New York's Stake in Trade

As the nation's third largest source of merchandise export sales, trailing only California and Texas, New York State is a major player in world trade. Manufactured goods accounted for 87 percent of the $53 billion in export sales attributed to New York State last year.

Four of the state's metropolitan areas (New York City, Rochester, Long Island and Buffalo) are among the nation's top 50 areas for merchandise exports. In fact, New York City exported more than all but six states in 1996, and both Rochester and Long Island accounted for more export sales than 20 states.

Exports mean job growth

Exports support one out of every five manufacturing jobs in New York, roughly the same as the national average, according to a recent University of Indiana study. The same study found that New York gained 14,500 export-related manufacturing jobs between 1992 and 1996, while the rest of the state's manufacturing sector was losing more than 100,000 jobs.

Further evidence of the link between exports and job growth can be gleaned from the latest employment figures, which show that New York's net gain of 400 manufacturing jobs during the year-long period ending in March was driven by an increase of 4,100 jobs in four of the state's most export-intensive industries (electrical and electronic equipment, industrial equipment and computers, fabricated metal industries, and chemicals and allied products).

New York's comparative performance

Merchandise export sales from New York have grown more than twice as fast as the state's economy since 1994. On an annual basis, however, the state's export performance has been more erratic than the national average.After increasing by more than 15 percent and outperforming the nation in 1995, New York State's export growth rate slumped in 1996 to just 3.2 percent, less than half the national rate. Last year, the state's export growth rate was 7.7 percent, compared to a national increase of about 10 percent. In percentage terms, New York's export growth ranked 34th out of 50 states last year.

Citing the slippage in New York's share of the nation's exports, economists for the Federal Reserve Bank have said the state faces a "merchandise trade gap" that can be attributed to high non-labor costs, including heavy taxes and the nation's highest energy rates, which undermine the efficiency of manufacturers.

Policy implications

Prospects for a continuing resurgence of manufacturing in New York State can be summed up in one simple equation:

Global = Growth

Given the strong correlation between exports and overall manufacturing performance, the state should be working to create a climate in which more manufacturers can become efficient and productive enough to compete effectively on a sustained basis in overseas markets. Attention should be paid to these areas:

1. Taxes. The corporate tax cuts enacted with the 1998-99 state budget marked an historic step toward a more competitive tax climate for business in New York. But high local property taxes continue to impose a heavy burden on the state's manufacturers.
   
   
2. Energy costs. Deregulation, with the opening of a freer market for electricity, provides an opportunity to begin reducing New York's excessive energy costs.
   
   
3. Civil justice reform. The "extreme and uncertain" U.S. product liability system has been documented as a major competitive disadvantage for manufacturers.⁽³⁾ New York's exceptionally litigious climate makes the problem even worse here.⁽⁴⁾

4. Federal policy. The temporary derailing in Congress of the proposal to give the President "fast-track" authority to negotiate foreign trade agreements should be recognized as a setback for current and would-be exporters among New York manufacturing firms. New York State's export-intensive industries need both free trade and fair trade, including pressure to removal foreign barriers to competition.

   State officials should drop their traditional reluctance to get involved in foreign trade issues (as opposed to foreign investment issues). For manufacturers, the stakes are too high to justify sitting on the sidelines.

In addition, the state should continue enhancing its economic development programs designed to help smaller manufacturing companies understand the availability and importance of foreign markets for their products.

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3. Michael Porter, The Competitive Advantage of Nations, The Free Press, New York, 1990, p. 649.

4. For documentation on the cost and scale of the lawsuit problem in New York, see 'An Accident and a Dream,' The Public Policy Institute, 1998.