U.S. Manufacturing Contracts for First Time in 3 Years
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U.S. companies will likely be hurt—rather than helped—by President-elect Donald Trump’s promise to nullify the Trans-Pacific Partnership (TPP), trade and freight experts say. While U.S. manufacturers may find it easier to compete domestically, cancelling the TPP will make it harder to export to some of the fastest-growing consumer markets in the world.
“You could call this Trump’s inauguration gift to China at the expense of rapidly developing countries like Vietnam,” said Dr. Zvi Schreiber, CEO of Freightos, an online marketplace for freight forwarders. “Instead of improving global trade, cancelling TPP will hinder shifting manufacturing patterns, bolster China’s export industry, and hinder the continuation of the rapid growth of Vietnam's economy.”
TPP negotiating parties include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, according to a TPP Congressional report. Vietnam and other countries that export to the U.S. were not TPP’s only beneficiaries, Schreiber said; U.S. exports to Southeast Asia have continued to grow, with exports to Vietnam exploding by 473 percent in the last decade. Vietnam’s GDP has multiplied by 5X since 2000, according to Schreiber.
Free trade agreements such as TPP and NAFTA were a hot button during the 2016 U.S. presidential campaign. Opponents of FTAs claim the deals suck jobs out of the U.S. economy. Proponents of FTAs point to the growth of U.S. exports to trading partners. In spite of their political unpopularity, free trade agreements (FTAs) do benefit businesses, according to the 2016 Global Trade Management (GTM) Survey conducted by KPMG and Thomson Reuters.
A strong majority of manufacturers responding to the GTM survey acknowledge that identifying and leveraging FTAs produces a positive return on investment. The survey—which was conducted prior to the U.S. presidential election—found that one-third of respondents were thinking about how to use the Trans-Pacific Partnership. The survey results showed slightly higher-than-average levels of preparation activities were taking place in Japan (45 percent) and Vietnam (44 percent). In the U.S., 32 percent of companies surveyed were planning for TPP; Canada and Mexico report 46 percent and 32 percent active planning, respectively.
The electronics industry has been receptive to the TPP, particularly as a counter to China's growing power in the marketplace. Scott Belcher, CEO of the Telecommunications Industry Association (TIA), which represents manufacturers and suppliers of global communications networks, said he viewed the TPP as "both a sword and a shield. I know that China is interested in being a part of the Trans-Pacific Partnership, but that cannot happen unless they completely reform how they treat foreign companies, and the way they treat intellectual property.”
With the TTP on the horizon, U.S. companies were evaluating new sourcing opportunities and new configurations for their supply chains, said Eytan Buchman, vice president of marketing for Freightos. “Companies need the ability to easily shift their supply chains as market demands change. The TPP just made this whole process more fluid and seamless,” he said.
FTAs streamline a number of processes--including duties and taxes--businesses already find complex. Globally, only eight percent of respondents to the GTM survey reported the absence of any savings in import duties by taking advantage of FTAs. Even then, companies find managing FTAs time-consuming.
Even within the U.S., not implementing the TPP will do more harm than good, said Schrieber. U.S. manufacturers may find it easier to compete domestically, but they will find it harder to export. Nearly $900 billion dollars of goods were exported to non-North American TPP signatories in the past five years.
Freightos was founded to make international shipping easier and more cost-effective for small and mid-sized businesses. Freightos operates much like Expedia.com: It allows users to quickly identify and compare shipping rates among freight service providers and then book services online. “Large companies have had a lot of experience with international shipping and know the market pretty well,” explained Buchman. “Small and mid-sized companies found international shipping – combined with customs laws and duties—as barrier to doing business overseas.” The Freightos platform was designed to make international shipping easier.
Founder and CEO Schreiber had first-hand experience in the global freight market: he owned a lighting products company –that’s has since been sold to GE--that manufactured in China. When he wanted to ship devices to the U.S. it often took weeks to get price quotes from freight forwarders and it was difficult to compare quotes. In addition to the Freightos marketplace, the company developed software that enables companies to integrate with the platform even if they’re not conducting business digitally.
Transparent trade, from sourcing to duties to freight shipping, are the cornerstone of the global economy, Schreiber concluded. With more than $1.2 trillion dollars of goods imported to the U.S. from the 10 non-North American signatories in the past five years, the ultimate price for canceling the TPP will be paid by U.S. consumers who will face higher prices, he said.
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