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      - page 7 / 47





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The world now has changed. Like a child’s neural network, the global economy is constantly organizing and reorganizing itself with new linkages, supply networks, manufacturing chains, and marketing channels that rise in response to market forces and government policies.

This integrated world economy raises both challenges and opportunities for U.S. policymakers. How U.S. policy responds to this new reality directly affects the well-being of Americans. The existing paradigm based on geographical boundaries, country-to-country trade, vertical integration of manufacturing, and retailers acting as market takers rather than as market makers seems to be in need of updating. A new policy paradigm should account for the evolving world of business in which large U.S. manufacturers and providers of services have become part of increasingly complex international chains in which parts and components are made in multiple locations and assembled in others. In the delivery of services, some still require face-to-face contact (e.g., airline travel or food services) but other business services can be delivered through high speed Internet connections (e.g., computer programming, data analysis, customer relations, or ticket sales).

International trade now is less between countries than within a global supply network that may include headquarters, design, branding, and engineering in the United States but manufacturing in China with parts from Singapore, Japan, and the European Union and call center services in India. For example, a U.S. company may make a computer in Shanghai, but it could have been assembled from chips designed in Texas with a motherboard from Taiwan and manufactured according to specifications by the U.S. brand-name holder in California with software from Washington state and shipped through Hong Kong directly to a retailer either in the American market or abroad. The product service department might be located partly in India or the Philippines. Such supply chain relations tend to be long-term with “upstream” processes directly connected to “downstream” activities and both pitfalls and opportunities for policy at various junctures in the supply chain.

One indicator of the extent to which international trade increasingly is being conducted within companies can be seen in data on exports and imports by U.S. multinational companies (MNCs) with affiliated and non-affiliated companies. Note that many non-affiliated companies may belong to a company’s supply chain. As shown in Figure 1, in 2006, U.S. MNCs exported $203.4 billion to their foreign affiliated companies and $328.4 billion to non-affiliated companies. These exports accounted for half of all U.S. exports of goods in that year. U.S. MNCs also imported $252.2 billion from their foreign affiliated companies and $426.0 from non-affiliates. This accounted for about a third of all U.S. imports. In 2004, U.S. parent MNCs employed 21.4 million people in the United States and 10.0 million abroad in affiliated companies.

Not shown in Figure 1 are exports by multinational companies of foreign parentage located in the U.S. market. These include companies such as Toyota, Nokia, Seagram, or Bayer. These American subsidiaries comprise key components of foreign supply chains. In 2006, they employed 5 million people in the U.S. economy, exported $195.3 billion and imported $482.4 billion in goods.3 Their U.S. operations often are part of a far flung global network. For example,

3 Thomas Anderson, “U.S. Affiliates of Foreign Companies, Operations in 2006," Survey of Current Business, August 2008, pp. 186, 196. Raymond J. Mataloni, Jr., “U.S. Multinational Companies, Operations in 2006," Survey of Current Business, November 2008, p. 30.

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