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Karan Bhatia: 5 Reasons Trade Still Matters

Trade policy still matters to GE — and every other U.S. company looking to win customers and orders in a global marketplace.

From time to time, I get asked why GE cares so much about free trade. GE is one of the world’s most global companies. Aren’t we so big that we can work around costly trade barriers? Isn’t our technology so competitive that we can withstand other countries’ attempts to unfairly favor their homegrown companies?

It is true that GE has succeeded where others haven’t; we have invested in a global network of research and manufacturing centers and 60 percent of our sales now come from outside the U.S. However, trade policy still matters to GE — and every other U.S. company looking to win customers and orders in a global marketplace. Here are five reasons why.

1. Free trade is really about economic reform and growth. One of the most fundamental misconceptions of U.S. free trade agreements is that they are about “opening the U.S. economy”.  The fact is that the U.S. economy is already one of the most open in the world. What U.S. trade agreements do is encourage other countries to open their economies to competition, eliminate subsidies, privatize state-owned companies, improve transparency, strengthen intellectual property protections, protect foreign investment and improve their government procurement systems. These reforms are hugely beneficial to the countries that adopt them, promote sustainable economic growth, and thereby benefit companies — like GE — that do well when the overall economy prospers.

2. Commitments made in trade agreements help U.S. companies grow. The ~400 global trade agreements that exist today vary in their breadth and ambition. The good ones require countries to make commitments that are important to our ability to operate globally.  Commitments like:

  • Treating U.S.-headquartered companies, like GE,  no less favorably than domestically headquartered companies
  • Opening government-funded projects to foreign companies and limiting requirements that force certain products to be made locally
  • Requiring governments to respect confidential business information and maintain intellectual property rights
  • Permitting companies to move data across borders – important at a time when analyzing information from machines operating around the world is critical to improving safety, efficiency and reliability of products
  • Limiting subsidies to foreign competitors, including state-owned companies

3. GE does a lot better in “free trade countries” than in protectionist ones. The fact of the matter is that GE does manage to do ok in tough countries that have significant trade barriers. But the evidence is clear that, all things being equal, we do a lot better when a country opens and reforms because of trade agreements. More than 25 percent of GE’s revenues come from countries that have free trade agreements with the United States, even though these countries only account for 15 percent of the global economy.

To some extent, this is because trade agreements allow GE to better compete in specific foreign markets. But it’s also because free trade policies tend to go hand-in-hand with economic policies that spur broader economic growth.

4. Trade protectionism is a vicious cycle that can drag down the global economy. Opening up international trade is like riding a bike: either you keep moving forward, or you fall off. As new trade agreements have slowed over the past five years, barriers to trade have risen by 45 percent. Not coincidentally, global trade growth has declined, as has GDP growth (particularly in the world’s most protectionist markets).

What this risks is a cycle of protectionism. When one country adopts protectionist rules, it encourages others to do the same so they aren’t put at an unfair disadvantage. In the long term everyone will suffer. Small companies with limited footprints and budgets will not be able to compete outside their home markets. Big multinational companies like GE can usually cope, but there are limits to what we can do.

But the biggest losers are consumers.  On the surface it may seem like these policies protect or create jobs at home, but in reality they just reduce competition — leading to lower quality and higher costs for products ranging from turbines to toothpaste.

5. It’s about global leadership. Zero. That’s how many trade agreements the United States has concluded since 2007. In that same period, the EU has concluded 3 (and has 8 more under negotiation), China’s concluded seven (+8 under negotiation), and Japan eight (with 7 more in the offing).

The fact of the matter is that trade agreements have become a principal tool of international leadership. They are how great powers project strength — setting trading rules and product standards, opening markets for domestic companies. If the United States doesn’t remain in the lead, other countries will be happy to step in and fill the vacuum, proposing alternative institutions and values.

America’s leadership in the global economy — and indeed, on global engagement generally — has not been easy or costless, and it’s certainly not always been popular, at home or abroad. But the results have been unquestionably beneficial — to GE, to the United States, and to the world.

We live in an increasingly complex world with many factors that cannot be controlled. However, we can contribute to an informed debate about free trade and why it matters to people and companies in all corners of the global economy. We all need to do our part in furthering the discussion so that our government leaders can take informed action at this critical time.

(Top image: Courtesy of Thinkstock)

 

Karan Bhatia is Vice President, Global Government Affairs & Policy at GE.

 

 

 

 

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