Increasing Global Connectedness Through Trade and Investment

The Huffington Post
By Arun M. Kumar


On the heels of the President calling on Congress during the State of the Union to grant him trade promotion authority “to protect American workers, with strong new trade deals from Asia to Europe that aren’t just free, but fair,” it is worth noting a fascinating study released recently on global connectedness.

The DHL Global Connectedness Index authored by Pankaj Ghemawat and Steven A. Altman —a broad framework that examines trends in cross-border trade, capital, information and people flows—is a thought provoking compilation and analysis of data on the extent of “globalization.” The Connectedness Index examines the “depth,” “breadth,” and “directionality” of a given nation’s connectedness.

The depth dimension measures the role of cross-border commerce in a country’s economy, measured as a percentage of its GDP. Breadth is determined by how broadly a country’s international flows are distributed among different countries. Directionality looks at inward versus outward flows.

So how does the United States fare in the arena of trade?

The dynamism of the U.S. economy is evident when one looks at its breadth of global connectedness. The U.S. ranks second out of 140 countries, just behind the United Kingdom. This is driven by the virtual connection of the U.S. to every other country around the world, where it leads on the breadth of its capital flows. As a result, U.S. exports have a unique potential to reach and achieve growth in new international markets.

In terms of depth, however, when it comes to trade, which examines inward and outward trade of merchandise and services, the U.S. ranks 139 out of 140 countries.

While this may be surprising, the export share of GDP varies a lot across countries, with geographically and economically larger countries such as the U.S. tending to have a smaller export share of GDP than smaller countries.

The vast majority of economic activity in the U.S. most notably occurs within our borders.

The fact that the U.S. has strength in the breadth index places it in a good position to increase exports to many regions and thus drive up its depth score.

Together, the breadth and depth scores illustrate that there are significant opportunities for the U.S. to increase its global connectedness by expanding trade and investment and tapping growth in new and emerging markets. The Commerce Department’s International Trade Administration, a bureau in which I lead the Global Markets business unit, is dedicated to trying to identify and expand the universe of trade and investment opportunities.

Generally speaking, our central mission is to increase U.S. exports and foreign direct investment into the U.S. We accomplish this through promotional activities such as trade missions, a host of export services aimed at small and medium enterprises, an Advocacy Center that helps U.S. companies compete abroad, and SelectUSA, the federal government’s investment promotion initiative. Those services are largely delivered by the Commercial Service, which has trade professionals in more than 75 countries around the world and over 100 U.S. cities.

The Connectedness Index indicates that emerging economies are reshaping global connectedness and becoming increasingly involved in the majority of international interactions. Indeed, we are specifically looking to create opportunities for U.S. businesses in markets in Latin America, Africa and Asia.

U.S. Commerce Secretary Penny Pritzker launched the “Look South” initiative in response to growth and new markets in Latin America, notably with our 11 free trade partner markets in that region. Since the launch of the program, the latest trade data shows that U.S. exports to Look South markets have increased by 5.9% over the same period in 2013.

In Africa, our Doing Business in Africa (DBIA) Campaign harnesses the resources of the U.S. government to connect American businesses with African partners, support existing and new American investments, expand access to financing and reduce barriers to trade. Since the launch of the campaign, we have brought hundreds of African companies and buyers to U.S. trade shows and trained trade specialists in the United States on how to counsel interested American companies to invest in Africa. Trade missions in the past year under DBIA have yielded agreements that are worth millions of dollars and will bring jobs to the United States.

Finally, as home to some of the world’s fastest growing economies, we have made a long-term commitment to increase commercial engagement in the Asia-Pacific. We have opened new offices there and have developed focused initiatives to increase U.S. companies’ participation in infrastructure opportunities in the region.

Expanding our depth and breadth of global connectedness will also pay dividends domestically. Trade is a platform for our competitive advantages: our second-to-none workforce and our second-to-none goods and services. That is why U.S. exports already support more than 11 million jobs. They pay up to 18% higher wages than the national average. That is why we have to take advantage of the enormous room for growth, particularly in emerging markets.

The Connectedness Index illustrates the upside of increasing the global connectedness of the United States by expanding trade with faster growing economies, yielding benefits to U.S. businesses and the American people.


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