CEOs forfeited leadership mantle on trade and now they must reclaim it

CEOs forfeited leadership mantle on trade and now they must reclaim it
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For the better part of the last century, trade was a key area of engagement for U.S. companies expanding overseas markets. Companies were proactive in shaping the trade landscape, using their resources to lobby the administration and Congress on trade negotiations and legislation.

This engagement reached a peak during the 1990s, starting with the effort to negotiate and pass the North American Free Trade Agreement (NAFTA) in 1993, continuing with the Uruguay Round, which passed in 1994 and culminating with the campaign to grant China permanent normal trade relations (PNTR), which passed in 2000.

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Corporate interest in trade started to wane in the 2000s, with the negotiation of small bilateral trade agreements (with Morocco, Oman, Bahrain, etc.), which had little commercial impact and passed Congress easily.

 

While commercial interest in the U.S.-Korea Free Trade Agreement (KORUS) was greater, the Korean government underwrote most of the lobbying needed for its passage.

Interest in trade reached a low in 2016, when, despite the historic nature of the agreement, companies failed to engage sufficiently to persuade Congress to pass the Trans-Pacific Partnership (TPP). There were other reasons, notably that it was an election year, but lack of enthusiasm by corporate America was a significant factor.

According to public sources, U.S. companies spent up to $30 million dollars to achieve NAFTA’s passage in 1993 and more to pass China PNTR. NAFTA and China were top company priorities for CEOs, who made regular trips to Washington, testifying, writing letters and op-eds and mobilizing their employees.

Companies took out full-page ads in local and national papers, supporting an upcoming piece of trade legislation. In contrast, TPP took a back seat to tax reform for most U.S. companies. Almost no ads were placed in support of TPP, with the notable exception of a letter by former National Security advisors, making the case that TPP was in the national security interest.

There are several reasons for this diminished interest. Companies are dramatically more global today than they were 25 years ago. Years of trade agreements, lowering tariffs and other barriers, have allowed U.S. companies to flourish globally.

Because most tariffs are now low and most global companies are invested overseas, new trade agreements are less impactful to companies’ bottom lines.

Since conventional trade barriers have fallen, remaining barriers, such as discriminatory procurement, restrictions on investment and digital trade, industrial policies and state-owned enterprises, are more challenging to eliminate, and their impacts are harder to quantify.

It was easy for companies to understand and advocate, both to their own employees and to Congress, that eliminating a 30-percent tariff would result in specific savings and generate quantifiable increases in exports.

It is much harder to calculate the impact of stricter disciplines on state-owned enterprises, and thus harder to make a case, internally and externally.

Finally, over the past 25 years, the increasingly short-term focus of most large U.S. corporations, has meant less interest in long-term policy initiatives. CEOs have been less active in Washington, except for issues directly impacting the bottom line, like tax reform.

While today’s trade agreements may have less impact on companies’ bottom line, they are extremely important in terms of preserving U.S. global economic leadership, the loss of which, will ultimately have a far greater impact.

During the 1990s and 2000s, several other trends worked against the voice for trade. Business community advocacy touted the successes of trade, while not acknowledging the losses, diminishing the credibility of corporate advocacy.

While the business community did “just-in-time lobbying,” pushing for trade during the months before a vote, the labor community spent 25 years lobbying against trade, year-round.

The absence of CEOs has been felt even more over the past year. Companies have been muted in their objections to Trump’s policies, many not wanting to cross the administration publicly.

While U.S. companies have been sitting on the sidelines, our trading partners have been moving briskly forward. The EU signed a free-trade agreement with Japan, constituting the largest free-trade bloc in the world. Japan, Singapore and Mexico have ratified the revised version of the TPP, with three more countries planning to ratify this year.

China, of course, is also continuing its initiatives. Without a change in direction, the notion that the U.S. will easily step back into global leadership in 3-4 years is fading.

Especially now, when U.S. policies on globalization have taken a sharp turn in the wrong direction, it is important that U.S. CEOs to take up the leadership mantle. The business community needs to be vocal about a new vision for trade, which is critical to domestic economic growth.

Companies must acknowledge that trade causes localized job losses and work with the government to address them, so that public support is restored.

Now more than ever, CEOs need to look past their individual companies’ interests, and make the case that trade is the best way to restore to US relationships and alliances, and vital to insuring our economic and national security in an increasingly turbulent world. 

Orit Frenkel is the president of Frenkel Strategies, a consulting firm specializing in trade and Asia. She was previously the senior manager for international trade and investment for General Electric.