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From Main Street to Wall Street, most people would agree the United States’ persistent trade deficit is not good for long-term economic growth. But experts say business leaders need to look beyond the headlines to get a more accurate read on causes for that imbalance.

"People who have a negative view of free trade agreements, especially NAFTA [the North American Free Trade Agreement], often need to take a closer look at the numbers," says Frank Vargo, vice president of international economic affairs for the National Association of Manufacturers (NAM) in Washington, D.C. "Our overall NAFTA deficit in 2006 was $137 billion,which is a lot. But the deficit in manufactured goods exports hasn’t grown since NAFTA was passed. Most of the imbalance stems from the rising cost of oil, since that is 70 percent of what we buy from Canada and Mexico."

The manufacturing and distribution sector has increasingly become a focal point for debate over the trade deficit — which reached $763 billion in 2006 — largely because emerging nations are producing greater numbers of inexpensive high-tech and consumer goods that cost-conscious American buyers covet. Even though U.S.companies increased their exports by 13 percent in 2006, it wasn’t enough to offset a significant problem: equal access to foreign markets.

According to the U.S. Commerce Department, about 70 percent of all imports to the United States come ashore duty-free. For the remainder, the average tariff is about 4 percent. On the other hand, U.S. companies pay an average duty of 14 percent to export goods into nations where no trade agreements are in place.

A key trade dilemma for business and political leaders alike is the rapid growth of the Chinese economy. According to research conducted by Stephen Roach, Morgan Stanley chief economist, the U.S. trade deficit stands at about 6.8 percent of gross domestic product (GDP), with China accounting for nearly 30 percent of that total. While U.S. companies increased exports to China by 32 percent in 2006, the dollar value of that growth was just $13 billion — a far cry from the $44 billion hike in Chinese imports to the United States last year.

Faced with those numbers, U.S. political leaders have found some rare common ground. Members of both major parties have called on China to end unfair trade practices — such as providing substantial tax subsidies to Chinese companies that buy Chinese-made goods — and take stronger action against theft of intellectual property. Political leaders also would like to see the Chinese government ease protections on the value of its currency,arguing that the yuan has been kept artificially low to make exports appear cheaper than they really are.

"If the value of their currency were allowed to move more in turn with market forces,the cost of their exports would rise somewhat in the U.S., and our goods would be a lot cheaper in China," Vargo says. "That alone would do a lot to reduce the deficit."

Looking beyond government policy

While the travails of the Big Three automakers have been well-documented, many small and midsized manufacturers have rebounded well from the ripple effects of the 2001 to 2002 recession and 9/11 attacks. According to the NAM, productivity in U.S. manufacturing plants rose nearly 8 percent from 2003 to 2006, as the sector continues to respond to global competition with new technology. After a sharp drop earlier in the decade, manufacturing now accounts for about 60 percent of all U.S. exports. And, while overall employment in manufacturing has been flat for several years — due in part to productivity enhancements —local market competition can be keen for workers with key skills.

As lawmakers and lobbyists continue to shape U.S. trade policy, business leaders can improve their own global business prospects, Vargo says. Consider the following tips:

View trade deficits in context. While the trade deficit affects all businesses to some degree, some take a harder hit than others. For example, if a sharp rise in import competition threatens a company’s domestic product line, the best response is to go back to the basics.

"Under those circumstances, a manufacturer really needs to get with their customers and stakeholders to figure out how best to differentiate their product,while taking advantage of the shorter supply chain and time to market," Vargo says.

Expand horizons. A recent Commerce Department profile of U.S. exporters noted that small to midsized manufacturers accounted for only 29 percent of total dollar value sold in foreign markets. By far, the top two export destinations were Canada and Mexico, followed by the United Kingdom, Germany and Japan. That leaves a lot of untapped market potential.

Global competitors of U.S.companies are selling in the United States, other countries and in their own domestic markets, according to Vargo. In contrast, the average U.S. small to midsized manufacturer exports to only one or two nations. "If an American company has a product that’s good enough to sell at home, they can find ways to be successful in other markets around the world," Vargo says.

Ride along with large partners. Most small and midsized manufacturers have supplier or vendor relationships with large international firms — putting them on the inside track to global expansion when the bigger firm expands its operations.

A multinational business establishing a plant in Europe or Asia may ask a favorite U.S. supplier to set up an on-site production area or arrange local warehousing for just-in-time support.

Get trusted help.Many midsized manufacturers and distributors that have established wide-ranging global trade relationships got help from government agencies or trade associations.

For example, the U.S. Commerce Department offers an export promotion service that helps businesses locate trade and distribution resources, providing smoother access into foreign markets. Vargo, who worked for nearly 30 years at the department, says it now has a liaison attached to the NAM. That resource helps make the agency’s services even more user-friendly for manufacturers and distributors who might otherwise hesitate to take the first step into global commerce.