2010 Speeches
W. James McNerney, Jr.

Jim McNerney

Chairman, President and Chief Executive Officer

The Boeing Company

"Accelerating U.S. Exports by Advancing Trade and Competitiveness Policies"

American Enterprise Institute

December 09, 2010

It's a pleasure to be here to help kick off what I hope will be a substantive and continuing dialogue about how the business community, the newly elected Congress and the Obama Administration can work together to find solutions to keep our nation strong and increasingly competitive on a global scale.

Today's forum on trade and the National Export Initiative is a prime example of the important role that AEI plays as a thought leader on important national issues. Given this country's imperative to accelerate its recovery from the recent recession and get more Americans back to work, it's difficult to find a more timely and relevant public policy matter to spotlight.

To begin, there's little question that one of the messages from last month's elections is that people all over America are deeply concerned about the economy, particularly the jobs situation and the financial uncertainties that may directly affect them. Lots of people don't care whether the solutions are Democratic or Republican ideas. They just want leaders who will come together to find solutions that work.

I believe there are many areas where common ground exists -- or at least should exist -- when it comes to economic solutions. There is no question that hard work and careful consideration of the best ideas from across the spectrum will be required. Hopefully, the tentative agreement, reached Monday, on individual and corporate tax rates will serve as the first of more examples of that.

My main theme this afternoon centers around U.S. competitiveness. What we need in this nation right now is economic growth and job creation. But sustaining that over time forces us to think about the nation's long-term global competitiveness.

As we look forward, competition will get much tougher, because we are now operating in a true global marketplace. Rising incomes and rising standards of living and education around the world have created billions of potential new customers for U.S. goods and services -- a welcome opportunity for growth, to be sure. But those same forces have also given rise to aggressive new competitors seeking to further improve their place and their position in the world.

As a result, we now compete globally, not only for customers, but also for ideas, talent, technology and capital. In essence, winning at home (in terms of creating jobs and growing our economy) now means winning abroad on all those points. And that raises the bar in many ways for U.S. companies and U.S. workers.

Ultimately, I believe that increasing competition is a good thing. I also believe that the innovation and productivity of American businesses and the American worker will continue to be the keys to our growth and prosperity. But sustaining these historic competitive advantages in a global marketplace under difficult economic circumstances compels us to take action to strengthen the system that supports them both.

Earlier this year, I noted that the Obama Administration was missing some important opportunities for real progress along these lines. However, today I would tell you that I believe the administration has noticeably advanced the discussion since then -- particularly when it comes to the importance of strengthening the U.S. export engine.

Evidence of this shift can be found in President Obama's reconstituting the President's Export Council, his personal engagement in its work and in related actions, such the commercial diplomacy and business outreach that underpinned his recent trip to Asia.

Let me add, as an aside, that it's vitally important right now for business leaders in this country -- the producers who create the jobs our economy so desperately needs -- to feel like they are part of the solution rather than vestiges of the problem. Words and deeds send important signals. More of the right ones are beginning to be sent. I know my peers and colleagues will react favorably to receiving those signals with even greater regularity in the days ahead.

Turning back to exports: As Arthur mentioned, I do have the privilege of leading the President's Export Council and the strong team of public- and private-sector members that comprise it. Our focus is on developing recommendations to expand exports and drive job growth. Our work aims to support the President's goal to double exports over five years. This is an ambitious goal, for sure. But if we can clear the way for U.S. businesses to do what they naturally do best -- which is to compete -- I think it's achievable.

U.S. exports totaled over $1.5 trillion last year, which was down from $1.7 trillion in 2008, reflecting the recessionary environment. Exports are about 12 percent of our GDP, and about 10 million U.S. jobs are tied to them. Manufacturing companies like Boeing account for about $1 trillion of our annual exports and support millions of direct (and many multiples of that in the case of indirect) jobs across the country. With the vast majority of the world's consumers living outside the United States, the magnitude of our export opportunity is limited only by our failure to pursue it.

As many of you know, this morning we held the second formal meeting of the Export Council, where we reported on the progress of our initial recommendations from this past September (which I'll come back to in just a second). We also approved a second set of recommendations that we estimate could add well over an additional hundred billion dollars more to our export output.

