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Imports Stretch Consumers’ Income

Published on Monday, January 01, 2001

Contrary to public opinion, imports are not bad for the economy or workers. In fact, the opposite is true. Imports allow American consumers greater choices, a wider range of quality, and access to lower-cost goods and services. They create competition, forcing domestic producers to improve value by increasing quality and/or by reducing costs. And, since imports allow the American family to purchase more goods for less money — stretching the dollar — more disposable income is available for education, healthcare, home mortgages, vacations, etc. And imports help keep inflation down, one of the most important factors in raising our standard of living.

“Three out of four families living below the poverty line in America today own a washing machine and at least one car. Ninety-seven percent own a television; three out of four have a VCR. Thanks to all that terrible competition, many gadgets are much more affordable, particularly in terms of the number of work hours needed to acquire them,” remarked John Micklethwait and Adrian Wooldridge.

Imports Help Local Companies Become More Competitive

Imports do more than afford American families a higher standard of living — a primary economic goal. Through the availability of lower-cost imported inputs, such as components and materials, U.S. producers are much more competitive, resulting in enormous benefits.

According to Trade, Jobs and Manufacturing, published by the Cato Institute’s Center for Trade Policy Studies, “In 1998, more than half the $919 billion in goods Americans imported were not final consumer goods but rather capital goods ($270 billion) or industrial supplies and materials ($203 billion). Such imports as petroleum, raw materials, steel, and semiconductors are used directly by American producers to lower the cost of their final products. The lower costs in turn lead to increased sales at home and abroad and, in many cases, higher employment within the industry.”

Additionally, according to the World Trade Organization (WTO), “Imports expand the range of final products and services that are made by domestic producers by increasing the range of technologies they can use. When mobile telephone equipment became available, services sprang up even in the countries that did not make the equipment.”

Protectionism Doesn’t Protect Jobs

Although protectionism may be beneficial in some instances to help fledgling industries for limited periods of time, numerous studies have indicated that this approach does have severe negative consequences.

Commenting on a report by the General Agreement on Tariffs and Trade (GATT), now the World Trade Organization, on the true costs to consumers of protectionism, Peter Sutherland, former Director General of GATT, said, “It is high time that governments made clear to consumers just how much they pay — in the shops and as taxpayers — for decisions to protect domestic industries from import competition. Virtually all protection means higher prices. And someone has to pay; either the consumer or, in the case of intermediate goods, another producer. The result is a drop in real income and an inability to buy other products and services.”

Mr. Sutherland continued, “Maybe consumers would feel better about paying higher prices if they could be assured it was an effective way of maintaining employment. Unfortunately, the reality is that the cost of saving a job, in terms of higher prices and taxes, is frequently far higher than the wage paid to the workers concerned. In the end, in any case, the job often disappears as the protected companies either introduce new labor-saving technology or become less competitive. A far better approach would be to use the money to pay adjustment costs, like retraining programs and the provision of infrastructure.”

A Look at the Dichotomy of New York’s Economy

Published on Monday, January 01, 2001

Compared to other states, New York ranks fourth from the bottom in terms of economic growth. Measured in gross state product (GSP), the average economic growth rose only 2.7% annually from 1992 through 1998, well below the nation’s average annual growth rate of 3.9%, according to the U.S. Department of Commerce.

In the manufacturing sector, New York’s growth registered 0.7%, significantly lower than the national rate of 4.9%. However, in New York’s finance, insurance and real estate industry, average annual gains during the period of 1992 through 1998 were 4.6%, higher than the national rate of 3.6%.

Although the state as a whole has performed poorly in terms of economic growth, the downstate region has performed well. In fact, in September 2000, the New York-New Jersey Port Authority said their region was “one of the world’s most vibrant economies,” and predicted that economic growth would continue.

Port Authority Executive Director Robert E. Boyle said, “The New York-New Jersey region closed out the 20th century with an economic boom. Not only did regional employment reach an historic high, but for the first time in nearly 20 years the region outpaced the gains of the national economy.” And the agency forecasts that over the next few years, economic growth in the region will match national growth for the first time in recent memory.

From December 1998 through December 1999, the number of New York State jobs increased by 1.8%, according to the Public Policy Institute. Broken down: New York City’s job count grew by 1.9%, while Long Island and northern New York City suburbs grew by 1.9% and 2.2%, respectively. However, Upstate jobs grew by only 1.6%, with the Buffalo-Niagara, Rochester, and Syracuse regions registering 0.2%, 0.7%, and 2.4% growth, respectively.

