March | April 2017




Some States Look Beyond Trade Deals to Boost Exports

by Jack Cobb, CSG policy analyst, Washington, D.C., office | 202.624.5460 | jcobb@csg.org
Global conflicts, health risks, populist political movements and changing attitudes toward trade all represent unpredictable influences on global economic stability, which has significant impact on states’ economies. In 2016, the world saw a number of political and trade issues—such as the United Kingdom’s decision to exit the European Union, also known as Brexit, and Americans’ resistance to international trade agreements—emerge unexpectedly that will continue to resonate in 2017. With little certainty as to how these and other issues will play out, global economic instability will be the most important international issue facing states this year.
But the news is not all bad. At the close of 2016, many—if not most—domestic economic indicators were favorable. Projections for annual foreign direct investment are on track for continued growth; household incomes are rising; unemployment is at its lowest rate since 2007; the American automobile manufacturing industry has created 310,700 jobs since it bottomed out in 2009; and the overall manufacturing sector has gained 822,000 jobs since 2010. The U.S. and individual states have seen great success in international engagement and trade.
“2016 was a great year for states and international trade,” said Manny Mencia, senior vice president at Enterprise Florida, a public-private partnership that serves as the state’s economic development organization, and president of State International Development Organizations, or SIDO, a CSG Affiliate. “While the failure of the Trans-Pacific Partnership was a disappointment, proposed national and local investments in ports, infrastructure and training suggest that the country and states are creating the environment necessary for continued long-term growth.”
In its General Assessment of the Macroeconomic Situation, the Organization for Economic Cooperation and Development, or OECD, warned that “worsening protectionism and the threat of trade retaliation could offset much of the (president’s proposed) fiscal initiatives’ impact on domestic and global growth.” Overall, however, the OECD estimates that President Donald Trump’s proposed stimulus plans could boost the United States’ GDP by approximately .4 percent in 2017 and .8 percent in 2018 through infrastructure investment and tax and regulatory reform, which is a promising sign for state revenues, as well. This stimulus also could lift global GDP by .1 percent and .3 percent during 2017 and 2018, respectively, according to the OECD.
Protectionist policies that disrupt imports, exports and supply chains could have a significant impact on state economies. Global trade and the State Trade Expansion Program, or STEP, in particular, are important to state economies, according to David Mathe, export trade director for Delaware. STEP provides financial awards to state and territory governments to assist small businesses with export development.
“Delaware companies are very much engaged in the global economy,” said Mathe. “As the success of our STEP program demonstrates, Delaware companies understand the opportunities of global trade and are utilizing the STEP program to proactively promote their products and services and expand their international sales.”
Policies, such as the STEP program, that foster global trade will help companies grow, support private sector job creation and generate tax revenue, which can be reinvested in state infrastructure, training and business support programs that foster a competitive business environment.
At the same time, many international crises continue in 2017 that increase global insecurity, such as the ongoing conflict in Syria, potential renegotiation of the Iranian nuclear deal, and long-term food supply and broader sustainability issues for China and the fisheries of the South China Sea. 2017 also will see a number of critical economic shifts, including negotiation of Brexit and new trade agreements by the U.K., as well as the fulfillment of the new president’s promises to renegotiate NAFTA and the recent engagement of Cuba, and punish Chinese currency manipulation and other unfair trade practices, particularly in the steel industry. Additionally, it remains to be seen how the U.S. will maintain business and diplomatic interests in the Pacific region as the Chinese backed Regional Comprehensive Economic Partnership, or RCEP, trade deal fills the vacuum of the now doomed Trans-Pacific Partnership, or TPP.
Through 2017, the greatest challenge facing states at the international level will be the political, trade, health and diplomatic instability that could threaten economic growth. While it is unlikely that success, at least from an American perspective, can be achieved on every issue, it is critical that losses or instability be contained to prevent greater losses that could lead business cut backs and lost jobs and tax revenues, among other impacts.
 

Trade

2017 will be a critical year for shaping the future of global trade. The U.K. will negotiate its departure from the EU, Trump has promised to renegotiate NAFTA as well as take actions in response to Chinese currency manipulation, and China is set to push the Regional Comprehensive Economic Partnership agreement across Asia in the vacuum left by the TPP. These issues will shape state efforts to grow their economies through trade and the development of the new state-federal coordination plans on trade promotion.

National Security

One of the critical areas where international and state policies intersect is national security. This ranges from providing state services and support to citizens deployed abroad in the armed services and their families at home to protecting against cyberattacks that not only impact critical infrastructure but also state records and personally identifiable information. Another area that could significantly impact states is a potential round of military base realignment and closure, or BRAC. While this has not happened since 2005, the new presidential administration’s proposed spending plans and tax cuts could necessitate a new round of BRAC.

Global Conflicts

While global conflicts may seem distant to state policy, they often have significant impacts on states. As conflicts around the world continue, or come to a conclusion, states will also see changes in the arrival of refugees, the establishment of friendly democracies with which to engage, or the emergence of failed states that can become breeding grounds for security threats. In addition to the commonly discussed conflicts in the Middle East and Eurasia, states bear significant social and security impacts from the drug wars raging in Central and South America.

Global Health

As state health officials have seen over the past decades, new global health challenges are emerging constantly. While 2016 marked the final containment of the West African Ebola outbreak, it also brought the new threat of the Zika virus to North and South America. In 2017, states will likely find the emergence of new, or resurgence of old, health threats, which will require effective collaboration with national and international partners to combat.