First among the new recommendations is addressing the inadequate protection and enforcement of intellectual-property rights of U.S. manufacturers in foreign markets. A recent economic study estimated that piracy of music, movies, business software and video games costs our economy more than 370,000 jobs, both within the copyright industries themselves and in the ripple effects upstream and downstream throughout the supply chain and distribution chain. Overseas piracy is clearly a major contributor to these job losses and must be curtailed by strong and sustained action.

Other recommendations forwarded this morning include reforming the corporate income-tax system, improving data collection and data sharing to account more accurately for the value of our nation's export of services, and actively supporting Russia's accession to the WTO to help expand trade with what is now the world's 12th-largest economy. We also had robust discussion about how we might engage more small- and medium-sized businesses in exporting. Today, only 1 percent (or close to 300,000) of those businesses export for a total in 2009 of $500 billion. Just imagine the hundreds of billions of dollars in export potential we could unlock by increasing participation of this group of businesses by only a few percentage points!

Now, returning to the Council's first meeting, in September, we presented four recommendations that we estimated could be worth as much as $250 billion in positive export impact over the next few years. So together with the $100 billion we looked at this morning, we're working hard on about $350 billion (framed by the $1.5 trillion total exports). Among them were expanding free-trade agreements (lots of progress since that first meeting), reforming the U.S. export-control system (some progress on that front this morning), promoting tourism to the U.S. (a huge, unaddressed opportunity that we make difficult with some of our immigration and visa requirements), and, finally, retraining Iraq and Afghanistan war veterans for current workforce needs. While progress is being made on each one, there is no question that a lot more work needs to be done and we need the help of groups like the AEI to continue advancing these recommendations.

At the top of the list is ensuring action on pending Free Trade Agreements, including Congressional approval now of the agreement reached just last week on Korea.

To me, trade is a good example of a policy where there is no reason business, labor and government leaders can't join together for mutual benefit. Opening up new trading markets for U.S. goods and services will make a big impact here in America.

I'm certain you already know this, but I'm not sure that a lot of people understand that FTAs normalize trade relations and allow the U.S. to get into new markets, while our FTA partners tend, typically, to already have access to the U.S. market. FTAs also level the playing field with trade competitors from Europe and other places who already have agreements in place. So inaction only hurts us. We used to lead in this area, but now we're catching up with the people we compete with.

For example, the United States had a manufactured-goods trade surplus with its FTA partners of $21 billion in 2008, $26 billion in 2009, and we're running a third year of surplus in 2010. Our deficit is with non-FTA countries. FTAs are part of the solution, not part of the problem.

Take Korea as an example. U.S. officials estimate that our nation's exports to Korea will grow by nearly $11 billion -- and thousands of U.S. jobs will be created -- because of this agreement. It will eliminate a big competitive disadvantage for U.S. workers by removing the current tariff of 11 percent that is applied to U.S. exports -- a benefit, as I mentioned, that many of our trade competitors with Korea already enjoy.

The Administration should be saluted for all the effort it is putting into achieving this agreement. It is a significant accomplishment. I hope groups like AEI will join the business community in urging Congress to ratify it quickly.

It is also important that we seize this moment -- now that we have a template that represents the coming together of labor, business and government -- to help advance our other stalled FTAs (Panama and Columbia), and negotiate new ones ( the most important of which is the Transpacific Partnership). Up-and-coming trade competitors are aggressively seeking agreements for the benefit of their workers and their economies. As a result, the United States, which was once ahead in providing a competitive advantage to its exporters and workers through trade agreements, remains at risk of falling behind, if we don't act. We simply cannot allow that to happen.

Another area we need to give top-level attention and one where progress, again is already being made -- is reform of our export-control system and the technology-release process at the Department of Defense. As we stare into the reality of a potentially flat or declining DoD budget, international defense sales will be increasingly important for sustaining jobs here at home.

A good example of that trend is a proposed multi-billion dollar security package for Saudi Arabia that many of you have read about. The Administration recently notified Congress of this package, which will not only bolster the defense needs of a key ally in the region but also sustain more than 70,000 jobs with Boeing and 600 suppliers across 44 states -- and even more jobs with other U.S. contractors involved in the package.

So it's vital, then, as we move forward, that we have an export-control system that is both effective and efficient.

The Administration's reform efforts are aimed at achieving that goal. They focus on measures that will protect the most vital technologies while streamlining the overall system. A lot of the credit here goes to Secretary Gates for his leadership on the issue. I think he sees the important role that an efficient and effective system has on enabling interoperability with key allies and supporting coalition efforts.

