Moore: International trade important to Vermont, but trade imbalance about $740 million

By Bill Moore

How important is international trade to Vermont’s economy? According to a report from the Business Roundtable, “International trade, including exports and imports, supports 92,502 Vermont jobs — more than 1 in 5. These trade-related jobs grew 6.6 times faster than total employment from 2004 to 2013 and are at large and small companies, on farms, in factories, and at the headquarters of Vermont’s globally engaged firms.”

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Bill Moore is president and CEO of the Central Vermont Chamber of Commerce.

The website Global Edge shows that Vermont exports had a value of $2,989,622,247 in 2016. The Business Roundtable says that, “Of Vermont’s 1,251 exporters, 84 percent are small- and medium-sized companies with less than 500 workers. Foreign-owned companies invest and build facilities and employ 11,900 workers in Vermont.”

Does that get your attention? It ought to, those are no small numbers. They only begin to scratch the surface, however.

What are Vermont’s biggest exports? Global Edge lists Vermont’s top 10 exports as electrical machinery ($1,800,143,814); industrial machinery ($198,231,324); precision instruments ($159,201,778); cocoa ($70,428,422); toys and sport equipment ($69,766,769); paper ($67,984,468); wood ($66,863,348); aircraft ($58,275,962); cereal, flour and starch ($43,796,079) and head gear ($42,897,074).

Add $575 million in services that are exported (travel, industrial processes royalties and business management and consulting services) and it is easy to understand why Vermont businesses are bullish on exports.

Who are Vermont’s exporters conducting commerce with? Global Edge lists Vermont’s top ten markets as Canada ($1,186,420,145), Hong Kong ($352,377,637), Malaysia ($192,573,760), China ($176,246,439); South Korea ($153,277,904); Mexico ($127,894,391); Netherlands ($114,455,825), Taiwan ($95,769,517), United Kingdom ($72,745,486) and Germany ($71,480,911).

As strong as our export sector is, Vermont has a trade imbalance of approximately $740 million. We are big importers of electrical machinery ($817,284,129) oil and mineral fuels ($811,068,667); cocoa ($308,853,030); industrial machinery ($299,114,768); apparel, non- knit ($234,541,456); food and agriculture ($177,978,710); wood ($103,876,060); plastics ($66,606,660); motor vehicles and parts ($66,265,768); and animal feeds ($60,214,065).

Who is exporting to Vermont? Our top 10 import countries are Canada ($2,584,573,086), China ($248,197,223), France ($118,648,362), Japan ($85,400,089), Vietnam ($62,046,141), India ($59,266,682), Germany ($54,560,894), Indonesia ($45,349,379), United Kingdom ($42,845,598) and Mexico ($42,746,231).

Standing out in all of this data is Canada. Canada is Vermont’s largest foreign trade partner. And there are opportunities for more trade between us.

On Friday, April 13, the Central Vermont Chamber of Commerce will be hosting Canadian Consul General David Alward (Boston Consulate) at our monthly Chamber “$marts and ¢ents” breakfast program. Mr. Alward will be addressing the importance of, and opportunities for, trade with Canada. The meeting will be from 7:30 a.m. until 9:00 a.m. and will be held in our conference rooms at 33 Stewart Road in Berlin.

Bill Moore is president and CEO of the Central Vermont Chamber of Commerce.

Images courtesy of Wikimedia Commons/Walter Baxter and Vote for Vermont

One thought on “Moore: International trade important to Vermont, but trade imbalance about $740 million

  1. Bill,
    The US went from a $6.8 billion trade surplus in goods in 1964 (the last surplus) to an $810 billion deficit in goods in 2017; the deficits are mostly with industrialized nations. Each $1 billion in goods deficit means about 8000 less goods-producing jobs in the US. Foreign entities earned about 10%, or $81 billion on their export surplus in 2017.

    US budget deficits are mostly financed by foreign entities. They obtained the funds from 1) the earnings on their trade surpluses with the US and from 2) the earnings of their US assets. This and other factors changed the US from being the largest creditor nation in the world to the largest debtor nation in the world. The 50 years of growing US budget deficits and trade deficits led to the value of US assets held by foreign entities becoming about $8.3 trillion greater than the value of overseas assets held by US entities by end 2016, a very large percentage of US GDP. The US was a creditor nation from 1910 to 1988. Foreign entities earned about 5%, or $415 billion on their net assets in 2016.

    NOTE: In a Wall Street Journal op-ed in March 2017, Navarro argued that “running large and persistent trade deficits also facilitates a pattern of wealth transfers offshore” He warned that “foreigners will eventually own so much of the US that Americans will wind up working longer hours just to eat and to service the debt.”

    The A to Z Value Chain: For decades, the EU, Japan, Korea, etc., have invested to build up the skills of their technical personnel to develop, design and operate complex facilities to manufacture products and systems for their own markets and for export. That is the front end of the A to Z value chain, which is the most profitable part. It pays good profits to owners, good wages and benefits to workers and taxes to home governments. It is the real wealth builder of an economy. Those countries develop, design, build and own the ships to transport products and systems all over the world. Those countries own parts-making and assembly plants all over the world.

    The assembly of parts and sub-assemblies into end products, such as cars, is the less valuable part of the value chain. Usually it pays good profits to owners, but pays mediocre wages and benefits to workers. Clever transfer pricing avoids or minimizes paying taxes to host governments.

    Transfer Pricing: Countries with trade surpluses with the US use transfer pricing to minimize profits in the US and to maximize profits in their home countries. For example, if the sales price of a Mercedes car is $50,000, US costs for assembly, distribution, etc., are $20,000, and German charges for imported parts, etc., are $30,000, the US profit is $0, and taxes paid to the US government is $0.

    If the $30,000 consists of $20,000 of German costs and $10,000 of German gross profits, less US tariff of $750 (2.5%), then German gross profit is $9,250 and German net profit is $6,937. But, if US tariff is 10%, the same as Germany, then the gross profit is $7,000 and net profit is $5,250. See table. The tariff difference would affect Germany with respect to Japan and Korea, i.e., Japanese and German cars might obtain a competitive advantage, because raising Mercedes prices likely would not be an option. Germany, GDP $3.7 trillion in 2017, had a worldwide trade surplus of $306 billion in 2016 and $301 billion in 2017.

    Merkel: “Germany has a trade surplus, because our goods are in demand.” She implies, the US has trade deficits, because US goods are not in demand. However, the US has a freewheeling, consumerist society, hyped by advertising, unlike most other countries, which maintain protected markets as much as they can get away with to ensure trade surpluses.

    Foreign economists and countries love trade surpluses with the US.

    Only US economists rationalize, by contortionist reasoning, decades of US trade deficits are just fine.

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