An Interview with Secretary of Commerce Carlos Gutierrez
ICOSA: America has historically had competitive advantage in the global markets. How is America’s competitive position right now and how is overall credibility globally?
Gutierrez: It’s getting weaker by the day. Every time the G20 countries have gotten together, they mention that we’re all going to avoid protectionism and the U.S. has been right there. I believe that President Obama made a statement when he went to Canada as well. And little by little our foreign trade partners are seeing that protectionism is creeping in, especially related to the spending on the stimulus package. What this will do is promote retaliation – countries w ill be forced or will be in a position to retaliate – and we’re going to lose the most. It’s not just trade, it’s also foreign investment. We spent decades opening up markets, convincing foreign officials to open their markets to U.S. investment, to U.S. trade, to trade from all over the world. Now, as we backtrack, it is a lot of work that is being undermined because of these protectionist measures.
ICOSA: You mention the stimulus dollars and the stimulus effects on trade. Can you talk about the effects in relation to the big global industries like manufacturing and automotive?
Gutierrez: What happens here is a lack of understanding or a desire to simplify something that has become quite complex. In some cases, companies that buy raw materials from another country to make a product in the U.S. are not being allowed to sell to local or state offices or the federal government for a stimulus project because of that component that comes from overseas. The problem is that we don’t make that component in the U.S.
There is confusion in the interpretation. Some local officials are interpreting it in different ways, some states and localities are interpreting the package as 100% of the components of the product have to be made in the U.S. So, it is very self defeating because you could have a component that is made overseas within a given product but the product is made in the U.S. by U.S. workers, yet is being denied by those administering stimulus projects. It gets very confusing, and the bottom line to our trade partners is that it’s getting more difficult to do business in the U.S. In turn, they are making it more difficult to do business in their countries too.
ICOSA: So what can we do to get things back on track - both short term and long term?
Gutierrez: We need to send positive signals – beyond words.It’s fine to say we’re not protectionists, but we’ve got to back it up with actions and we need something that’s not as passive as simply saying that we’re not going to be protectionists.
One immediate thing the U.S. government can do is to pass the three pending free trade agreements. Colombia’s FTA has been ar ound the longest – probably two years – which is very ironic because Colombian goods come to the U.S. duty free, but our products pay a duty going into Colombia. In spite of that, Congress will not put it up for a vote - so our exporters are paying extra duties every day that goes by. More importantly, Colombia is a good ally and there are just so many good reasons to do this. There’s another pending free trade agreement with Panama.
Panama is about to have a massive expansion of the Panama Canal which will be very good for the hemisphere and good for trade, but we’re sitting on this agreement because there are constituents that don’t like free trade agreements, such as unions, so they are pressuring the administration to stay away. The last pending agreement is with South Korea. Signing this would be a very powerful signal to the world that we’re serious.
ICOSA: Using Colombia as the example, why isn’t Congress addressing these open FTAs?
Gutierrez: The reason Congress is using is that there is labor violence in Colombia. But, it’s a very weak argument – one that unions are using as an excuse for not submitting it to a vote. The reality is that Colombia, over the last 10 years, has made tremendous progress – not just on violence to union members but violence within society at large.
Colombia, 10 years ago, was almost a failed state. Today Colombia is a vibrant economy where the government is back in control of the country as opposed to the Marxist guerillas and drug cartels. A free trade agreement would be a lot of help for Colombia and would help us as well. We should actually use a free trade agreement to continue to promote further opening up of the market and further reform.
ICOSA: Discuss some of the challenges and opportunities going forward for trade.
Gutierrez: Although we export close to $2 trillion if you add goods and services – we are still underdeveloped in terms of exports when compared to other countries – like Germany and Singapore. Exports are very important to us but we can export more. The administration recognizes that as we look forward and say, “how are we going to grow?” it’s going to be tough to grow through more consumer spending, because we know that will most likely be curtailed over the next several years. Business spending will follow consumer spending – so the one part of our GDP where we can grow is exports. That’s the big opportunity.
