Impact of Recent and Pending Free Trade Agreements on Small Businesses

Testimony submitted to the House Committee on Small Business hearing "Ready to Export: Small Business Policy Recommendations for USTR"

June 26, 2013

Chairman Graves and members of the committee, thank you for inviting me to testify. My name is Gary Hufbauer and I am a senior fellow at the Peterson Institute for International Economics, a nonprofit, nonpartisan policy research institute.

In thinking about the impact of free trade agreements (FTAs) on US small business firms, it is useful to distinguish between direct exports and indirect exports of these firms. Trade agreements improve both channels.

Direct Exports by Small Business

Over 300,000 American small business firms, defined as firms with fewer than 500 employees, directly export goods and services to foreign markets. These firms number 98 percent of all US firms that export; between 2002 and 2010 they contributed about a third of total US merchandise exports, and this share seems to be rising. Since small business firms account for almost half of US employment, their direct export share is somewhat less than their employment share. However, small businesses that export usually grow faster, increase employees, and pay higher salaries than those that just sell domestically. Canada is the top destination country for small business exporters, followed by China, the United Kingdom, Mexico, and Australia. It is not a coincidence that the United States has free trade agreements with three of these countries, and that the English language is spoken in three of them—features that make doing business abroad much easier.