In this regard, the recent ratification of the UK and Australian defense trade treaties is a welcome step in that direction. We can and should have streamlined measures to deal with our closest allies. Much more remains to be done in this area (particularly in the dual-use area, which begins to get at issues in the commercial side) to accomplish the Administration's objective of a single list, a single agency, a single IT system and a single enforcement process. My point here is that as we talk about competitiveness, this is an important operational and administration part of the puzzle that will require continued attention.

Liberalized trade will mean expanded opportunities for everyone -- but only if governed by a strong set of rules that are rigorously enforced. This isn't about turning inward and becoming protectionist. It's about ensuring a level playing field for all competitors.

It won't come as a surprise to many of you that I would highlight here the current case before the World Trade Organization regarding European government subsidies to Airbus -- Boeing's current sole competitor in the large commercial aircraft market.

This past June, the WTO issued a final ruling in the case that confirmed what we have maintained for a very long time -- that without billions in illegal subsidies over the years, Airbus wouldn't have the products or market share it has today. And the U.S. aerospace industry lost billions of dollars in exports (which equates to tens of thousands of jobs) as a result.

Specifically, the WTO found that Airbus received about $20 billion in illegal subsidies -- including $15 billion in launch aid across nearly every aircraft model in its fleet. That includes the A330 family, which is the basis for its entry in the U.S. Air Force tanker competition. For those not steeped in the subject, launch aid is funding provided by European governments at terms far below what is commercially available to Boeing when we begin a new airplane program. In fact, because launch aid includes success-dependent repayment terms, when an Airbus airplane fails commercially, outstanding debt is (and, in fact, has been) forgiven by the lending governments.

Claims in a European countersuit alleging some $23 billion of subsidies to Boeing from the U.S. Defense Department and NASA appear to have been largely dismissed in a still-confidential interim ruling. If reports are correct, less than $3 billion of support to Boeing is in dispute, and the most pernicious form of subsidy -- the aforementioned launch aid -- has not even been alleged.

Launch aid offers Airbus and its parent, EADS, a significant cost advantage that we have argued should be taken into account in the Air Force tanker competition. At this time, however, the U.S. Air Force has refused to factor those subsidies into their evaluation process -- which seems like a clear contradiction to the successful efforts of yet another arm of the U.S. Government, the U.S. Trade Representative, to level the playing field for U.S. workers.

Both the Bush and Obama Administrations deserve tremendous credit for pursuing these cases tirelessly and, in the end, effectively. Other nations with sights set on the aerospace industry are watching the WTO proceedings with great interest. The final rulings in these cases will set a precedent that reaches beyond Boeing and Airbus, beyond the U.S. and beyond the E.U. Companies like ours can compete against any other company; but we shouldn't have to compete against the treasuries of entire countries.

Another important element of our trade and export policy, one that has also been controversial among some in Congress, is the Ex-Im Bank. From my perspective, Ex-Im isn't controversial at all. First, it returned about $135 million to the U.S. treasury last year alone (as it usually does). Second, Ex-Im helped U.S. companies increase sales and exports by supporting customers who might not have had the credit rating to borrow on the commercial market. Third, Ex-Im (like other export credit agencies around the world) delivered extraordinary support by not allowing the recent credit crisis to spill over into a relatively healthy industry like aerospace, for example.

In the case of the U.S., the Ex-Im Bank supported real demand for new aircraft. It helped ensure that commercial aviation could weather the storm rather than be paralyzed by external circumstances. Ex-Im also helped a number of other U.S. companies extend their global reach in important fields such as energy production and recycling. In fiscal year 2010 this help included some $5 billion for small-business export financing -- which is a record and reflective of the priorities both of the Export Council and of the Administration.

Under Chairman and President Fred Hochberg, Ex-Im has made it a priority to increase the Bank's export-financing support for small and medium-sized enterprises, which employ about 50 percent of U.S. workers but only account for about 30 percent of U.S. exports. Fred's continued outreach to small businesses, including encouraging their participation in exporting and providing them with tools to help them become successful exporters, is sure to grow that number even more in the future.

Ex-Im, in my judgment, is the kind of government solution that I alluded to earlier: it's a program that works, and it helps the U.S. economy. Ex-Im is scheduled for a reauthorization vote next year. As part of that process, we need to work with new and returning members of Congress to clearly articulate the substantial benefits Ex-Im brings to our country. And again, I believe AEI can play an important role in that.