In order to grow our exports, we have to be willing to be open to imports, because it’s a two-way street. It’s an opportunity that can help us grow our way out of this recession but we have to be aggressive. We have to send signals and we have to take a proactive stance – not just through passive ways of saying we’re not going to be protectionists.
ICOSA: Is there any way to do that with a Democratic congress?
Gutierrez: I think there are a lot of Democrats that would like to do trade and I believe the votes are available for the agreement with Colombia and for the agreement with Panama, but the leadership is where the problem lies. This is where the White House is going to have to exert some leadership because this is what’s good for the country, it’s good for our economy, and I’ve heard the administration say that we shouldn’t let the political interests get in the way of the country. Well here is a great opportunity to prove it.
ICOSA: There is not much national attention on global trade from the new administration and it took a very long time to place the new Secretary. Is global trade a “back burner” issue for the new administration?
Gutierrez:I don’t believe it’s in the top priorities. On the White House website, of the top 20 priorities, you won’t find trade – so it doesn’t appear to be a priority for them. They haven’t recognized it as being important, and that’s the problem. If it isn’t important for the administration then nothing will really happen. The President doesn’t have trade promotion authority so therefore we can’t really negotiate with countries for new agreements. It needs to start with the White House. It needs to start with the President and he needs to say this is important for our growth and our future.
ICOSA: In your opinion, what are some of the challenges facing Secretary Locke right now?
Gutierrez: I believe his primary challenge will be to get trade on the agenda. I’m sure that he will be meeting with government officials from different countries around the world and the subject of trade will come up. For the first time that I can ever remember, it will most likely be other countries pushing us to be more aggressive about trade and opening up, whereas for the last 50 years it’s been the U.S. that’s been pushing. But, Secretary Locke was formerly the Governor of Washington which is a state that relies heavily on exports and trade – everything from Boeing airplanes to apples - so he knows the value of trade.
ICOSA: So with businesses running the way they are in the U.S., especially it seems in the near term, how does trade get on the President’s radar? It seems that people are focused on the “day-to-day - how are we going to stay in business” mentality instead of looking at that bigger picture. Is that accurate?
Gutierrez: I think it’s a combination. It has to be pressure from the business community, pressure from members of Congress, even pressure from the foreign policy establishment that these are agreements with allies and these are important for our allies. For example, the President of Colombia has been tremendously supportive of the U.S., he’s been a close ally and close friend of the U.S. – he has said that this is the most important thing that the U.S. can do for Colombia is pass this free trade agreement. So, we’re basically letting that slip away. The President of South Korea has almost lost his Presidency as a result of this free trade agreement. He took a very big risk to have a free trade agreement with the U.S. and we’re basically turning our back on him. There are a lot of very good reasons. Another thing that I’ve heard that gives me a bit of optimism is when administration officials, Larry Summers for example, say, that he considers exports to be an important component of growth. If that is true, then that leads us to an active trade agenda.
ICOSA: What role, if any, does a collaborative effort play in global trade across the private and government sectors?
Gutierrez: Well it’s absolutely critical, because if there is one thing that we’ve learned from this recession is that there is no such thing as decoupling. There is no such thing as a country that can say this doesn’t affect me – this isn’t my problem.
I suppose the countries that aren’t affected are North Korea and Cuba because they don’t take part in world trade, so therefore they’re not affected. But every other country, whether it’s China, the European Union, Latin America, we’re all in this together. There is no question that we need to be committed to globalization because it hurts us all and when the recovery comes, it will help us all so in that respect collaboration across countries and companies is absolutely necessary.
ICOSA: So how do you build or put in place a structured collaborative network whereby the strategic information and the leaders are linked together for engagement opportunities so that they can work together?
Gutierrez: Right now we have the WTO, which is essentially where trade issues get resolved and where countries get together to talk trade. There is the G20 as well. I suppose what can be done is to make sure that the private sector has a stronger role when you have government officials getting together to talk global economic issues. But, the mechanisms are there. It’s a matter of using them and a matter of recognizing that this is all slipping away. Everyone is winking, and nodding, and smiling and saying no protectionism but we know that behind the scenes everyone is practicing some sort of protectionism.
