Shutting Down Trade with the Government Shutdown

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With the government shutdown now in its second week, its effect is now being felt across much of the broader U.S. economy, especially in trade. The Department of Commerce (DOC) says nearly 10 million American jobs are supported by exports. Last year, U.S. exports rose 4.4 percent to $2.196 trillion and imports grew 2.7 percent to $2.736 trillion.

Unfortunately, the shutdown is destroying much of this daily commerce. Several government agencies—including DOC, the Environmental Protection Agency (EPA) and the Department of Agriculture (DOA)—are involved in trade shipments. While Customs and Border Protection (CBP) is still staffed throughout the shutdown, most of these agencies have the authority to “release and hold” imports and exports before CBP even enters the process, meaning  that many imports and exports are stranded and unable to enter/exit the United States.

For example, the EPA halted all pesticide imports to the United States, because, with more than 90 percent of its staff furloughed, it cannot approve them.  Steel imports are stranded at customs-clearance warehouses awaiting paperwork.  And many U.S. technology companies are slowing down or stopping overseas orders because they cannot obtain DOC authorization to export. The Bureau of Industry and Security website—used by these exporters to help them obtain authorization for goods that have encryption capabilities (such as semiconductors)—shut down last week. In 2012, the Bureau of Industry and Security processed export license applications valued at over $204.1 billion.

Deeming such activities as “non-essential” is an affront to U.S. small and large business owners—lumber companies cannot export their wood because there are no inspectors to clear it, farmers are unable to get their pesticides and contractors can’t get the steel they need to continue construction projects around the United States. It bottlenecks our manufacturing, and worse, it creates chaos for families whose incomes depend on such commission-type jobs.

The shutdown also hurts future growth opportunities from trade. Last Friday, United States Trade Representative (USTR) front-man Michael Froman had to call the European Union Trade Commissioner Karel De Gucht to cancel the second round of negotiations for the Transatlantic Trade and Investment Partnership (T-TIP)—an impending free trade agreement between the European Union and the United States—because of the cuts USTR has faced during the shutdown.

Besides being an embarrassing moment for the U.S. government in the eyes of their EU counterparts, this act also stalls the potential economic growth available from bringing the T-TIP to fruition. According to the Center for Economic Policy Research in London, the T-TIP has the potential to bring $157 billion to the EU economy, $125 billion to the U.S. economy and $133 billion to the rest of the world. Meanwhile, the U.S. Chamber of Commerce estimates that these numbers might reach as high as $450 billion to the United States and $495 billion to the European Union, translating to a 3 percent increase in GDP for both economies. And as ITIF writes in How to Craft an Innovation Maximizing T-TIP Agreement, concluding this agreement in an innovation-maximizing manner will allow  the United State and the European Union to jointly tackle an array of pressing challenges, including developing low-cost clean energy technologies, making more breakthroughs in drugs and medical devices, and creating ever-better technologies to boost productivity.

The shutdown slows all of this though. And as the days we sit still continue to grow, the question the American people need to ask is: If this is the resulting damage after only one week, how bad will it get after two, or three? Personally, I don’t really want to know the answer.

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About the author

Michelle Wein is a Trade Policy Analyst at ITIF, specializing in the connections between international trade, innovation, intellectual property and economic productivity.