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July 28, 2015
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Busting the Myths of Global Trade


UPS Chief Operating Officer David Abney examined the myth that trade is bad for America. In his remarks, he applied scientific rigor to bust increasingly common notions that trade costs jobs, that U.S. businesses can't compete globally, and that the domestic market is big enough for future business growth.

If you're a fan of the Discovery Channel, chances are you've seen an episode of Mythbusters. It's a series led by two quirky guys, Jamie and Adam, who say their mission is to uncover the truth.

They do that by exploring the myths around us everyday and uncovering the truths with science.

For example, "Would a bull really cause destruction in a china shop?"

"Can you beat a lie detector test?"

"Can you really freeze your tongue to a pole in cold weather?"

Anyone who has ever watched "A Christmas Story" knows the answer to this last question.

If you're a fan of Mythbusters as I am then you know the climax comes when Jamie and Adam confirm or bust the myth. 

With the help of producers, lights, cameras and action, the revelations are quite grand.

And, if you are like me, it's a lot more fun to watch a myth get busted than confirmed!

Now, I didn't bring a production crew, but I do have a topic that is more relevant to your everyday life than whether or not you freeze your tongue to a pole!

So, here we go with the David Abney version of Mythbusters!

As you saw in the opening video, headlines tell us global trade is bad for America. 

A recent Wall Street Journal survey showed that more than half of Americans believe global trade agreements have hurt the United States. That's up from 32 percent in 1999.

So, I put before you the question: Is global trade bad for America?

Well, before we jump in, let's think about the state of the U.S. economy today.

U.S. growth slowed last summer and is expected to come in at 2.6 percent for 2010.

That's not nearly strong enough to bring down today's very high unemployment.

And next year doesn't look much better. The outlook is for more of the same: weak consumer spending, slow hiring, and ongoing credit problems.

As it turns out, one of the growth areas in our economy is exports, which added about 1.5 percentage points to GDP.

Manufacturing in this country is up this year. And with the weak dollar, many businesses that sell to customers overseas are posting strong profits.

The world economy is expected to grow 4.8 percent this year a strong performance that is boosted by export growth.

For instance, Germany's car exports to China in the first half of 2010 surged 300 percent!

At the same time, China's economy keeps roaring ahead at about 10 percent a year. If trends continue, China could be the world's largest economy by 2020. 

What's China's plan to surpass the U.S? Simply more trade and exports.

WE need more exports and trade - not less - if we're going to jump start the U.S. economy and have a sustainable recovery.

Too often, global trade, which has been a driver of growth and private sector job creation, gets blamed for our economic problems.

Before the election, you probably saw your share of attack ads here in California. Many of these ads blamed our nation's economic troubles on greedy global  corporations or the evils of outsourcing.

Also I've seen this same thing in my home state of Mississippi where the strong perception is that globalization is causing local jobs to go to other places.

So, from California to Mississippi, how did so many people begin believing that global trade is bad for our country? 

Well, Jamie and Adam, the Mythbusters, might examine the headlines and articles that  have focused on three myths:

Myth # One:
Globalization costs jobs in the United States. A common perception is that most everything we buy in this country is made somewhere else: not in the USA.

It's true that the U.S. is a major importer, and we run big trade deficits.

But you might be surprised to learn that the United States is still the world's largest manufacturer and exporter of goods and services. 

U.S. exports surpassed $1.5 trillion last year... that's ahead of China, at least for now. 

California, by the way, accounted for more than 11 percent of U.S. exports, with aircraft parts and electronics the top two categories.  

International trade accounts for nearly 25 percent of this  state's economy. The fact is that about 10 million Americans - 7 percent of all workers in this country owe their jobs to exports. That's a lot of jobs, but it's not enough.

Now, I understand the job market these days is tough - very tough. Nearly 15 million Americans are unemployed, and in the last decade 5.6 million manufacturing jobs have been lost.

In fact, this week even Mr. Goodwrench was laid off. Please don't tell me that the Energizer Bunny is next!

With a jobless rate at 9.6 percent it's important to understand WHY people are out of work.

What's confusing is that manufacturing employment is down in this country, and we assume it's because jobs are leaving the United States.

The reality is that most of the lost jobs didn't go offshore they disappeared. Many businesses need fewer workers because they use newer technologies. 

They must invest in new equipment and processes to improve productivity and to compete globally. Over time, businesses have swapped brawn for brains, a tradeoff that causes friction in the short term but boosts our productivity and standard of living in the long run.

An important skill in today's economy is supply chain management.

Businesses need a diverse network of suppliers and flexibility to move goods and parts, often across international borders.

New capabilities in logistics make this chain more efficient and productive, and these improvements can be a game changer for global businesses.

Increasingly, UPSers are talking to customers not just about shipping but also about how we can help them improve their cash flow and profitability. Our conversations often touch on ways to reduce capital spending, improve carbon impact, or better meet customer needs-all through logistics.

If you've seen our new ads, then you'll understand "We love logistics." As global commerce flows in all directions, creative destruction does happen. But on net MORE jobs are created than destroyed in this country. 

UPS ships about 2 percent of the world's gross domestic product. We operate in more than 200 countries and territories.

Every 22 packages that cross the border into or out of this country supports a new job at UPS.

And that doesn't even include the employees we hire to process customs documentation, the engineers who help us build facilities to accommodate growth, or the profits that flow from international markets, $419 million last quarter that allows us to re-invest in our business.

Trade also opens the door to foreign investment, which is a huge benefit for our economy.

In the southern part of the United States, foreign-based businesses have created thousands of jobs by investing in auto manufacturing plants. These factories in turn support a network of suppliers nicknamed Detroit South.

My point is that global trade opens the way for all sorts of jobs in this country... jobs we might overlook with all of the fuss about outsourcing.