How can New York State, especially Upstate, generate additional economic growth that results in higher-paying jobs? A sound strategy is to seize opportunities presented by globalization through exports of goods and services. Since New York State is extremely competitive internationally, it makes sense to promote overseas sales to a greater extent. Since fully 96% of the world’s customers for goods and services live outside the United States, and many domestic industries now are saturated, New Yorkers need to find new customers in order to maintain existing jobs and create new ones.

A Look at the Buffalo-Niagara Metropolitan Area

From 1993 through 1998, the Buffalo-Niagara metropolitan area was well within the top quarter of fastest growing and largest merchandise export metro areas in the country. Not surprisingly, the prosperity of the Buffalo-Niagara area, like other regions in New York State, is closely tied to exports. And the highest employment sectors in the Buffalo-Niagara area in 1999 were also among the state’s top merchandise export industries.

As of June 2000, the electronic industry employed 11,300 workers in the Buffalo-Niagara metro area (defined by the New York State Department of Labor as Erie and Niagara counties). This represented 13% of area manufacturing workers — comprising the area’s largest manufacturing sector. This high-tech industry is also very competitive internationally, and as such, is New York’s fifth largest merchandise export industry. Industrial machinery, transportation equipment, and the food and kindred product sectors also are among the largest manufacturing employers in the Buffalo-Niagara metro area — and not surprisingly are New York State’s top merchandise export sectors. As one can see, the export growth of these Buffalo-Niagara metro area industries is vital to local employment.

Buffalo-Niagara Metro Area

(Industry Rank by Employment: Industry: New York State Merchandise Export Rank)

• 1st: Electronic: 5
• 2nd: Fabricated Metals: 10
• 3rd: Industrial Machinery: 1
• 4th: Transportation Equipment: 3
• 5th:  Food & Kindred Products: 7

Source: U.S. Dept. of Commerce

In July 2000, the Buffalo-Niagara metro area’s unemployment rate was 4.9%, higher than New York State’s overall rate of 4.4% and the nation’s rate of 4.2%, according to the New York State Department of Labor. And when it came to personal income, the region lagged well behind the state. From 1997 through 1998, personal income per capita rose by 4.1% in Erie County and 3.1% in Niagara County, but increased 5.2% state-wide, and 5.9% nationally, according to the Bureau of Economic Analysis.

In order to increase employment in large and higher technology manufacturing sectors (which will lead to higher revenues, benefiting local workers and companies, and the tax base) policies need to be implemented to encourage local electronic, industrial machinery, and transportation equipment manufacturers to further increase exports. Importantly, this will help the Buffalo-Niagara metro area catch up and enjoy the levels of growth achieved state-wide and nationally.

A Look at the Rochester Metropolitan Area

In 1998, the Rochester metropolitan area ranked in the top 12% of the largest merchandise export communities in the country, but 146th out of 253 in terms of merchandise export growth during the period of 1993 through 1998. (Note: export growth is likely to be slower for the largest exporting communities since significant additional growth requires exceptionally large increases in exports.)

Like the Buffalo-Niagara region, employment in the Rochester metro area (defined by the New York State Department of Labor as Genesee, Livingston, Monroe, Ontario, Orleans, and Wayne counties) is tied to the state’s largest export sectors. As of June 2000, the Rochester area’s scientific and measuring instruments sector was the area’s largest manufacturing employer, representing 40% of area workers. This was followed by the industrial machinery and electronic sectors. Interestingly, these sectors also produce the state’s top exports. It is clear that the export success of these sectors will have a direct impact on local employment.

Rochester Metro Area

(Industry Rank by Employment: Industry: New York State Merchandise Export Rank)

• 1st: Instruments: 4
• 2nd: Industrial Machinery: 1
• 3rd: Electronic: 5
• 4th: Rubber & Misc. Plastics: 11
• 5th: Primary & Fabricated Metals: 2

Source: U.S. Dept. of Commerce

The Rochester region’s unemployment rate was 3.5% in July 2000, lower than the state and national averages, according to the New York State Department of Labor. However, the counties comprising the region all registered lower personal income growth rates on a per capita basis than the state, 5.2%, and the nation, 5.9%, during the period 1997 – 1998. According to the Bureau of Economic Analysis, Genesee County registered a 2.4% increase in personal income growth, Livingston, 2.8%, Monroe, 3.9%, Ontario, 3%, Orleans, 1.5%, and Wayne, 2.6%. Although unemployment is a bright spot, personal income can be improved. Since export-related jobs pay higher wages than the national average, more focus needs to be placed on local companies achieving export success.

