• January 20, 2015
  • |
  • Trade

Connecting a Global Economy

Expanding trade creates both challenges and opportunities for our modes and systems of transportation.

The following is adapted from a speech given by Rich McArdle, UPS’s Mid-Atlantic District Manager, at Volpe, The National Transportation Systems Center, in Cambridge, Massachusetts.

When we look at the design and condition of this country’s rail systems, interstate highways, national and international air routes and sea ports that are the foundation of our modern transportation system, the question is: Where do we go from here? How do we transform or at least navigate what are in many cases outdated 18th century maps and build a true 21st century economy?

The French free-trade economist Frederic Bastiat once wrote that he hoped “all the nations would soon throw down the barriers which separate them.”

That was in 1846. But efforts to lower or eliminate trade barriers between nations inevitably come in fits and starts, with every success producing economic disruption and dislocation.

First, we should acknowledge that without transportation, there can be no trade.

Pullquote share icon. Share

Trade creates both challenges and opportunities for our modes and systems of transportation.

I’d be surprised if anybody here disagrees with the general proposition that more trade is better than less trade. Or this corollary: When it’s easier to trade, more trade happens. But free-traders always have a hard row to hoe.

Of course, expanding trade creates both challenges and opportunities for our modes and systems of transportation.

We’re now 20 years into NAFTA, and economists are still arguing about whether it’s done more good than harm.

But can there really be any doubt that mankind and the world were not improved because Arabian nomads figured out how to use camels to transport spices and silk to and from the Far East? Or when the ancient Egyptians built vessels that carried goods and products up and down the Nile, the Tigris and Euphrates?

The Path to Freer Trade

The next steps on the path to freer global trade are a pair of agreements that would open trade channels between the U.S. and the European Union, as well as a number of countries in Asia and South and Central America.

One is known as the Transatlantic Trade and Investment Partnership, or TTIP; the other as the Trans-Pacific Partnership, or TPP. The economic impact of the two agreements is projected to be enormous.
The London-based Centre for Economic and Policy Research suggests that the potential annual benefits of TTIP could amount to 119 billion Euros for the EU and 95 billion Euros for the U.S. The Office of the U.S. Trade Representative puts the global income benefits of TPP at an estimated $223 billion per year by 2025.

Pullquote share icon. Share

TTIP could amount to 119 billion Euros for the EU and 95 billion Euros for the U.S.

By the way, the U.S. share of that is a projected $77 billion – driven by exports.

These agreements are now being negotiated, and we’re reasonably confident they can be agreed to, ratified and implemented within the next several years. They will help take us to a new level in the development of a truly global economy.

While the vast majority of companies operating globally today are large multinational and transnational corporations, most started small – or at least small-er. Their expansion beyond home borders has obviously been worth it.

Today there are untold numbers of new and smaller companies that could take the same leap that others did 30 and 50 years ago. But many are frustrated, not just by market and business hurdles, but by regulatory and trade barriers.

TTIP and TPP can level the global playing field and create enormous economic headroom.

Perceptions of Global Tade

Consider this. Today, less than one percent of U.S. businesses export – and of those nearly 60 percent ship to just one country. Fully two-thirds of small- and mid-sized companies do not participate in any cross-border trade whatsoever.

Most of those that do, however, generally see a very nice return. Several years ago, UPS commissioned the “Perceptions of Global Trade” study. It was conducted by the Forrester organization and found, among many other things, that just over one-third of all small- and medium-sized businesses that export goods or services saw a financial return in less than six months. Approximately two-thirds of those companies were seeing a profit on their exports within two years.

Pullquote share icon. Share

TTIP and TPP can level the global playing field and create enormous economic headroom.

Now add this finding from the Small Business Administration: companies participating in international trade are 20 percent more productive and have 20 percent better job growth than those that don’t.

There’s a huge need to modernize customs practices around the world, which will greatly simplify the process of moving goods across borders. If we can do that, there’s no doubt in my mind that we will see a level of economic growth and expansion never before experienced in human history.

Critical Infrastructure

At the end of the day, of course, businesses have got to get their goods delivered. Which brings us to infrastructure.

Most of us are all too familiar with the most recent infrastructure report card from the ASCE – the American Society of Civil Engineers. America got straight D’s for aviation, roads, transit and inland waterways, but we really shined when it came to bridges and rail. We got C+ in both those categories.

We also know we’re paying a huge price for this failure to maintain and modernize our transportation infrastructure – and that includes everything from highways and railroads to air and sea ports.

The Texas Transportation Institute found that Americans wasted 4.8 billion hours and 3.9 billion gallons of fuel sitting in traffic in 2009. It’s not hard to figure out why. Between 1980 and 2011, highway capacity in the U.S. increased only 4.5 percent while the number of passenger cars grew 12.7 percent and the number of trucks skyrocketed 56.4 percent.

In its infrastructure report, the ASCE projected that surface infrastructure deficiencies will cost the American economy more than $3 trillion dollars through the decade.

Those in the transportation business know better than anyone about America’s crumbling surface-transportation infrastructure, the lack of long-term planning to link intermodal connections, an antiquated air-traffic control system and the lack of commitment to adequately finance the Highway Trust Fund.

These are serious problems. They have been decades in the making and will take decades to address and billions of dollars to repair.

Some in Congress are pushing to delegate the federal transportation program to the states. Our company believes this would be a grave policy error because it would rob our transportation system of its much-needed national focus and purpose. We also support increasing the federal motor fuels tax and indexing it to inflation.

In addition, we encourage Volpe and those in Congress to consider alternative funding mechanisms, including mileage-based user fees and tolling authority for new highway capacity.

The stakes on these issues are huge. We know it will take massive amounts of time, energy and money to correct these problems.

These issues are obviously vital to business and profitability, but they’re also a key factor in determining America’s place in the world and in the global economy. goldbrown2

Rich McArdle is the President of UPS Freight. Additionally, he serves as a Director at the American Transportation Research Institute (ATRI); on the board of Truckers Against Trafficking (TAT), the Virginia Business Council and the Richmond/Petersburg United Way; and as Co-Chair of the American Trucking Associations (ATA) Infrastructure Funding Task Force.

Click the RSS icon to subscribe to future articles by this author. RSS Feed