With TPP, Small and Minority Businesses Boost The Economy
November 14, 2016
By Rashan Prailow
Small businesses are the foundation of the U.S. economy, providing 55% of jobs and 66% of all net new jobs since 1970; more than 7 million of the 11 million jobs created during the Great Recession recovery have been generated by small businesses and startups . Additionally, in 2014 over 3 million jobs were supported by goods exported to TPP member countries. These statistics are an indicator of the greater impact small businesses can have if the TPP is passed in Congress.
Domestic producers will benefit from expanded small business exportation. According to the National Small Business Association, 72% of small businesses use foreign raw materials, components, and parts for their products less than 10% of the time.This will benefit the U.S. economy in two ways. First, small businesses will realize increased revenues. Small business manufacturers that export earn more than twice as much revenue compared to those that do not export. Second, domestic producers’ revenues and bottom line will be positively impacted by small business purchases. Furthermore, exportation has a direct positive impact on U.S. wage increases. Businesses that export pay on average about 15 percent more than the average wage .
The growth of U.S. minority-owned small businesses will be a key component of international trade. In 2012, the Obama Administration’s NEI/Next Initiative to expand exports partnered with the minority business development agency. As a result, the minority business development agency has substantially increased access to contracts and capital for minority-owned small businesses. These businesses are twice as likely to export their products and services and they are three times more likely to generate 100% of their revenue from exporting .
U.S. businesses export less than other developed countries, as only 1% of businesses engage in the exportation of goods and services. Small businesses are vital to exportation, making up approximately 98 percent of U.S. exporters. However, small businesses represent less than 33% of the known export value of U.S. exports. The current trade barriers in place make it difficult for small businesses to realize substantial profits from exports. As of June 2016, the U.S. had a trade in goods deficit with four of the Asia-Pacific member countries.
The U.S. had imported more goods than exported from Japan, Malaysia, New Zealand, and Vietnam. The major exports for the countries are as follow:
- Japan – medical equipment, aircraft, machines
- Malaysia – machinery, aircraft, medical equipment
- New Zealand – aircraft, machinery, vehicles
- Vietnam – machinery, soybeans, cotton
Aircraft and machinery are the goods most exported to Asia-Pacific member countries. Prior to May 2012, the Export-Import Bank (EXIM) did not grant financing to small businesses for exporting goods and services in aftermarket use on foreign-manufactured large aircrafts. In addition, EXIM did not grant financing to small businesses for exporting goods and services directly to large aircraft manufacturers. The recent law change combined with the TPP will grant small businesses greater access to the exportation of aircraft.
The TPP will slash nearly 18,000 tariffs on made in America products and eliminate non-tariff measures.Small businesses are more likely than large firms to identify high tariffs as an obstacle to trade. High tariffs on U.S. exports and imports increase the cost of small businesses’ products limiting their market access options.Non-tariff measures cover a wide range of obstacles to trade. Non-tariff measures include import licensing requirements, rules for customs valuations, discriminatory standards, pre-shipment inspections, rules of origin to qualify for lower tariffs, investment measures, and local sourcing for government procurement .
Small business owners claimed that the second key obstacle to exporting was due to lack of information, according to a 2013 survey conducted by the National Small Business Association. Article 24.1 of the TPP contains language aimed at eliminating non-tariff measures by creating transparency between small businesses and foreign governments through information sharing .
Proponents of the TPP do not ignore the fact that rising income inequality and job loss are a result of globalization. The North American Free Trade Agreement (NAFTA), a free trade agreement passed by Bill Clinton in 1994, has been credited with causing this misfortune. Since 1990, large corporations have downsized, cutting about 4 million jobs. However, during the same time span, small businesses have added about 8 million jobs, creating a net job gain of 4 million jobs . The TPP aims to correct mistakes made in NAFTA negotiations while creating a more dynamic trade deal for the 21st century.
Critics of the TPP are concerned with intellectual property rights, environmental protections, Investor-State Dispute Settlement, affordable medicines, and labor protections as problems the deal will exacerbate. The critique of labor protections for U.S. workers is most salient among the public, because working families have not realized paybacks from the economic recovery. For example, critics worry domestic jobs will move to TPP member countries such as Vietnam, where minimum wage is 56 cents per hour.
U.S. participation in the TPP significantly upgraded the labor agenda compared to past free trade agreements . Article 19.2 of the TPP addresses U.S. labor protections by requiring each party to affirm their obligation as members of the International Labour Organization [TPP]. The affirmation ensures:
- The formation of labor unions
- Recognition against labor standards used for protectionist trade purposes
- Elimination of all forms of forced labor
- The effective abolition of child labor
These affirmations are important for leveling the playing field for U.S. workers against disadvantageous labor practices from member countries such as Vietnam. In addition, a standing committee composed of senior U.S. and Vietnamese officials will monitor and ensure rapid response to compliance concerns .
The telecommunication revolution of the last few decades have given small businesses greater access to overseas consumers. However, many barriers to trade exist that suppress small businesses’ access to reach 95% of the world’s consumers outside of U.S. borders.
Politicians from both sides of the aisle have opposed the TPP. Not ratifying the TPP will be a lost opportunity for the U.S. to boost its economy through small business exportation.
 Small Business Administration, [Online]. Available: https://www.sba.gov/managing-business/running-business/energy-efficiency/sustainable-business-practices/small-business-trends. [Accessed: June 22, 2016]
 “Exporting Is Good For Your Bottom Line,” International Trade Administration, June, 2016. [Online]. Available: http://www.trade.gov/cs/factsheet.asp. [Accessed: June 29, 2016]
 “AMERICA: Built to Last,” U.S. Department of Commerce, July 2016. [Online]. Available: Minority Business Development Agency, http://www.mbda.gov/sites/default/files/APR2011.pdf. [Accessed: July 2, 2016]
 “TOPICAL ISSUE: Potential Macroeconomic Implications of the Trans-Pacific Partnership,” World Bank, Jan. 2016. [Online]. Available: https://www.worldbank.org/content/dam/Worldbank/GEP/GEP2016a/Global-Economic-Prospects-January-2016-Implications-Trans-Pacific-Partnership-Agreement.pdf. [Accessed: June 27, 2016]
 “The Trans-Pacific Partnership: Chapter 24 Small and Medium-Sized Enterprises,” Office of the United States Trade Representative, June 2016. [Online]. Available: https://ustr.gov/sites/default/files/TPP-Final-Text-Small-and-Medium-Sized-Enterprises.pdf. [Accessed: June 17, 2016]
 Cathleen Cinimo-Isaacs, “Labor Standards in the TPP,” Trans-Pacific Partnership: An Assessment, p. 261+, July 2016. [Online]. Available: Peterson Institute for International Economics, https://piie.com/publications/chapters_preview/7137/15iie7137.pdf. [Accessed: July 8, 2016].
 “The Trans-Pacific Partnership: Chapter 19 Labour,” Office of the United States Trade Representative, June 2016. [Online]. Available: https://ustr.gov/sites/default/files/TPP-Final-Text-Labour.pdf. [Accessed: June 17, 2016]
Additional Blog Posts
Student Blog Disclaimer
The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.