The Donald Trump administration aims to lower imports in order to rebalance, after decades of neglecting economic relationships around the world. Doing so should not only be done by applying the stick of import reductions, but also by having as its second major claw of strength and refinement the principal tool of export promotion.
Exports make a firm’s markets grow and change its home nation’s currency value. When US exports increase, the US dollar typically goes up in value. Shrinking exports tend to weaken the dollar. Exports also shape public opinion of globalisation and offer the opportunity for economies of scale. Higher production volume often means a lower cost of production.
Since high exports also make imports cheaper, a firm may achieve lower costs and higher profits both at home and abroad through exports. Exporting also allows firms to learn from their competition and improve their ability to survive in a changing environment.
Firms typically have a domestic advantage in their home countries, due to familiarity, connection, and local government support, whereas firms from abroad typically have a disadvantage. Any firm which survives the burden of foreignness already has demonstrated exceptional performance.
Finally, exporting may well lead to additional international corporate strategies, such as joint ventures, franchising, or licensing. All these strategies together contribute to the economic strength and security of a nation.
The US has many exporters. Thousands of smaller-sized US firms send a growing proportion of US GDP abroad. They do so because of their new ability to compete. In the past, government perhaps was able to help with the profitability of exporting. But the contemporary buyer abroad considers not only price when making a purchase decision. Consumers also expect an excellent product fit, high levels of corporate responsiveness, full integration into the global value chain, a substantial service orientation, and unrelenting corporate commitment and responsibility.
New and growing firms must offer direct lines of accountability and be more responsive throughout the ribs and fabric of the merchant umbrella. Most importantly, small firm owners are more committed and integrated once they go international. Increasingly, millennial means global awareness, interest, and understanding.
Yet, there are also substantial export problems for US firms, particularly the small- and medium-sized ones. Logistics are a big concern, particularly reverse channel activities, to cope with consumer complaints, product adjustments, and returns. Legal procedures and government red tape are also of concern, where there are substantial differences in government restraint of innovation. The servicing of exports is also complex, where the firm needs to provide parts availability, fit into a supply chain, and offer forward looking technical advice. Foreign market intelligence is another problem area, which covers information on trade restrictions and competition overseas. These obstacles, both real and perceived, often slow down export efforts.
As US firms are on the path to export, they encounter rising risk accompanied by decreasing profitability. There is a market gap typically for small firms, where you spend more but earn less, which is unattractive for managers who either do not start to export or stop doing so. Export assistance by the government can help firms bridge this gap by getting them over the hump to a stage where profits increase and risk heads down.
Export assistance must either reduce the risk to the firm or increase its profitability from export operations. For example, government negotiations to open markets abroad are likely to decrease the risk of the firm. Offering low-cost credit is likely to increase profitability.
Our new export assistance needs clarity of purpose, including what export assistance needs to achieve and in what timeframe.
Export assistance needs to achieve either a reduction of risk or an increase in profits for firms. It should be concentrated in those areas where profits and risk inconsistencies cause market gaps.
Export assistance must be closely linked to domestic industries to ensure US benefits for US negotiations. Negotiators must pivot around government strengths, such as contract renegotiation and prowess in opening doors abroad. All this requires boldness of vision: today is the time to ensure that things are done right and to check whether one can do more of the right things.
Professor Michael R. Czinkota works both at Georgetown University’s McDonough School of Business and the University of Kent at Canterbury. He served as deputy assistant secretary for trade under presidents Reagan and Bush. His key book is International Marketing, 10th ed., CENGAGE.