All About International Trade

Made Locally, Sold Globally
Minnesota and the World Marketplace

A buck, a Hong Kong Dollar, a yuan or a Renminbi. No matter what you call it or how you count it, money makes the world go around and making money around the world is more important than ever for Minnesota companies.

Long before there was such a thing as money, people still did business together. But instead of handing someone cash or coins, they paid for the things they wanted and needed by “bartering” with others.

Bartering – which is just another word for trading – means you trade one thing to get another. For example, a farmer who needs a bed for a new baby might trade a furniture maker 30 dozen eggs for a cradle. The furniture maker, in turn, might trade some of the eggs to a blacksmith in exchange for a new tool. You get the idea. Bartering can be done with services, too.

But the barter system had its failings. It only worked as long as someone wanted or needed what you had to trade. The farmer couldn’t get his cradle if the furniture maker wanted to trade for a grindstone, not eggs. In that case, the farmer either had to do without the cradle or find someone who was willing to trade the eggs for a grindstone that he could then trade for the cradle. What a headache. Money made doing business a lot easier. (By the way, paper money and the banknote were Chinese inventions.)

Today, the exchange of goods and services is generally called commerce, though the terms “trade” and “international trade” are still used in reference to the buying and selling that takes place between countries.

International trade consists of importing and exporting. When people buy goods and services produced outside their own countries, that’s importing. When they sell goods produced in their own countries to consumers in other countries, that’s exporting.

We import goods and services because we want more choices. Products made in other countries may be cheaper, of better quality or more advanced than what we can buy at home.

We export goods and services because we want to make the most money possible. To do that, we need as many customers as possible. A company that only sells goods in the United States may have 295 million potential customers. But if that same company sells also sells in China and India, it has more than 3.5 billion potential customers.

Countries want to export more than they import because it’s better for their economy. Exporting helps create wealth and jobs and prosperity at home. Importing creates those things in other countries.

Today, thousands of Minnesota companies export their products and services to countries all over the globe. In 2004, they exported nearly $19 billion worth of manufactured goods, agricultural products and services. The majority of those sales ($11.8 billion) were manufactured goods, things like computers, electronics, medical devices, machinery, transportation equipment and more.

China is Minnesota's fourth-largest market for manufactured goods, trailing only Canada, Ireland and Japan. Minnesota companies had $672 million in sales in China in 2004. From 1997 to 2004, Minnesota’s exports to China grew by 100.1 percent.

When Governor Tim Pawlenty and the business leaders traveling with him make their mission to Beijing, Shanghai and Hong Kong on Nov. 11-19, they’ll be doing their best to convince China to buy (or import) even more Minnesota goods and services.

But not everyone thinks U.S. trade with China is beneficial, because our country buys far more from China than we sell to China. In 2004, we exported about $35 billion, but imported $197 billion.

When a country imports more from a foreign market than it exports to that market, the difference is called a “trade deficit.” In 2004, our trade deficit with China was $162 billion.

Many experts observe that the growing trade deficit with China and other countries has harmed the U.S. economy by destroying millions of high-wage manufacturing jobs and forcing workers into lower-paying service-industry jobs.

As competition from other countries continues to grow in the global economy, so will the benefits and consequences of international trade. Private business owners and public policymakers will struggle with those trade-offs for decades to come.

Factoids:

95 percent of the world’s population and two-thirds of its purchasing power lie outside the United States.

Companies that export tend to be a more stable than non-exporting companies.

Companies that export typically offer more pay and better benefits than their non-exporting counterparts.

Still Curious?

The World Trade Organization
The WTO develops ground-rules for international commerce.
www.wto.org/

International Trade Administration
International Trade Administration is the first stop for information about all U.S. government export assistance
www.ita.doc.gov/

Minnesota Trade Office
The state’s official export promotion office
www.exportminnesota.com

Office of the United States Trade Representative
Official web site of America's chief trade negotiator and principal adviser to the president.
www.ustr.gov