The problem is, if we try to protect ourselves from trade, we make our economy less competitive. 

The end result is fewer jobs as overseas producers get better and gain market share.

Try selling this to your family:

Without globalization, we would all pay higher prices for fewer choices. I know that lifestyle change wouldn't go over well in my household!

So does global trade really cost more jobs than it creates in the United States?

NO... that myth is BUSTED!

Here's Myth two:
U.S. businesses can't compete globally because workers in other countries have lower wages.

It's true that many commodity products are made in places with low labor costs.

Wage arbitrage is a factor in our global economy. But wages are only a portion of production costs, especially when you're adding value.

The secret sauce for adding value - the goal of most smart businesses - is innovation.

When you add in reputation and branding, you establish pricing power.

Think about surfer legend Skip Frye. From his home in San Diego, he has spent much of his adult life testing all sorts of different fins and shapes for his surf boards.

His cutting edge designs keep changing, and he sells them globally.

Then, there's Irwin Jacobs an MIT professor who made a wireless technology commercially viable. His company, Qualcomm, has more than 13,000 U.S. wireless patents and a whole institute for innovation.

As a major San Diego employer and exporter, Qualcomm has more than 100 million customers in India and millions more in other growing markets.

In today's digital economy, information moves at the speed of a mouse click. And services are more important than ever.

The United States is far and away the world's leaderin business services.

Our country last year had a 136 billion trade surplus in services, which accounts for everything from tourism to movies to my favorite industry, express delivery.

Maybe the most important ingredient for success in today's economy is human capital. And here in San Diego you have a solid foundation.

You have quality educational and research institutions. Plus, you have great natural beauty a perfect setting to develop green technologies, or bio sciences. Venture capital funding per worker in San Diego is nearly three times the national average.

Ever heard of the reverse osmosis membrane? It's a filtration method that has helped provide safe drinking water to millions of people around the world and it was developed right here in southern California - along with many other game changing inventions.

Our nation excels at innovation, but our leadership isn't guaranteed. And if we worry too much about protecting the jobs of the past, we may miss the opportunity to nurture the industries of the future.

We should do that by investing in science, technology, and engineering where the potential for innovation is greatest. 

So, is global competition based purely on low wages?  

NOT at all, that myth is BUSTED!

Myth Three:
The U.S. domestic market is big enough to support business growth.

Less than 4 percent of small and medium sized U.S. businesses export - that's far less than in other countries. 

For instance, in Germany about half the small and medium-sized businesses export. And, what protectionists don't tell you is that 95 percent of the world's customers live outside the United States.

Over the next five years, about 87 percent of global economic growth is expected to occur in other countries mostly developing economies. Some of the hottest growth markets today in addition to China are Vietnam, Turkey, and Brazil.

In anticipation of this trend, UPS last year acquired  Unsped to strengthen our logistics and express delivery services in the Middle East and we've built an intra-Asia air hub in  Shenzhen, China.

About 460 million people in emerging market cities will enter the middle class in the next five years. Businesses should ride this wave of growth not ignore it.

As a gateway to the Pacific, California is well positioned to capitalize on this growing class of new customers. Your state has upgraded local ports, added to rail capacity and improved green systems for cargo transport.

UPS has contacted some 9,000 U.S. customers who export to just one country, which is often Mexico or Canada.

We help them connect with U.S. Commercial Services, which is an excellent resource for exporting businesses.

And we tell these customers that they could boost profits by exporting to just one more country. 

It's a fact that firms that export tend to be more productive than firms that do not. That's because the crucible of global competition makes businesses stronger, and they produce on a larger scale to serve a broader base of customers.

So, will the U.S. domestic market support necessary future business growth? NO. That myth is busted as well.

Even more important than busting myths today is understanding the impact and risks associated with these myths. The United States has always been a leader in free trade.

Our country has 12 trade agreements with 17 countries. But recent efforts to expand trade and commerce have ground to a halt. 

U.S. agreements with Colombia, Panama, and South Korea are stuck on the docket. A noisy backlash against trade has some members of the present Administration and  Congress hesitant to pass these agreements. 

Here's where the myths of trade really hurt our economy.

The United States stands to lose more than 380,000 jobs if the proposed new trade agreements aren't ratified, according to the U.S. Chamber of Commerce. 

Sadly, the U.S. is pulling  back from trade just as our competitors reach for new markets. Asian nations now lead the way. They have set aside old political rivalries to make new economic alliances, opening huge new markets.

These countries have signed more than 70 trade agreements in recent years.

China has pushed hard for access to resource-rich markets in South America, Africa, and Australia. 

And with Asia's economic rise, the gravity in trade is shifting away from the United States.

Just last month, the European Unionsigned a trade deal with South Korea. If approved, European - not American - businesses will have a leg up.

But it's not too late to respond. This past summer, our CEO Scott Davis joined the President's Export Council, and he leads the group's export, promotion, and advocacy committee. 

This group strives to double exports within five years and create two million jobs.

On a personal level back in Mississippi my wife and I sponsor an International Symposium at Delta State University where the focus is on the opportunities of globalization versus simply dwellingon the threats.

As business leaders, I'd like to ask for your help in challenging these myths of trade that are holding back our economy. Tell your elected officials, or write about it.

Speak out, in public or private settings, and use your own experience to make the case for why trade is good for California and the rest of the country. Our nation should be a leader in global commerce, and we can get there with your help. It all begins with separating truth from myth.

So, as my episode wraps up, I ask you: Is global trade bad for America?

Oh, no, it's quite the opposite! Global trade may well be the most important and vital component of any serious effort to get our economy up and running again.

The future of business isn't threatened by global trade it actually depends on it. And, you don't need Jamie or Adam The Mythbusters to confirm that. You have my word on it!

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