has expertise in international marketing, was assigned to design the details for the course, make the necessary arrangements with the pertinent people and organizations, and get prepared to teach the course.

In August 2009, the assigned professor contacted an International Trade Manager of Virginia Economic Development Partnership (VEDP), seeking help to (1) identify an appropriate company that is interested in either starting to export or increasing export sales, (2) connect the MBA students to the company's international business decision makers, and (3) provide the appropriate support and guidance so that the students can complete a high-quality, actionable market research project for the company. VEDP was created by the Virginia General Assembly to foster increased expansion of Virginia's economy. From the university's standpoint, this planned course creates a win-win-win-win situation. The company can develop new markets and increase sales. The local community benefits from increasing job opportunities. VEDP fulfills its mission of encouraging the expansion of Virginia businesses. The MBA students have the opportunity to interact with real business managers, deal with real products and service, face real business challenges, and gain valuable real-world, hands-on market research experience.

The International Trade Manager of VEDP contacted several potential companies. Eventually, a company in the industrial drive systems business was selected. The company's Market Development Manager said, "Our company designs and develops advanced automation systems, large AC machines and variable frequency drives for heavy industry. We sell to original equipment manufacturers who integrate our electrical solutions with mechanical equipment or directly to end users who tie our electrical systems to their processes."

In December 2009, the professor and the International Trade Manager of VEDP visited this selected company. They met with three important managers of the company, exchanged ideas, spelled out the mutual expectations between the company and the university, decided who would serve as the primary contact person at the company, and discussed the research objectives, the tentative dates for the meetings between the company's managers and the students, the necessity of requiring the students to sign a confidentiality agreement, and so on.

Before the spring 2010 semester began, the professor and managers at the company finalized a list of research objectives, largely through email exchanges. They also agreed that the students should be divided into three teams: one team focusing on Brazil, another team focusing on Chile and Argentina, and the third team focusing on Peru and Colombia.

During the first week of the spring 2010 semester, the professor explained to the students about the design of the course, discussed the market research process, and gave students a list of useful information sources. The students formed three teams and received their list of research objectives. In the second week of the semester, two managers from the company gave a formal presentation to the students about the company's history, past international business experiences, current business operations, goods, services, core competencies, sustainable competitive advantages, basic business strategies, target customers, industry trends, and major competitors. Because of the technical nature of the company's goods and services, the Market Development Manager came to classroom during the third and fourth weeks of the semester and answered many product-specific and market-specific questions from the students.

To be sure that the student teams were gathering relevant and useful information for the company, each team was asked to give an oral mid-term progress report to the company's managers. This arrangement also provided students with another opportunity to ask questions to the company's managers. Meanwhile, the company's managers used this opportunity to tell students more clearly what information was really important to the company, what information had little value to the company, and where they would like the students to put more emphasis on in coming weeks. There is no doubt that the relevance and usefulness of the students' final research reports was significantly improved because of these timely, beneficial comments and inputs.

The three student teams gave their final research reports to the company's managers, both orally and in writing, at the end of the spring 2010 semester. Afterwards, in a letter to the professor, the company's Market Development Manager wrote:" ... Our company will definitely benefit from the market reports we received from the three teams: Brazil, Chile & Argentina, and Peru & Colombia ... The class did an excellent job of preparing for the oral presentations. The material presented was concise and on target and provided a good executive briefing to support the detailed written reports. The formal dress for the mid-term and final reports also gave the class the feel of a boardroom setting. I have found the detailed reports to be well organized and relevant. The use of written text supported by graphs, charts and references is what I would expect for a professional study. For your information, I have distributed most of this material to key leaders in our business ..."

CONCLUSIONS

The U.S. continues to run sizable trade deficits every year since 1999. Some highly intelligent and respected American leaders, such as Warren Buffett, believe that this trade-imbalance situation is undesirable and unsustainable in the long run. The White House and the Congress should make "trade deficit reduction" a high priority issue on the national econo mic agenda, and should encourage broad discussions of this issue among government officials, corporate executives, media commentators, economists and business scholars in order to identify and develop practical approaches to reducing the U.S. trade deficit. If implemented well, Present Obama's National Export Initiative can both create jobs in America and reduce the U.S. trade deficit. Thus, this type of initiative should be enthusiastically supported in order to foster a healthy and strong U.S. economy.