A Look at the Syracuse Metropolitan Area

In 1998, the Syracuse metropolitan area ranked in the top 31% of the largest merchandise export communities in the country. Its merchandise export growth rate, however, has been poor, ranking 219th out of 253 U.S. metro areas from 1993 through 1998.

A look at the Syracuse metro area (defined by the New York State Department of Labor to include Cayuga, Madison, Onondaga, and Oswego counties) reveals a similar correlation between the largest employment sectors and top manufacturing export industries as seen in the Buffalo-Niagara and Rochester regions. As of June 2000, the industrial machinery sector was the largest regional manufacturing employer, representing 16% of manufacturing employees. This was followed by the electronic equipment, transportation equipment, and food and kindred products sectors.

Syracuse Metro Area

(Industry Rank by Employment: Industry: New York State Merchandise Export Rank)

• 1st: Industrial Machinery: 1
• 2nd: Electronic: 5
• 3rd: Transportation Equipment: 3
• 4th: Food and Kindred Products: 7
• 5th: Primary metals: 2

Source: U.S. Dept. of Commerce

The Syracuse region’s unemployment rate was 3.5% in July 2000, lower than the state and national average, according to the New York State Department of Labor. However, the region’s counties registered per capita personal income growth lower than the state and nation during the period of 1997 – 1998. The county of Cayuga registered 3.3%, Madison, 4%, Onondaga, 4.7%, and Oswego, 2.8%, according to the Bureau of Economic Analysis. Like the Buffalo-Niagara and Rochester areas, to increase personal income for workers, more emphasis should be placed on the international success of local companies.

A Look at the New York City Region

The New York City metropolitan area ranked as the third largest metro merchandise exporter out of 253 U.S. metro areas in 1998. If unavailable local service export data were included, the New York City region likely would rank as the largest U.S. metro area exporter.

The employment composition in the New York City metro area is somewhat different than the rest of the state due to the high concentration of service industries and the international level of competitiveness it maintains. According to the New York State Labor Department, the New York metro area includes the Bronx, Kings, New York (Manhattan), Queens, and Richmond counties.

As of June 2000, the New York metro area’s third (chemicals), fourth (food and kindred products), and fifth (electronic) largest manufacturing employment sectors ranked among the state’s top seven export categories. However, the area’s largest manufacturing employment sector, printing and publishing, represented 30% of area manufacturing workers. This sector was followed by apparel products, which represented 25% of manufacturing workers.

New York City Metro Area

(Industry Rank by Employment: Industry : New York State Merchandise Export Rank)

• 1st:  Printing and Publishing: 9
• 2nd:  Apparel: 12
• 3rd:  Chemicals: 6
• 4th:  Food and Kindred Products: 7
• 5th:  Electronic: 5

Source: U.S. Dept. of Commerce

As a center for the nation’s leading book and magazine publishers, as well as the entertainment industry, New York City benefits significantly from royalties and license fees, categorized under service exports, not merchandise. For example, AOL Time Warner’s New York City headquarters employs 12,700 people, ranking sixth among the city’s top employers, according to Crain’s New York Business. The company owns the rights to tens of thousands of movies, television shows, magazines, and books. In 1999, this contributed to U.S. royalties and licensing fees, which accounted for U.S. exports of $36.5 billion and imports of $13.2 billion, according to U.S. International Services: Cross-Border Trade in 1999 and Sales Through Affiliates in 1998.

Expanded to include the New York primary metropolitan statistical area (PMSA), which comprises the metro area plus Putnam, Rockland, and Westchester counties, the export picture looks very similar to the New York City metro area. As of July 2000, the unemployment rate for the New York City metro area was 5.8%. Expanded to include the entire eight-county PMSA, the rate edged down to 5.4%, still higher than the state and national rate, according to the New York State Department of Labor.

In terms of per capita personal income growth, the Bronx registered an increase of 3.4%, Kings, 3.5%, New York, 7.5%, Queens, 5.9%, Richmond, 4.4%, Putnam, 5.8%, Rockland, 7.5%, and Westchester, 5.1%, during the 1997 -1998 period, according to the Bureau of Economic Analysis.

A Look at Long Island

Long Island, which comprises Nassau and Suffolk counties, ranked in the top 12% of the largest metro merchandise exporters, one place after Rochester, New York. In terms of merchandise export growth, Long Island came in at 113th.

In the counties of Nassau and Suffolk, as of June 2000, the electronic sector employed the most manufacturing workers, 15%, followed by printing and publishing, chemicals and allied products, and instruments and related products. Long Island has created an attractive environment for numerous small and mid-size high-tech firms that employ thousands of engineers and scientists. As a result, a shift has occurred from a mixed manufacturing economy to a primarily high-value added services economy.

