Ask a number of plant managers for U.S.-based manufacturing operations who they regard as their particular manufacturing facility’s biggest source of competition. Some may respond that their biggest source of competition is the plant for Brand X. Most, however, will respond that the biggest threat to the continued viability of their plant’s operation is one or more plants located overseas. In many cases, these overseas plants are sister plants operating under the umbrella of a multinational corporation that decides which of its plants will be awarded varying levels of production share, and which plants will be sold or closed.
Some plant managers for U.S.-based manufacturing operations will also be more than willing to talk about the manner in which the results of larger global trade initiatives have combined with increases in healthcare costs and energy costs to nearly squeeze the life out of their day-to-day operating margins. For those who are focused on the immediate or near-term survival of their U.S.-based manufacturing operations, the long-term benefits of free trade initiatives may seem remote and distant.
A number of bi-lateral, regional and global trade initiatives have combined with advances in global transportation and telecommunication to lower the cost of introducing foreign-produced finished goods into the largest market in the world – the United States.
Development of Containerization and Intermodalism
In the transportation field, the continuing development of containerization – which commenced in full force in the 1970’s – has had a dramatic effect in enabling foreign-produced goods to be quickly and efficiently transported to local distribution centers located throughout the United States. Not only are foreign-produced goods easily and relatively cheaply shipped on specially designed oceangoing containerships, they are offloaded onto rail cars specially designed for “stacktrain” shipment which enables two containers to ride on one railcar, one stacked on top of the other, and subsequently processed through inland intermodal centers where the goods are transferred to domestic, over-the-road trucks which deliver them to the doorstep of a domestic distribution facility.
Falling Tariff Rates
During the same timeframe as the development of containerization and intermodalism, U.S. tariff rates that apply to imported goods have fallen significantly, with many new products now eligible for duty-free importation into the United States. In 1970, roughly 65 percent of total U.S. import value consisted of dutiable products, with Customs duties comprising 6.5 percent of the total value of all imports. By contrast, figures for 2005 indicate that only 30 percent of total U.S. import value consisted of dutiable products, with Customs duties comprising only 1.4 percent of the total value of all imports.[1] The impetus for the fall in the effective tariff rates that apply to products imported into the U.S. can be easily identified. Multilateral tariff reductions such as the Tokyo Round of GATT and the Uruguay Round Agreements, and regional and bi-lateral trade initiatives such as the Generalized System of Preferences (GSP), the Caribbean Basin Economic Recovery Act (CBI), the U.S.-Israel Free Trade Area Agreement, the North American Free Trade Agreement (NAFTA) and the Andean Trade Preference Act have all contributed to the lowering of tariff barriers into the U.S. market.
In what might seem to appear to be a counterintuitive development (given the significant fall in U.S. tariff rates), the use of the U.S. Foreign-Trade Zones program has grown significantly since the 1970’s. In 1970 there were eight U.S. Foreign-Trade Zone projects in the United States. Included within these Zone projects were a total of three special-purpose subzones. Today there are more than 160 active Zone projects with a total of more than 250 active special-purpose subzones. Total Zone-related manufacturing activity exceeds $400 billion annually.[2]
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