U.S. Compared to Other Countries

International Trade—Should It Matter to REALTORS®?

Posted on Monday, January 31, 2011

International trade is increasingly important as a major driver of the U.S. economy. It affects American jobs, and the U.S. jobs outlook has a major impact on residential and commercial real estate activity. In addition, approximately three percent of all residential sales in the U.S. are to international customers. The percentage is much higher in major “gateway” destinations such as Florida, Arizona, Texas, and California. (See NAR’s latest reports on international home buying and foreign investment in U.S. real estate here). International purchasers of U.S. commercial real estate account for 5 to 10 percent of such transactions.
The total value of exports plus imports as a percentage of U.S. gross domestic product (GDP) has risen to approximately 25 percent, consisting of $1.9 trillion imports, $1.6 trillion exports for a total of $3.5 trillion in a $14 trillion economy annually. REALTORS® have a stake in the economic impact from international transactions. International trade affects jobs and therefore real estate, and as civic leaders in their communities, REALTORS® need to be informed on the major issues that affect the economy, including international trade.
The U.S. faces challenges in dealing with international economic issues:
• Domestic job losses due to the level of imported goods and services as well as job functions that have been “contracted-out” have been well documented.
• Unemployment is substantial in a number of declining industries in the U.S. which have been subject to intense international competitive pressures.
• Interest in and/or concerns about protectionism and allegedly unfair trade practices are on the increase.
• At the same time, there are positive aspects of international trade which include lower priced goods and—most importantly--growing exports in our most efficient industries, in contrast to job losses in declining industries. There are major winners and losers.
International Trade Helps the Economy but Hurts Some Workers
Imports make some products available at a lower price, thus enhancing overall economic efficiency. The negative aspect of trade is that major domestic industries may be forced into decline with accompanying job losses. For workers in these declining industries—particularly for workers with specialized, limited, obsolete, or less productive skills—the results can be devastating. Saving jobs becomes the rallying cry. Unfortunately, the jobs to be saved are typically the least productive jobs in the U.S. economy. That is why they were subject to competitive forces.
In the past 20 years we have also seen an increase in “contracting out” of job functions (e.g., help desks, computer operations, reservations being based in foreign countries via electronic outsourcing). Such outsourcing has pluses and minuses: contracting out jobs increases overall economic productivity, and provides foreign residents with money to buy U.S. goods from our most efficient export industries, albeit at the expense of putting U.S. workers on the unemployment line.
Studies have indicated that the U.S. economy’s most competitive industries which can provide growing numbers of jobs tend to be highly productive exporters—and well able to compete in international markets. Conversely, the economy’s obsolete industries generally are losing jobs and not able to compete in world markets. While U.S. foundries and steel plants decline, domestic-based high-tech equipment manufacturers, computer software companies, locomotive manufacturers, and grain and poultry farmers benefit from the increased purchasing power of foreign countries that have just put a number of other obsolete U.S. industries out of business.
Accordingly, there are major gains and losses from international trade. International trade can bring real personal tragedy to workers in uncompetitive industries, and adapting to this sort of change can be extremely difficult. Of course, this is not what anyone wants to hear – particularly in an environment of high unemployment. But it is the result of increased international competition. This is why the issue of the consequences of international trade is so emotional – and in some cases so sad. Conversely, efficient U.S. industries gain as foreigners increase their purchasing power from international trade.
Concluding Thoughts
International trade is good for the U.S. economy and produces jobs for our most efficient companies and services. At the same time that some people are gaining employment in growing industries, however, the trade effects can be devastating—both financially and personally—to less efficient American industries and workers in declining industries. Those benefiting from the impact of international trade are frequently silent; those who have not benefited are frequently vocal.
Time is not going to go backwards. American jobs and industries are destined to compete in world markets. Perhaps an increased focus on government policies that encourage the promotion of competitive efficiency coupled with those that may ameliorate the negative consequences for workers losing their jobs is warranted. Although we often hear that American competitiveness is “destroyed” by high labor costs, the U.S. is noted for having competitive advantages in capital and technology. In addition, evolving management techniques and practices, known under the general heading of Total Quality Management, are also well known for promoting both efficiency and worker satisfaction.
The major challenge for the future will be the need to focus on increased economic efficiency while also facilitating adjustments to change. Government stimulus and monetary policies may produce a few jobs. In addition, protectionism can help declining industries—at the cost of fewer jobs in our more efficient industries due to decreased foreign purchases. However, the focus for a robust economic future needs to be on the promotion of job growth and employee flexibility. These are areas that need to receive more attention in the management literature and in national economic policies. Adapting American industry, and most importantly job availability, to changing international economics will be a major challenge for the next several decades.
By Jed Smith, Managing Director, Quantitative Research

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