Long Island

(Industry Rank by Employment: Industry: New York State Merchandise Export Rank)

1st:  Electronic: 5

2nd:  Printing and Publishing: 9

3rd:  Chemicals: 6

4th:  Instruments: 4

5th:  Fabricated Metals: 10

Source: U.S. Dept. of Commerce

As of July 2000, the unemployment rate of Long Island was 3.1%, lower than the state and national rate. And, in terms of per capita personal income growth, Nassau and Suffolk registered increases of 4.3% and 5.2%, respectively, during the 1997 -1998 period, according to the Bureau of Economic Analysis.

A Look at the New York City Service Industry

The Port Authority of New York and New Jersey reported in September 2000 that “the service sector has been the ‘star performer’ in the regional economy. Growth in service jobs has averaged 3.9% in each of the past three years. The sector is responsible for more than 600,000 regional jobs since 1992.”

It is no surprise that the New York City metro area and the expanded New York City PMSA region employ a larger percentage of workers in the service sector than Upstate areas. As of June 2000, the New York City PMSA employed 90% of its nonagricultural workforce in the service sector. This was followed by Long Island, 86%, Syracuse, 81%, Buffalo-Niagara, 80%, and Rochester, 76%.

When it comes to finance, no region in the United States plays a larger role than New York City’s financial district. The sector provides a large number of jobs to New Yorkers — from Long Island to the five boroughs to the northern suburbs. Of the top 25 employers in New York City, 12 are in the financial services sector. This not only significantly contributes to the region’s economic success, it also helped drive the U.S. service trade surplus of which $10.3 billion (exports less imports) is derived from financial service trade, and $16.6 billion (exports less imports) is generated from business, professional, and technical service sectors.

U.S. financial service exports increased 24% from 1998 through 1999, and much of this was produced in the New York City region, indicating that Wall Street exports are up.

New York City Service Industry

(Firm Rank by Employment: Firm: No. of Employees)

• 1st: Chase Manhattan: 25,743
• 2nd: Citigroup: 24,610
• 8th: Morgan, Stanley, Dean Witter & Co.: 11,700
• 9th: Merill Lynch & Co.: 11,600
• 13th: Deutsche Bank AG: 9,600
• 14th: Bank of New York: 9,434
• 19th: Goldman Sachs & Co.: 7,872
• 20th: Marsh & McLennan Cos.: 7,000
• 21st: AXA Financial: 6,431
• 22nd: J.P. Morgan Co.: 6,279
• 23rd: Bear Stearns Cos.: 6,087
• 25th: Prudential Securities: 5,836

Source: Crain’s New York Business, 3/27/00

It is no surprise that the New York City metro area has a higher percentage of its local nonagricultural workforce employed in the finance, insurance and real estate sector than other metro areas covered in this report. In June 2000, the New York City metro area employed 13.3% of its nonagricultural workers in finance, insurance and real estate. This was followed by Long Island, 6.9%; Buffalo-Niagara, 5.5%; Syracuse, 5.2%; and Rochester, 3.8%.

The nation’s “Big Five” management consulting and accounting firms also maintain a major presence in New York City. PricewaterhouseCoopers, Deloitte & Touche, Ernst and Young, KPMG, and Arthur Anderson, for example, employ a combined total of 19,000 people in New York City, according to Crain’s New York Business. This broad export sector also includes industries such as advertising and legal services. As more services are exported, the New York City region will continue to prosper.

Exports Are Essential to New York State

Published on Monday, January 01, 2001

New York has seized many of the challenges presented by globalization. However, in order to generate greater economic growth, much more needs to be done.

New York is the third largest merchandise exporting state in the United States. In 1999, New York exported $43.3 billion of goods worldwide — a significant source of economic growth. Based on the U.S. Trade Representative’s calculation of 10,917 jobs supported by $1 billion in merchandise exports (multiplier does not include service exports), this supported 473,000 jobs in New York. And if state service export data were available from the U.S. Department of Commerce and added, total exports would be considerably higher.

Export-related production is the primary source of new jobs in New York State’s manufacturing sector, according to The Public Policy Institute of New York State, Inc., the research affiliate of the Business Council of New York State, Inc. This is very important since New York’s exports support one out of every five manufacturing jobs, according to Export-Related Employment and Wages Estimates for Eight States, 1992 to 1996, a report published by the Indiana University Kelley School of Business.

