Commercial Real Estate & Advisory

Trade Backlash Endangers City’s Global Lifeline

By Elizabeth Macbride | June 21, 2004

In Washington, foreign outsourcing has become a hot economic issue, with politicians and thinkers railing about the theft of American jobs and considering measures to stop it.

In New York, Bruce Sinder thinks more about the opposite phenomenon: foreign companies opening locations in New York.
“Every major retailer in the world wants to have a presence,” says Sinvin Realty Corp.’s president, who helps foreign companies find space in the city. “Office tenants want to come here, too, to establish their brands and to be near the financial markets.”
If the new anti-trade tone in Washington takes hold and protectionism rises around the globe, there might be no bigger loser than New York. More than 20% of the city’s 2.9 million private sector jobs are generated by international trade, according to an analysis of national and state export data and employment numbers for foreign companies with U.S. operations.

“Trade is our only real advantage,” says Terrence Martell, director of Baruch College’s Weissman Center for International Business. “If you take away the openness that makes the city dynamic, this is just an overpriced place to live.”

To understand the importance of trade to New York City, begin with the city’s oldest industry: shipping.

Almost all of the nation’s diamonds (91%) and a good portion of its designer clothes, antiques and high-quality flowers arrive on planes at John F. Kennedy International Airport; 5,100 freight forwarders and custom house brokers have offices in Queens because of the airport’s importance in the shipping industry.

Goods made here

While most of the goods shipped through New York’s port are made elsewhere, a significant number of them, including jewelry, electrical goods and apparel, are still manufactured in New York, enough to generate about 70,000 jobs.

Trade in services is even more important to New York than trade in goods. The city is home to the creme de la creme of the corporate world, the companies and professionals most apt to sell their services abroad.

For instance, five of the world’s 10 largest advertising agencies, five of the nation’s 20 largest law firms and three of the top five music companies have their headquarters in the city. Services sold internationally by these companies generate about 370,000 jobs here, based on conservative estimates of the nation’s export data.

International markets are vital to New York’s most important sector, Wall Street. About 25% of the earnings of the world’s 10 largest securities firms came from international markets, according to the Securities Industry Association.

During the 1990s, the free trade movement-also called globalization-made doing business in the United States easier and more attractive for foreign companies. No city benefited more from the influx of foreign companies that followed than New York, where they almost always established beachheads.

“New York is the gateway to the American market,” says Rae Rosen, a senior economist at the Federal Reserve Bank of New York.
According to the Weissman Center, foreign companies employ 210,000 New Yorkers. Some of those companies become so integrated into the city that they seem part of the landscape. Take London-based Reuters Inc., which employs 1,500 people in its tower on Times Square and operates one of the square’s iconic news tickers.

National concerns

Of course, politicians in Washington aren’t thinking about New York and its service economy when they consider erecting trade barriers. Rather, they are watching shocking declines in manufacturing jobs–2.8 million lost nationwide since 2001–and a disturbing corporate trend of shipping white-collar jobs overseas.

Fear of foreign competition, magnified by an economy that is generating only modest job growth, has produced a backlash against trade. That movement, Federal Reserve Chairman Alan Greenspan noted recently, could easily become “creeping protectionism.”

“The trends aren’t good, on Wall Street or Main Street,” says John Manzella, an Albany-based consultant and columnist, noting a spurt of protectionist bills in the U.S. capital. Democratic presidential candidate John Kerry favors some changes to trade policy, including making it more difficult for companies to outsource jobs to other countries.

The United States’ trade partners would probably retaliate against such measures by erecting higher barriers around their own economies. Future trade agreements would also become more difficult to negotiate.

New York in particular has little to gain from protectionist measures. It’s unlikely to win back the jobs it has lost; moreover, because so many manufacturing jobs are gone, there isn’t much to protect.

In the 1970s, apparel manufacturers began fleeing New York for cheaper labor and more land in the South, the industry’s first stop on what would become a trip to Asia. Locally, apparel jobs have fallen from a peak of 350,000 in 1950 to less than 30,000 today.

In the 1980s, one of New York’s other significant manufacturing industries, printing, left for Asia. An industry that once accounted for more than 100,000 jobs has been reduced to remnants.

White-collar outsourcing will cause some job losses, but the impact will be relatively low, considering the size of the New York City economy and the benefits the city gets from trade. Of course, that doesn’t lessen the pain felt by individuals who lose their jobs or by company owners who lose their businesses.

New York software companies are particularly vulnerable to the offshoring trend. A recent study by consulting firm Global Insight noted that, while many industries that outsource their tech work would gain jobs due to higher productivity, the software industry was likely to lose jobs.

Different sides

“Some smaller (companies), consulting firms that used to sell their services to Wall Street firms, are disappearing,” says Gerald Cohen, chief executive of software company Information Builders.

However, Mr. Cohen doesn’t advocate protectionism. The global economy is too important to New York, and he has faith that the city will produce something to take the place of the lost jobs.

“Globalization works in many strange ways,” he says. “You just have to accept it.”

In fact, free trade is already helping to rebuild two city sectors–retail and tourism. Free trade helps keep consumer prices low. In New York, that has a double effect. First, it enables mass retailers to flourish, which means that people of every income level have access to reasonably priced goods. That’s particularly important in a city where so many people are poor.

Second, trade allows New York’s high-end retailers to import the world’s best goods. Cities have always been the places where people do their shopping; in the 1990s, New York took that identity to the extreme, becoming an emporium for people with a taste for the best.
Between 1993 and 2003, the New York’s retail sector swelled to 268,000 jobs from 233,000. Trade, in the form of international visitors, has also been vital to the growth of the 280,000-job tourism sector. Travelers from overseas account for a full 42%, or $6 billion, of the money spent by visitors to the city.

People like Claire and Stefan Wilkins represent the new pillars of the city’s economy. The British couple, who made a three-day trip to the city in May, spent $4,000 and did “everything”: shopping at Dean & DeLuca, taking a helicopter ride over New York Harbor and drinking a glass of champagne at Grand Central Terminal. “You come here and think, `Wow,”‘ said Ms. Wilkins, browsing the racks at Bloomingdale’s.

The idea of a service economy so dependent on international trade may not sit comfortably with everyone, especially those who long for the slower pace of the manufacturing age. For those people, Kenneth Adams, president of the Brooklyn Chamber of Commerce, has a message. “Turn and face the market,” he says. “We don’t need to be waxing nostalgic about jobs that once were and cannot be.”

After all, constant competition is a way of life in New York City. “Look, I’m a professor, which is one of the most secure jobs around,” Baruch’s Mr. Martell says. “But I still have got to change, to compete. That’s what the city does, too.”