Broken Bridges

For entrepreneurs, the real trade barriers lie close to home.
Magazine Contributor
3 min read

This story appears in the January 2007 issue of Entrepreneur. Subscribe »

This past summer, as the world focused on war in the Middle East, a potentially larger news event slipped under the radar: The latest round of global trade talks collapsed. Major companies responded almost immediately, with the International Chamber of Commerce pleading with negotiators to revive the talks. Yet few small-business organizations protested the talks' breakdown, even though politicians on both the left and the right agree that globalization benefits small companies as well as large. In fact, the talks' collapse raised an important question normally ignored in Congress and the mainstream media: Do entrepreneurs really benefit from freer trade?

Classical economic theory suggests free trade always eventually creates prosperity, since it allows each side to maximize its comparative advantage. But many entrepreneurs see no advantage in free trade. In one study of small and midsize manufacturers compiled by RSM McGladrey, a business consulting firm, 50 percent of respondents said they expected no revenue growth from selling globally.

Classical economists did not anticipate a world in which developing nations like China and India could win in both skilled and unskilled labor, producing both cheap low-value items and cheap high-value items. And small firms do not have the clout in Washington to obtain the benefits large firms get written into trade deals. The recent U.S. Dominican Republic Central America Free Trade Agreement, for example, does not just drop all trade barriers. According to Benjamin Powell of The Independent Institute, an Oakland, California, think tank, the deal comes packed with concessions to major American industries like sugar and cotton, but with no measures to help small companies deal with the initial impacts of freer trade.

What's worse, once trade deals are signed, the government often has no plan to help entrepreneurs benefit. "The process of negotiating trade agreements is centrally orchestrated by a powerful White House office, while trade promotion--the process of helping our businesses take advantage of the agreements we sign--is left up to a loose constellation of agencies . . . with no common agenda," said Kathy Hill, president of the State International Development Organizations, in testimony to Congress. In fact, the federal government is supposed to have something called a National Export Strategy that lays out plans to help exporters. Not a single congressional aide or U.S. government staffer I've met has ever heard of the strategy.

Indeed, entrepreneurs who've tried to use Gold Key Matching Services and other Department of Commerce services designed to help exporters complain that embassy officials staffing these programs overseas know little about small businesses' needs. And entrepreneurs who approach the Export-Import Bank, a source of financing for companies heading abroad, find that although Ex-Im has supposedly dedicated itself to helping entrepreneurs, it can't shed its focus on promoting large corporations. Perhaps unsurprisingly, the federal government's internal watchdog found earlier this year that Ex-Im has failed to meet its goals of lending 20 percent of its funds to small companies. Rubbing salt in these wounds, Congress continually tries to raise fees for using these programs: This past session, Congress considered forcing entrepreneurs to pay three times as much for Gold Key as they currently pay.

I have encountered many U.S. entrepreneurs working overseas, but I've never found any who credited federal or state agencies for their success. Just the opposite. When I asked one, a successful toy manufacturer based in Hong Kong, if he'd gotten assistance from the U.S. government, he just laughed in my face. And unless small companies start advocating for their exporting needs in Congress, they'll have to continue laughing--or crying.

Joshua Kurlantzick is a writer in Washington, DC.

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