It may seem difficult to envision exactly where robust economic activity and growth can be generated in the U.S. right now. However, there is a promising area of growth for the nation's economy: exports and international trade.
Though exports currently account for just over an eighth of the U.S. economy, they have grown by 15 percent over the last year through July and enjoy greater growth prospects than other segments in the current environment, according to the Export-Import Bank of the United States (Ex-Im Bank). In fact, exports drove 44 percent of growth in the overall economy last year.
The opportunities for American companies to sell to developing markets are many and the benefits of exporting are well studied. Consumers in emerging markets now account for both a larger and a faster growing portion of global consumption than U.S. consumers, and, according to the Peterson Institute for International Economics, American exporting firms, on average, employ nearly twice as many workers, produce twice as much output, pay workers more, and have higher productivity levels than non-exporting firms.
Policymakers have certainly noticed and the administration has pointed to export led growth as an answer to the country's economic ills. The National Export Initiative seeks to double U.S. exports of goods and services by 2015. Indeed, after years of deliberation, Congress has joined the administration's effort in pushing the free-trade agreements with South Korea, Colombia and Panama over the finish line. The U.S. Chamber of Commerce estimates the passage of these agreements is tied to 380,000 jobs alone.
U.S. banking institutions have historically played a key role in helping U.S. companies connect and trade with willing partners in overseas markets. With advances in trade banking services and technology, however, there is far greater opportunity to help U.S. companies of all sizes realize their export potential. For instance, while 30% of export revenue is generated from U.S. businesses with fewer than 500 workers, only 1% of America's 30 million small businesses actually export overseas, according to data from the U.S. Census.
This commercial trade inertia is a consequence of barriers to exporting, both real and perceived. Inexperience with foreign buyers and suppliers, international legal and financing complexities, and the risk of foreign business climates are some primary concerns U.S. businesses face when looking abroad. Banks are the much needed facilitators, able to provide financing, greater information flows and transparency, risk mitigation, and foreign banking relationships. Unlocking the ample potential energy within U.S. businesses that are yet to participate in global markets presents significant opportunity for U.S. banking partners.
Along with leveraging the intelligence afforded by global footprints, U.S. banks can help to mitigate risks for U.S. companies selling into new markets by utilizing dedicated trade finance programs and solutions. For instance, tighter ties between U.S. banks and the Ex-Im Bank will help open U.S. companies' doors to international markets. The Ex-Im Bank — a self-sustaining federal agency that has returned $3.4 billion for U.S. taxpayers over the last 5 years — has approved a record amount of authorizations in the current fiscal year, a 70 percent rise over 2008 levels, including over 2,500 U.S. small business transactions. With such growth in financing and recently introduced legislation to significantly raise the capital Ex-Im Bank can allocate, U.S. banks should work closely with clients to structure financing that deploys the various Ex-Im Bank programs.
Additional tools at banks' disposal to protect capital outlays and guarantee future cash flow range from short-term oriented traditional trade instruments, such as letters of credit, to more complex medium-to-long-term structured trade financing solutions that include export credit agencies and multilateral development agencies, such as the World Bank Group.
Beyond financing arrangements, U.S. banks have built innovative trade management platforms, making international dealings more efficient. Global transactions often involve numerous parties and are paper intensive. Technology, through its ability to drive down paper handling, can eliminate many of the problems associated with global transactions, multiple parties and numerous documents by streamlining financial processes, including automating document preparation and exchange. This can work to improve data integrity, transparency and the ability to more accurately forecast cash flow, while reducing processing time, days sales outstanding, costs, and the risk of non-compliance.
As sources of consumption and demand continue to shift, banks in the U.S. need to be focused on assisting U.S. companies identify trade opportunities and achieve their export goals. With traditional drivers of the U.S. economy recovering slower than expected, American corporations looking for new markets and trade relationships — particularly in emerging markets exhibiting strong growth and rising consumption — exporting is both an area of sustainable business for U.S. banks and a source of growth for the nation's economy.
Maureen Sullivan is the North American trade sales head for global trade and supply chain solutions at Bank of America Merrill Lynch.
