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From the Desk of Jack Healy

International Trade Changes Organizational Needs

By Jack Healy, Director, Manufacturing Advancement Center, jackh@massmep.org

"The U.S. Trade Deficit is now running at about $500 billion annually. That's a million dollars a minute, so I better talk quickly."

So began Don Wainwright, Chairman of the newly created National Manufacturing Council in his remarks at Industry Week's recent "Best Plants Conference." Wainwright went on to explain that many people believe agriculture is our core export sector. But agriculture, as big as it is, is still a minor player. We sell about $50 billion in agricultural products abroad each year. We sell more than that in manufactured goods every month. Manufacturing accounts for 62% of our exports. Agriculture's share just barely reaches 6%.

Manufacturing is still how we pay our way in the world. Exports are the key to bringing the money we spend on foreign products back into our country. Given this, the recent increase in our export rate of manufactured goods should be good news. But economists tell us that this is not a result of systemic growth. Instead, we seem to be in a cycle where foreign income is growing faster while our dollar is depreciating; this results in a faster growth in exports.

New England Exports on the Rise

Since the trough of the last recession (Nov. 2001), New England exports, thanks to a declining dollar (and globally competitive products), have made a comeback with merchandise exports (Q4 2001 to Q4 2003) increasing to 16.6% vs a 11.5 % for the country as a whole. This increase comes primarily from Vermont, which is up to 68%. Maine increased to 25%, Massachusetts increased to 23%, and New Hampshire increased to 10%. But if you follow the money, you will see that this recovery is in select industries and is more a reflection of the competitiveness of our new industries, rather than a widespread recovery due to a cyclical economic change.

For example, Maine has seen a 57% increase during this time period in the computers and electronics sector, now Maine's leading export category. And you thought it was lobsters! This increase is the result of manufacturing companies like Portland's $1.2 billion Fairchild Semiconductor; 85% of the company's total sales come from outside North America. Fairchild generates over half its revenues from the Asia/Pacific region alone. Fairchild, along with National Semiconductor and other firms, has now made Malaysia and Singapore the second and third largest destinations for Maine's exports.

Nor is this change in export growth restricted to large companies. On Aug.4 th, Craig Benson, Governor of New Hampshire, attended the signing of a $14 million dollar contract, between New Hampshire's GT Solar and Green Energy Technology of Taiwan for a turnkey, multi-crystal, silicon wafer manufacturing line. GT Solar, a Division of GT Equipment Technologies, started 10 years ago as a partnership with its two current principals, CEO Kedar Gupta and Executive Vice President Jon Talbot. It has since grown into a global player with 80% of its current sales being exported. These new globally-oriented small manufacturing enterprises are evolving throughout New England and forming international supplier partnerships that are based on competence rather than on nationality. Such partnerships are dependent on export trade regardless of the currency valuation.

In past year, GT Equipment received assistance from the state of Maine in the form of counseling and technical expertise at a time when each state had a stronger budget for these programs. Without this support, GT would not be as successful as it is today. The fruit of that investment for Maine is that GT equipment is now a thriving company that evolved during a down economy. State budget cutbacks have limited assistance to manufacturing companies throughout New England and in turn have effected our future collateral for New England's economy.

Manufacturing Exports are Key to New England Economy

International trade, with respect to manufacturing, is even more important as we are in a global market with 43% of the New England manufacturing workforce now dependent on exports. If you use the multiplier factor related to jobs in other sectors dependent on manufacturing, you have over a million jobs in New England dependent on exports.

The International Trade Administration estimates that more than 200,000 U.S. companies, many of them small manufacturers, produce products or components with strong export potential. Given the lack of domestic sales growth, the export area represents the biggest sales opportunity available to our manufacturing community. While both the states and the Department of Commerce offer a variety of programs for technical assistance, incentives, and information, there still remains a gap with respect to financial support, which is the most needed incentive.

the financing needs of exporting firms are more intricate and extensive than the capital requirements of companies producing solely for the domestic markets. In addition to fixed asset and working capital, exporters must pay for pre-shipment and nonpayment loan-loss insurance, as well as arrange for credit or bridge loans against foreign generated receivables until payment is made. Unfortunately, most small and mid-sized manufacturers lack the reputation, export track record, and collateral needed to obtain sufficient and affordable funds from private sources. States who figure out how to solve this, either collectively or individually, will benefit from the largest economic development opportunity available today within their respective states.

Rethinking International Trade in New England

As the reordering of world trade causes a change in geographic and political trade boundaries, now may be a good time for the New England states to rethink their own approaches to international trade development. There is a primary need for New England's small manufacturing enterprises to connect and develop relationships with similar, like-minded enterprises in other countries, such as GT Solar and Green Energy Technology. Such partnerships allow for the sharing of technology and insights, which is mandatory in this world of global partnerships. The New England states are in a good position to collectively broker such opportunities for their respective high tech small manufacturer communities who are in need of help.

If we are to believe the economists who state that manufacturing is going the way of agriculture, we should anticipate that our exports will fall to a point that will constrain our ability to pay for anything in the world market. If this comes to pass, we will all have to learn how to cook someone else's hamburgers.

If you are interested in working the MassMEP to jump-start one of these programs, please contact Michael Prior, Senior Project Manager, MassMEP, (508) 831-7020, michaelp@massmep.org.

If you would like to learn more about international trade in your state, please click on the appropriate state - Massachusetts, Rhode Island, Maine, and New Hampshire.

 

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