credit union for business First, globalization is a reality for American companies of all sizes. Americans have never earned or spent a higher share of our income in the global economy than we do today. In 2006, as you can see in Figure 1,credit union for business what we earned through the export of goods and services and income from foreign investments abroad reached a record 15.6 percent of gross domestic product. What we spent for imported goods and services and payments on investments in the United States reached a record 22.2 percent of GDP. Small businesses that shun global markets are missing the growth opportunity of our time. credit union for business Second, U.S. small businesses have benefited as exporters into a growing global market, including China. Last year, U.S. exports of goods to the rest of the world topped $1 trillion for the first time ever. U.S. exports of services also reached a record $422 billion. The Internet, global telecommunications, and an increasingly complex global supply chain have opened opportunities for smaller U.S. firms to supply goods and services to global markets or to larger U.S. companies that sell to those markets. credit union for business China is no exception, despite misguided complaints about China’s currency and trade practices. Between 2000 and 2006, U.S. exports of goods to China increased from $16.2 billion to $55.2 billion—an annual growth rate of 22.7 percent. U.S. exports to China grew more than five times faster than U.S. exports to the rest of the world during that same period.1 America’s leading exports to China are soybeans, cotton, and other agricultural products; plastics, chemicals, wood pulp, and other industrial materials; civilian aircraft; and semiconductors, computer accessories, industrial machines and other machinery.2credit union for business China’s market has also created expanding opportunities for U.S. credit union for business investors and service providers. In 2003, according to the most recent figures, U.S. companies sold $48.8 billion in goods and services in China through majority owned affiliates located in China.3 In addition, U.S. companies exported $9.1 billion in private services to people in China in 2005, making China our third largest service customer in Asia.4 Given China’s spectacular, double-digit growth, those opportunities will continue to grow.credit union for business Large multinational companies have not been the only beneficiaries of expanding exports to China. According to the U.S. Department of Commerce, more than one-third of U.S. exports to China are produced by small and medium-sized enterprises (SMEs) in the United States. In 2003, the most recent year for figures, a total 16,874 U.S. SMEs exported to China, more than five times the number of SMEs that were exporting to China in 1992. China is now the fourth largest export market for American SMEs and the fastest-growing major market.5 An "undervalued" yuan does not appear to have dampened the ability of U.S. companies, large, small or in between, to sell in China’s rapidly growing market. credit union for business Third, U.S. small businesses benefit from import competition. Granted, some U.S. companies find it difficult to compete in more competitive global markets, but many have also benefited from access to more affordable raw materials, intermediate inputs, and capital machinery. In fact, more than half of what we import each year are not consumer goods but goods U.S. companies use to credit union for business make their final products. Imported petroleum, lumber, iron ore, steel, rubber, computer chips, bearings and other parts are used by small and large U.S. firms alike to produce their final products at more globally competitive prices. Imports allow smaller U.S. firms to acquire the capital equipment they need, including computers and industrial machinery, to meet their competition. Import competition thus promotes innovation, efficiencies and ultimately the productivity gains that lead to both higher profits for shareholders and higher real wages for workerscredit union for business A more open U.S. market also feeds back into more export opportunities in foreign markets. Foreign producers who can sell more freely in the U.S. market thus earn more dollars in which to spend on U.S. products and services for export. More efficient U.S. producers are better able to gain and expand market share abroad. Foreign governments are also more likely to negotiate greater access to their own domestic markets if the U.S. government offers more access to our market. As research by my Cato colleague Daniel Ikenson has shown, U.S. companies have enjoyed the fastest export growth to the very same countries that have also seen the fastest growth of their imports to the United States.6credit union for business For all those reasons, exports, imports and output tend to grow credit union together, all to the benefit of U.S. small businesses. Further research at the Cato Institute has shown a strong positive correlation between the amount of manufactured goods we import and the amount we produce domestically. Figure 2 shows the change from the previous year in real (inflation-adjusted) manufacturing imports7 and manufacturing output8 in the United States for each year since 1989. The percentage change in real manufacturing imports from the previous year is plotted on the credit union for business horizontal axis, and the percentage change in manufacturing output from the previous year is plotted on the vertical axis. As the chart shows, U.S. manufacturing output grows most rapidly in the very years in which imports of manufactured goods also increase the most rapidly. For small, medium and large U.S. companies alike, trade and prosperity are a package deal: The more we prosper, the more we trade; the more we trade, the more we prosper. credit union for business Fourth, U.S. small firms benefit from access to global capital. Foreign producers who sell in the U.S. market can also use their earnings to invest in our domestic economy. In fact, the large surplus of foreign capital flowing into the U.S. economy each year is the mirror image of the U.S. trade deficit. The net inflow of foreign capital can be invested directly in U.S. factories and other facilities, creating direct employment for more than 5 million Americans and creating customers for domestic U.S. suppliers. Foreign capital also puts upward pressure on bond prices and thus downward pressure credit union for business on long-term U.S. interest rates. According to a recent study from the National Bureau of Economic Research, foreign investment in the U.S. economy has lowered long-term interest rates by almost a full percentage point.9 Lower rates, in turn, mean lower mortgage payments for American families and lower borrowing costs for U.S. small businesses, allowing them to expand their productive capacity. Lower borrowing costs have also stoked demand for durable goods such as cars and appliances, benefiting U.S.-based manufacturers. credit union for business Fifth, U.S. industry, including small and medium sized manufacturing firms, can thrive in a globalized market. It is a myth that America is "de-industrializing" or that our manufacturing base is shrinking. Tens of thousands of U.S. manufacturing companies are producing a higher volume of goods today than ever before. As Figure 3 credit union for business illustrates, the total volume of output of U.S. manufacturers has reached record territory. Since 1994, when both the North American Free Trade Agreement and the World Trade Organization came into being, manufacturing output has grown by more than 50 percent. Thousands of small U.S. manufacturers have participated in the expansion fueled in part by our nation’s growing globalization credit union for business