Small Businesses and Trade Agreements – A Big Deal

November 26, 2016
Shoppers in downtown Frederick, Maryland on Small Business Saturday. [State Department Photo]

As we mark Small Business Saturday we reflect on why small businesses matter. One main reason is because they provide over half of the jobs in the United States, and recently have created over two-thirds of all net new jobs. And one way that small businesses create new jobs is by exporting. In the United States, 98 percent of exporting companies are small to medium-sized enterprises (SMEs). Yet fewer than two percent of American  export, despite the fact that SMEs that do export goods grow faster, add more jobs, and pay higher wages than those that don’t.

So why don’t more small firms export? In many cases, it’s because of complex regulations and red tape. Big firms can adapt to different rules set by other countries by hiring experts to figure out how to comply with another set of regulations; a small business likely can’t afford such options, as hiring that new staff member might be more expensive than the likely new sales that would result. Or if two different countries require tests on a product, it’s a big deal for a small company to pay for both requirements. The same is true for tariffs, and for getting through the red tape of customs clearance –- it’s a cost of doing business for a large company, but potentially an insurmountable expense for a small one.

An independent bookstore in Indianapolis. [AP Photo]

That’s exactly why trade agreements and regulatory coherence (meaning perhaps that one test is accepted in multiple markets), and trade liberalization in general, offer more benefits to a small business than a large one –- because the money such agreements save small companies represents a larger portion of their bottom line.

And when markets open up, that creates new situations where the best idea –- not necessarily an idea from the biggest company -– will win. Think of some of the biggest companies in the world, and many of them started as small as they come. Apple began in a garage, while Nike began without much more than a kitchen appliance. But they also had ideas and saw where there was a market opportunity for their products.

Some of the biggest companies in the world today –- particularly internet or e-commerce firms –- didn’t exist just 25 years ago. Yet while it’s easy to send virtual products (like software, or architectural plans) to customers around the world, it’s often difficult to send goods. When governments make it easier to ship and sell products across borders, that opens doors, especially the kind that a small business can’t open on its own.

It’s also key that small companies have good sources of information about rules and requirements for exporters. That’s why in recent trade agreements the United States has pushed for a chapter specifically on small businesses, which would commit parties to meet frequently on SME issues to ensure that small businesses were able to take best advantage of the agreement.

So on Small Business Saturday, think not only about how you can support small businesses near you, but about how trade and trade agreements support small businesses across the country by helping them compete in new markets. The world is getting smaller -– which means a small business can reach farther around the world than ever.

About the Author: William E. Craft, Jr. serves as Deputy Assistant Secretary of State for Trade Policy and Programs in the Bureau of Economic and Business Affairs.

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