The United States has many good higher educational institutions. These universities and colleges have solid reputations, provide excellent education and attract talented students from all over the world. The universities and colleges in the U.S. are one of America's principal competitive advantages. American universities and colleges should become much more active and creative in finding ways to collaborate with businesses and government agencies to help increase U.S. exports, create jobs in America, reduce the U.S. trade deficit and build a long-lasting, prosperous U.S. economy.

REFERENCES

Buffett, W. E., & Loomis C. J. (2003). America's growing trade deficit is selling the nation out from under us; here's a way to fix the problem-and we need to do it now. Fortune. November 10, p. 106+.

Chandler, M. (2009). Making sense of the dollar. New York: Bloomberg Press, pp. 2-3 and 114-115.

Maggs, J. (2010). Promoting U.S. exports is job no. 1. National Journal.

Mankiw, N. G. (2006). Is the U.S. trade deficit a problem? GregMankiw's Blog. March 31. Retrieved June 15, 2010, from: http://gregmankiw.blogspot.com/2006_03_01_archive.html

U.S. Department of Commerce. (2010). Commerce secretary Locke unveils details of the national export initiative. February 4, press release. Retrieved May 22, 2010, from: http://www.commerce.gov/ news/press-releases/2010/02/04/ commerce secretary-gary-locke-unveils-details-national-export-initiat

U.S. Trade Representative (USTR) Office. (2009). 2009 national trade estimate report on foreign trade barriers--China. Retrieved June 2, 2010, from: http://www.ustr.gov/about-us/ press-office/reports-and-publications/2009/2009-national trade-estimate-report-foreign-trad

Carl H. Tong, Radford University Lee-Ing Tong, National Chiao Tung University
TABLE 1:
U.S. International Trade In Goods and Services, 1999-2009
(In Millions of U.S. Dollars)

         Total Balance     Balance of         Balance of Trade
Year     of Trade          Trade in Goods     in Services

1999     -264,239          -336,310           72,072
2000     -378,780          -446,233           67,453
2001     -364,393          -421,980           57,586
2002     -420,524          -475,345           54,821
2003     -494,183          -541,544           47,361
2004     -609,345          -665,631           56,286
2005     -714,176          -783,801           69,625
2006     -759,240          -839,456           80,216
2007     -702,099          -823,192           121,093
2008     -698,802          -834,652           135,850
2009     -374,908          -506,944           132,036

Source: U.S. Census Bureau, Foreign Trade Division;
http://www.census.gov/foreign-trade/statistics/historical/

TABLE 2:
Top U.S. Trading Partners for Goods, 2009
(In Billions of U.S. Dollars)

                                     U.S.        U.S.        Total
Rank     Country                     Exports     Imports     Trade

1        Canada                      204.7       224.9       429.6
2        China                       69.6        296.4       366.0
3        Mexico                      129.0       176.5       305.5
4        Japan                       51.2        95.9        147.1
5        Germany                     43.3        71.3        114.6
6        U.K.                        45.7        47.5        93.2
7        South Korea                 28.6        39.2        67.9
8        France                      26.5        34.0        60.6
9        Netherlands                 32.3        16.1        48.4
10       Taiwan                      18.4        28.4        46.8
11       Brazil                      26.2        20.1        46.2
12       Italy                       12.2        26.4        38.6
13       Singapore                   22.3        15.7        37.9
14       India                       16.5        21.2        37.6
15       Venezuela                   9.4         28.1        37.5

         Total, Top 15 Countries     735.9       1,141.7     1,877.6

Source: U.S. Census Bureau; http://www.census.gov/foreign-trade/
statistics/highlights/top/top0912yr.html

TABLE 3:
The Goods Trade Between the U.S. and CHINA, 2005-2009
(in billions of U.S. dollars)

                 2005       2006       2007       2008       2009

U.S. Exports     41.8       55.2       65.2       71.5       69.6
% Change         20.6       32.1       18.1       9.5        -2.6
U.S. Imports     243.5      287.8      321.5      337.8      296.4
% Change         23.8       18.2       11.7       5.1        -12.3
Total            285.3      343        386.7      409.2      366.0
% Change         23.3       20.2       12.7       5.8        -10.6
U.S. Balance     -201.6     -232.5     -256.3     -266.3     -226.8

Note: U.S. exports reported on FOB basis; imports on a general
customs value, CIF basis

Source: U.S. International Trade Commission;
http://www.uschina.org/statistics/tradetable.html
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Author:Tong, Carl H.; Tong, Lee-Ing
Publication:Competition Forum
Article Type:Company overview
Geographic Code:3BRAZ
Date:Jan 1, 2010
Words:3277
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