Plus, on a national basis, the average hourly earnings in manufacturing were $14.38 (August 2000, Bureau of Labor Statistics). To generate more well-paying manufacturing jobs, exports need to become a priority.

New York Exports of Services Are Growing

The services sector is probably more important to the economic health of New York than to any other state in the nation. In 1998, private service-producing industries contributed $533 billion to New York’s gross state product (GSP), according to the Bureau of Economic Analysis’ Survey of Current Business. This accounted for 75% of the total GSP, a larger percentage than any other state. How much of this was exported?

According to testimony by David Catalfamo of the Empire State Development Corporation to the New York State Assembly, based on 1997 data, “A conservative estimate would attribute about 10% of national service exports to New York State.” Applied to 1999, this would translate into an additional $27.2 billion in New York State exports. Based on the U.S. Trade Representative’s calculation of 14,679 jobs sustained by $1 billion in service exports, this supported approximately 400,000 jobs in New York State.

New York State’s “non-merchandise exports of key industry clusters within the service sectors are at least as significant as are merchandise exports,” Catalfamo said. In his testimony he stated that, in 1997, New York exports of financial services were estimated to exceed $8 billion annually, distribution services accounted for $7 billion, and communications and media services accounted for more than $2 billion.

Financial, business, professional, and technical services are each an important element of the United States’ trade service surplus and extremely important to the New York economy. In 1999, U.S. financial services registered $13.9 billion in exports, compared with $3.6 billion in imports, and $24.3 billion in business, professional, and technical service exports, compared with $7.7 in imports, according to the report, U.S. International Services: Cross-Border Trade in 1999 and Sales Through Affiliates in 1998.

Service exports are anticipated to become a much larger generator of state economic growth — especially in the New York City region, the financial capital of the world. Trade agreements that open foreign service and financial markets will generate greater New York State employment and produce more revenue, laying the foundation for a stronger tax base.

U.S. Service Exports Accelerating, Creating New Opportunities for Service Producers

Published on Monday, January 01, 2001

U.S. Service export opportunities are booming. In fact, since 1980, U.S. exports of services have grown 130% faster than exports of goods. As a result, every year for almost three decades, the U.S. service sector has enjoyed a trade surplus that has consistently reduced the U.S. deficit.

The U.S. Dominates Trade in World Services

In 1999, the United States captured a world marketshare of service exports and imports of 18.8% and 13.4%, respectively. The next largest share was held by the United Kingdom, with 7.5% and 9.9%, respectively — considerably less than the United States.

According to the U.S. Commerce Department, strength in business services, which includes software development, data processing, communications, and multimedia services has been identified with the “new economy,” and has contributed to rapid growth in many U.S. states. The U.S. service-producing sector has grown so large it now accounts for 80.5% of U.S. nonfarm employment, according to the U.S. Department of Labor.

There is no doubt that the benefits currently derived from services and the huge potential offered by the service sector in terms of economic growth, personal income, employment, and exports are tremendous. And, as the sector continues to grow, companies will increasingly develop new and innovative ways to sell services abroad.

Trade Services Broken Down

Trade in services is conducted through two principal channels: cross-border trade (which entails sending individuals, information, or money across national borders) and U.S.-owned affiliate transactions (entailing U.S.-owned companies located abroad selling services abroad).

Cross-Border Trade

According to Recent Trends in U.S. Services Trade published by the U.S. International Trade Commission, a large share of cross-border trade in 1998 was the exports of intangible intellectual property (reported as royalties and license fees). This was followed by business, professional, and technical services; maritime and air freight transportation services; and passenger fares.

U.S.-Owned Affiliate Transactions

Since the sale of some services requires the service provider to be close to the customer or to sidestep foreign country trade barriers, the best way to sell the service is through a U.S.-owned affiliate abroad. For example, U.S.-owned employment agencies operating in Europe interview hundreds of European candidates each day for local jobs. Thus, this service could not be delivered without daily face-to-face meetings.

In 1997, sales by U.S.-owned insurance affiliates in foreign markets accounted for the largest share of total U.S.-owned affiliate transactions. Following were computer and data processing; wholesale; financial services; transportation; communication; architectural, engineering, and surveying services; accounting, research, and management services; and motion pictures.

U.S. Service Exports to Accelerate

The U.S. service sector is extremely advanced and internationally competitive. And, with the recent introduction and availability of new and inexpensive technology — led by telecommunications, computers, and the internet — millions of people and companies worldwide are obtaining the ability to purchase services from the United States.

As a result, it is anticipated that the export of business, professional and technical services (accounting, advertising, engineering, franchising, consulting, public relations, testing and training) will increase rapidly.