Small Business Exports Can Drive Big Growth

Exporting isn't just for big guys anymore. But small businesses need help to break down barriers into new markets.

Katie Hughes is a Charlotte, NC dance instructor and creator of an innovative elastic band that turns virtually any shoe into an aerobic dance shoe.

Hughes is also an exporter. With the growing global popularity of aerobic dance, her small company sells $15 Slip-On Dancers to cardio enthusiasts in more than 20 countries, from Australia to Europe.

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Thanks to the efficiencies of the Internet, small companies can sell around the world almost as easily as they can sell around the corner.

When we think of trade, we tend to think of America’s world-leading large companies. But the modern global economy also makes it possible for even the smallest of American companies to compete and win internationally.

Thanks to the efficiencies of the Internet, small companies can sell around the world almost as easily as they can sell around the corner. EBay reports that 97 percent of its commercial sellers export. And the hundreds of millions of new middle class consumers joining the global economy annually increasingly want innovative products made by American small businesses. American craft beer exports, for instance, surged by almost 50 percent in 2013, with small brewers like Oregon’s Rogue Ales selling award-winning brews in over 30 countries.

Policymakers increasingly recognize that small business exports can raise America’s economic pulse, supporting good jobs and reducing trade deficits. But America’s small exporters won’t reach their full potential for growth and job creation if trade barriers continue to shut them out of global markets.

That’s why it’s vital to cut smart deals with our trading partners to grow America’s small business export potential.

As successful as Katie Hughes and other small entrepreneurs might be, they still face significant barriers in growing their reach. A recent U.S. International Trade Commission (ITC) report starkly illustrates this problem, detailing how extensive trade barriers in the European Union (EU)—especially barriers related to technical rules—can be particularly devastating for America’s small and medium-sized businesses.

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Small entrepreneurs face significant barriers in growing their reach around the world.

High compliance costs for the EU’s complex rules are often a prohibitive barrier for smaller firms. Small businesses also report serious problems in the EU with trade secrets, patent costs, customs, transparency, and industry-specific requirements.

For example:

  • One firm couldn’t sell a machine in the EU because the high costs of obtaining the EU’s Conformité Européenne (or “CE”) health and safety certification were equivalent to five years’ profits on the machine;
  • Obtaining a patent in the United States costs on average $2,600. EU-wide patent protection, on the other hand, can cost $48,000;
  • Individual EU countries impose conflicting labeling requirements for the EU’s required CE certification marks and often mandate non-transparent safety rules that go beyond EU regulations. One small business even reports that auto parts certified for northern Germany may not be accepted in southern Germany!

And this isn’t just in Europe. Small American exporters face similar barriers worldwide, from prohibitively high Asian tariffs to customs red tape in both developed and developing markets.

Unlocking the export potential of America’s small- and medium-sized businesses would also unleash a powerful untapped resource for growing U.S. jobs.

According to shipping firm UPS, small firms engaged in global trade are 20 percent more productive and produce 20 percent greater job growth when compared to non-exporters. They are also more resilient. During the turbulent period from 2005 to 2009, small manufacturers that exported grew by 37 percent, while non-exporters declined by 7 percent. This strong growth is good news for the American economy, since small businesses generate almost two-thirds of America’s net new jobs and make up half of the U.S. gross domestic product.

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Small entrepreneurs generate two-thirds of America’s net new jobs and half of the nation’s economic output. But less than 4 percent currently export.

Nevertheless, less than 4 percent of small businesses export and, of those that do, 60 percent sell to only one country.  While an astounding 98 percent of American exporters are classified as small or medium-sized, these firms’ exports represent only about a third of total U.S. exports by value.

So what can we do to boost export opportunities for entrepreneurs like Katie Hughes?

For one thing, the Obama Administration is already pursuing initiatives to increase information and trade resources for small businesses, better coordinate with state and local export programs, and partner with companies like EBay, FedEx, and UPS to mentor smaller exporters. By 2017, government officials aim to help some 50,000 small businesses become new exporters.

In addition, America must continue to pursue new market-opening trade deals. Small businesses can’t go up alone against large and complex bureaucracies like the EU’s, which is why they need the full might of the United States behind them. In ITC surveys, small businesses report that past trade deals have played a decisive role in knocking down barriers and creating new opportunities. Small American manufacturers, for example, report that trade deals with Australia, Chile, and Singapore have opened up significant export opportunities in these important markets.

Finally, policymakers should pay close attention to the progress and substance of emerging trade agreements.

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Policymakers should negotiate on behalf of American small businesses so they can successfully tap overseas markets and drive growth at home.

We should ensure, for example, that our trading partners implement a recent World Trade Organization agreement to cut customs red tape.

We should support ongoing international services negotiations (which involve 50 countries representing 70 percent of global services trade) to reduce barriers to e-commerce, express delivery, finance, and other services vital for smaller exporters to do business.  And we should ensure that eventual trade deals with the Asia-Pacific (the Trans-Pacific Partnership or TPP) and Europe (the Transatlantic Trade and Investment Partnership or T-TIP) maximize market access and facilitate trade for small companies as well as big ones.

In global commerce, few countries have entrepreneurs who can match the creativity and enthusiasm of American entrepreneurs like Katie Hughes.  We owe it to America’s small businesses—and to America—to make trade work better for small exporters. And we’ll help aerobic dancers worldwide get a better workout, as well. goldbrown2

This article first appeared on Republic 3.0 and was republished with permission.

Edward Gerwin, Jr. is President of Trade Guru LLC, Senior Fellow at The Progressive Policy Institute and Senior Editor of Republic 3.0

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