With the incoming Congress and the tough budget choices they will face in mind, I want to highlight two final topics -- pressing concerns, actually -- that I believe are fundamental challenges to U.S. global competitiveness: first, a shrinking U.S. defense industrial base, and second, an even-faster shrinking pool of U.S. workers who are skilled in the problem-solving fields of science, technology, engineering and math.

The defense industrial base historically has been one of the United States' greatest strategic assets. Yet for the first time in a century there is no U.S. team actively working on a major new DoD airplane development program. In addition, there is no active new rotorcraft development program, nor is there a new NASA human space flight program.

Now, we know that the U.S. defense budget is likely to get smaller, rather than bigger. Secretary Gates is currently seeking about $100 billion in efficiencies -- primarily in the acquisition process. We at Boeing have been supportive of the Secretary's initiative. At the same time, though, all of us need to remember the strong connection between our nation's economic power and its military power. At the core of that connection is the need for a sustained and strong industrial base.

We believe that it is critical to seriously consider the industrial base impact as a factor in setting DoD strategy and identifying which programs may be cut in a shrinking environment. As a result of recent government budget reductions and program terminations (and those expected to come) the U.S. defense and space industry is in real danger of atrophying our ability to do development work -- at a time when global competitors are making this a priority.

I suspect some of you are shuddering right now, because you might think you are hearing me advocate for a national industrial policy. Even though many of our competitors aggressively pursue and operate under such policies, that is not what I'm suggesting. Instead, I believe the U.S. must work toward a coherent national industrial strategy if we hope to remain competitive globally.

I don't want to micromanage the process, but the thinking that got us here -- the idea that no national industrial strategy is best -- won't suffice and could leave us without critical capabilities (in both industrial capacity and technologies) that we may need to protect our national interest and economic security. We don't need bright lines here, but we do need a framework to move forward. I'm not suggesting, either, that I know what all the elements of such a strategy would or should be. But we need to start talking about it.

In fact, I'd suggest that a national industrial strategy should be an important element of AEI's "Defending Defense" initiative. AEI scholars have suggested that defense budget cuts are being proposed less to bring a sense of fiscal responsibility to federal spending but more to create "nothing short of a reversal in America's six-decade-long strategic posture." Viewing potential cuts through the lens of a national industrial strategy -- one that places a high importance on maintaining U.S. technological leadership -- would certainly help to eliminate the questioning of motivation, even though it might result in the same cuts overall. At least there would be a consistent prism through which to view every option and create the right debate.

To my second pressing concern: One of our nation's biggest challenges is in its talent pipeline. While some countries including India and China are funneling more and more of their best and brightest students into science, engineering and math programs, the number of U.S. students graduating with engineering degrees, in particular, has stagnated, and in some cases, declined.

As a result, despite everything you hear about the "jobs shortage" in the United States (and, don't get me wrong, unemployment is very real problem), Boeing and other technology-based organizations are facing an impending "skills shortage." That is to say, we can't find enough qualified engineers, scientists and other technical workers to meet our needs. The problem is growing particularly acute for defense programs requiring U.S. citizenship and security clearances.

I can make an educated guess at one of the root causes of this apparent fading of interest: the perceived lack of a good future with exciting things to work on. When many of us in this room were growing up, our generation was inspired by the mission of sending a man to the moon and beginning to explore the universe. I hope that we as a nation will find another mission -- or missions -- to inspire and employ today's young people.

The industrial base and workforce issues are clearly interlinked, in my mind, and threaten to spiral us into a vicious circle. If we allow our industrial base to fall into disrepair, opportunities for good jobs will dwindle. There won't be many Foreign Military Sales either, because we will have to close production lines. But at the same time, without a strong pipeline of future talent, companies won't have the capacity to pursue new opportunities, create the next innovation in aerospace or develop new market segments, which will cause the U.S. industrial base to deteriorate further and put our global leadership at risk.

There is no question that the issues and challenges we face today -- to spur meaningful job creation in the near term and sustained economic growth for the long term -- are big and complex. The solutions I've suggested are not the only answers by any means, but I hope they provide a place to begin the conversation and move this nation forward. With strong national leadership and collaborative engagement of leaders in business, politics, education and others, I know we will succeed in finding the way forward to continued growth and prosperity for all Americans.