ICOSA: In your opinion, who is America’s toughest competitor in the global environment?
Gutierrez: Companies have competitors, and it’s not so much that the country competes with another country but U.S. companies compete, in some cases, with Chinese companies, and European companies, so it really depends on the industry. Generally speaking, competition will come from countries like China, Japan, Korea, the big markets that are developing their own industries and of course the European Union – where there are not only small manufacturers and exporters, but there are big multi-national firms that compete with our firms – like Mercedes Benz, and the Swiss food companies. But I would say the biggest competition comes primarily from the European Union, China, Korea, and Japan.
ICOSA: Talk a bit about the role of human rights and social justice in global trade.
Gutierrez: Human rights, and especially the term social justice, is one that has been used by the radical left of center governments, especially in Latin America and Cuba, Ecuador, Bolivia, Nicaragua, and it’s very ironic because in many of those countries people don’t have the opportunity to get by. They don’t have the opportunity to start a business. They don’t have the opportunity to grow as far as their desire and their skills will take them. So real social justice, I believe, is giving people the opportunity to grow on their own and not to be dependent on their government for everything they have and everything they do. Trade allows people to work in different areas. It allows people to open up a business and do more business. It allows people to follow their own personal dream as opposed to being a dependant of their government. Some people call that social justice, but I believe that is an absolute misnomer because social justice is the opportunity to grow. And when you’re dependent on a government there is no growth. You’re just relying on what the government decides to give you and that is happening in many of these countries.
ICOSA: You’ve said, “The danger of going forward is not understanding history.” Are we headed down that path as a country with the current administration – are we in danger of not understanding where we are going?
Gutierrez: We often forget about the lessons of history. In 1930 Congress passed the Smoot-Hawley Tariff which was designed to keep imports out of the U.S. so that they wouldn’t take away jobs. We passed the Tariff and we cut imports by half. But, what we didn’t foresee is that exports would be cut by half too because countries retaliated, and that was the beginning of a big trade war. Many economists believe that this was what really dug us into the Great Depression - that global trade war and that global protectionism. If we are not careful, we could find ourselves making this recession worse, in fact I believe we already are making it worse, by starting protectionist measures. We just need to look back in history and realize that this just doesn’t work.
ICOSA: You’ve said, “Government does not employ most Americans, nor should it. The innovative and entrepreneurial engine of America resides primarily in the private sector.” Then, you talk about three key elements, encouraging entrepreneurship, lowering trade barriers, and learning from the experience of others – especially regional and state-level officials. Can you expand on that thought and describe if the elements are still the same and how?
Gutierrez: Those elements are even more important today because we’re actually going in the opposite direction today. There is almost a sense that government can provide the jobs and fill the vacuum that isn’t getting filled by the private sector – and it’s a big trap because our economy is only as good as the return we get on every single investment we make. And the private sector has to get a return on their investment – otherwise they go out of business. The government doesn’t . And, a lot of what the government spends is not profitable so it’s not money that makes our economy stronger over the long term – it’s kind of a one-time investment. So, we are falling into the trap of making the government a bigger component of the economy and having more jobs in the hands of government. There will most likely be a tax increase on businesses making over $250,000 a year, which includes a lot of businesses. That flies in the face of entrepreneurship – it becomes an obstacle for entrepreneurs and small business creation and growth. In fact, 50% of all new jobs in our country are created by businesses that are less than 5 years old. And, small businesses employ over 50% of all Americans. A lot of people think this is about multi-national firms, it really isn’t. It’s about small entrepreneurial companies that grow, provide jobs, and support economic vitality.
Secretary Carlos Gutierrez became the 35th Secretary of Commerce in February 2005 where he managed 38,000 worldwide employees and managed a budget of more than $6.5 billion. Prior to joining the U.S. Department of Commerce, he was the CEO of Kellogg Corporation.