Key Takeaways
- International trade is critical to the growth and competitiveness of America’s economy, with more than 40 million American jobs dependent on trade.
- A major challenge facing international business is the levying of tariffs versus free trade agreements.
- America’s success in international trade depends largely on its relationships with other top participants in the global economy.
International trade and investment have long been significant contributors to the U.S. economy. Selling more American goods and services around the world is crucial to creating American jobs, boosting the national economy and ensuring American companies can compete on the global stage.
With fair, enforceable trade agreements, the U.S. can continue to enjoy economic growth and job creation at home. From the benefits of global markets to foreign relations, here’s what you need to know about the state of international business in 2021 and beyond.
How trade benefits the U.S. economy
International trade is critical to the growth and competitiveness of America’s economy. More than 95% of the world's population lives outside of the United States. More than 40 million American jobs depend on trade, a critical factor for success in many sectors of the economy. America’s manufacturing, agricultural, and service industries depend on foreign exports. Nor is trade just for big companies: Small- and medium-sized businesses account for 98% of U.S. companies that export, as well as one-third of U.S. merchandise exports.
Trade is a two-way street, and foreign imports also have a positive impact on the U.S. economy, for individuals and businesses alike. Imports offer increased choice and lower prices to American consumers, including products that would not otherwise be available. In fact, access to imports boosts the purchasing power of the average U.S. household by $18,000 per year. Many companies also rely on foreign imports for raw materials, intermediate goods and capital goods, which helps lower costs for businesses, allowing them to be more competitive in their respective markets.
International investment can support American businesses and help fill export gaps
In addition to engaging in international trade, American corporations can access foreign markets and boost their competitiveness through international investment. Some sectors cannot be easily served by means of U.S. exports, due to high transportation costs or barriers to trade. These gaps can easily be filled in through overseas investments.
While public sentiment is largely in favor of international investment, some have concerns regarding whether it will truly support the American economy and production. Though some Americans worry that international investment simply substitutes foreign production for domestic production (thus replacing U.S. workers with lower-wage foreign labor), more than 90% of foreign production stays abroad. Additionally, two-thirds of U.S. multinational companies’ capital expenditures and employment remain here at home, and two-thirds of that foreign investment goes to developed countries with similar labor standards and wages to that of America.
Likewise, investment is also a two-way street. The U.S. welcomes foreign investment in our economy, in sectors ranging from energy to infrastructure, and the American jobs it creates. Companies from Europe, Japan, Canada, and elsewhere have invested trillions of dollars in the United States and employ 8 million Americans. These investments strengthen our economy and contribute substantially to research and development and innovation.
Relations between the U.S. and other major players in the global economy
America’s success in international trade depends largely on its relationships with other participants in the global economy.
The relationship between China and America remains a complex one. Though the two countries are viewed as major competitors to the other, their economies also remain intertwined. Completely decoupling those economies could negatively impact both. Yet, many of China’s trade and regulatory practices present challenges to the American workforce and the global economy as a whole.
Elsewhere, Europe and America have long shared a robust, mutually beneficial trade relationship. Although there has been political turbulence and an economic downturn amid the pandemic, the U.S. and Europe are still each other’s most important trade and investment partners. U.S. and European firms have combined sales in one another's markets topping a combined $6.2 trillion annually and supporting the jobs of 16 million workers on both sides of the Atlantic.
The largest U.S. export markets are Canada and Mexico, which together buy about one-third of all U.S. merchandise exports. Barriers to U.S. exports of manufactured goods, agricultural products, and services were eliminated 25 years ago by the North American Free Trade Agreement, which was modernized recently in the United States-Mexico-Canada Agreement. The freedom to buy and sell across North America is a powerful contributor to the dynamism and growth of the U.S. economy.
The freedom to trade
One of the most significant challenges facing international business is the levying of tariffs. A tariff is a tax imposed on imported goods and services. However, contrary to popular misconception, it is Americans—not foreigners—who pay U.S. tariffs. The average U.S. tariff has doubled since 2018.
During the previous presidential administration, the U.S. introduced new tariffs on steel and aluminum imports from the European Union, Mexico and Canada, as well as tariffs on several goods from China. In response, China and Europe levied retaliatory tariffs on U.S.-based products. These tariffs remain in place today, with negotiations among policymakers continuing to determine the best course of action moving forward.
