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Our Export "Gap"—and Its Policy Implications

In a November 1996 report,(5) economists at the Federal Reserve Bank of New York examined—and rejected—three possible explanations for New York's export gap:

The source of the gap: high costs

However, New York's labor cost advantage did not produce an overall acceleration in manufacturing input or merchandise exports. This led the Federal Reserve economists to conclude that New York's gap can only be explained by "high non-labor costs"—specifically, the highest unit energy costs of any state, high urban housing costs, and heavy tax burdens.

"The relatively harsh business climate for New York's manufacturing sector may be the answer" to the state's failure to keep pace with U.S. export growth over the past four years, the Federal Reserve economists concluded.

Opportunities to improve our record

Since those words were written, the Legislature and Governor Pataki have made progress in addressing some of the state's major business climate concerns. But obstacles to growth remain in these areas:

Our involvement in Washington

Finally, it is time to face the fact that federal policy concerning trade matters is, for New York, a vital state issue.

As noted, NAFTA was followed by a tremendous boost in exports to two of New York's leading trade partners, Canada and Mexico. Unfortunately, a proposal to give the President "fast-track" authority to negotiate trade agreements with additional countries has been at least temporarily sidetracked in Congress.

While fast-track opponents claim to be acting in the interests of American workers, Commerce Secretary William Daley says the slowdown of fast-track will have the opposite effect.

"If the only way a company can access a foreign market is to produce there, that is a powerful incentive to move operations," Daley points out. "And once there, these protected markets can be an excellent platform to compete globally against U.S. production."(7)

State officials have understandably tended to view foreign trade issues as a federal matter outside their jurisdiction. But given the vital importance of exports to New York manufacturers, New York's political leadership should pursue trade liberalization policies just as avidly as transportation aid, increased Medicaid payments or other priorities from Washington, D.C.

5. "New York's Merchandise Export Gap," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Vol. 2, No. 12.

6. Op. cit., p. 469.

7. "Fast Track Trade Creates Jobs, Helps Keep U.S. In Lead Role," Ft. Lauderdale Sun-Sentinel, October 25, 1997, p. 11A.

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