A tale of two small business exporters
A sign above the entrance to the Hamakua Macadamia Nut Company reads, “Welcome to the nut house.” Inside, the Hawaiian-based small business with a staff of 55 processes 2.5 million pounds of nuts per year.
“We have to put these products somewhere,” says President Richard Schnitzler. “We sell them locally, but we really, really need to get more into Asia and other places.”
He already sells to a handful of countries. Customs can be complicated, he says, and tariffs add expenses, but he’d like to export more.
On the other hand, Melanie Boudar, who owns Sweet Paradise Chocolatier, also based in Hawaii, tried her first export last year and came to the opposite conclusion. Her company is just four people.
“It was a lot of extra work where we didn’t get paid any extra,” she says, noting that tariffs and other importation costs made the chocolates expensive for her buyer.
Going forward, Boudar says she’ll likely stick to the U.S. as she tries to grow her business.
Advocates of the Trans-Pacific Partnership, a pending trade deal between the U.S. and 11 other countries, say it could ease the burden small and mid-sized businesses face when trying to sell abroad. For the first time in a trade agreement, the TPP would contain a chapter devoted to small businesses, requiring each country to set up a dedicated website with information specific to small businesses. It would also set up a monitoring mechanism to see whether the agreement, if enacted, eased access for smaller companies.
“These kinds of trade agreements can help give [small and medium-sized businesses] entree into these other countries, fast growing markets with rising middle classes,” says U.S. Trade Representative Michael Froman, adding that 95 percent of global consumers live outside the U.S.
He says smaller companies would also benefit from the TPP’s overall tariff reduction and harmonizing regulations across countries. It should give them better information about the process and how their products will be treated by foreign countries.
“Large companies have the resources and the staff to navigate regulations in other countries,” he adds. “Small businesses don’t.”
Critics of trade agreements worry that increased competition from foreign firms will hurt domestic companies.
International trade does have winners and losers, says Eswar Prasad, a professor of trade policy at Cornell University.
He thinks the TPP may help small businesses access new markets, particularly in industries like agriculture or in the service sector, but he cautions against overstating its significance.
“I don’t think it’s going to be a dramatic game changer for small businesses,” he says.
Prasad notes that many TPP countries already have relatively low tariffs and he believes, even with the agreement, small businesses still have other hurdles when exporting, such as financing and the ability to scale up their production lines.
“A lot of that, including wage costs, relates to domestic conditions,” he says.
Plus, smaller firms often struggle to adjust their products or services for foreign markets, says Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics.
“I think the biggest hurdle is just awareness and dealing with the foreign market,” he says. “Maybe that’s not something the government can do anything about.”
Hufbauer says small businesses were neglected in past trade agreements, so he’d like to more provisions for them in the TPP, perhaps setting up systems that reduce further paperwork or eliminate all tariffs and taxes for truly small shipments with low dollar values, such as those under $2,000.
The TPP is still being negotiated and would need to be approved by U.S. Congress, as well as other member countries, before it could take affect.
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