My last two Dispatches have dealt with U.S. trade opportunities in China and models for doing trade there. This Dispatch is about the numbers.
The good news
The U.S.-China Business Council does a periodic analysis of trade between the United States and China and breaks it down by state. Between 2000 and 2011, total U.S. exports to China rose 542 percent, from $16.2 billion to $103.9 billion. It was a period during which total U.S. exports to the world rose 80 percent. If you add in Hong Kong, the total 2011 trade figure rises to $140.4 billion.
In terms of trends; over the last two years, U.S. trade with China/Hong Kong has risen by 25 percent yearly.
The $88 billion increase represents the second-largest dollar value increase in trade with any country after Canada’s $102 billion and just slightly ahead of Mexico’s $86 billion.
Forty-eight states have registered triple-digit increases in trade with China during this period. Thirty-one states now count China as their third-largest export market.
This has made China the fastest-growing export market for the United States as a whole. China is at No. 3 behind Mexico and Canada and ahead of Japan and the United Kingdom. About $76.7 billion of that trade came from five categories: agriculture, computer and electronics, chemicals, transportation equipment and waste and scrap.
The hard news
Again, in terms of trade growth trends, China is far and away No. 1 at 542 percent, whereas U.S. trade over the same period with Canada rose 57 percent, Mexico 77 percent, Japan 2 percent and the U.K. 35 percent. It does not take much math to figure out that if trade with China continues at this pace, it could be our largest trading partner in eight years, and if you include Hong Kong, six years.
The bad news
Great news, but wait, let’s look at the other big picture: our position in terms of total trade with China. The United States, at $122.2 billion, trails Taiwan’s $124.9 billion, South Korea’s $162 billion, Japan’s $194.6 billion and the E.U.’s $211.2 billion in exports to China. This makes the United States the fifth-largest exporter to China. Consider that in 2000 we accounted for 10 percent of China’s imports, while in 2011 our share has dropped to 7 percent. What does this mean? Given we are still the world’s largest manufacturer; it means that our good friends in Europe are winning in China. So, despite battling to win substantial growth in exports, we are in fact losing the war.
The Wisconsin news
In 2000, Wisconsin exported $177 million worth of goods to China. In 2011, that total rose to $1.381 billion, a 679 percent increase. China is now our third-largest trading partner, and if current growth rates continue, China will become our largest in the near future. Our top five export categories, which account for $1.065 billion of our trade, are machinery (except electrical) $442 million, computers and electronics $288 million, waste and scrap $140 million, fabricated metal parts $82 million and processed foods $72 million. During the same period, our exports with the rest of the world rose 100 percent. In every category, Wisconsin is outperforming the U.S. average. This is great news, except for the fact that we face stiff competition from our E.U. allies in every one of the categories we currently compete in, with the exception of heavy mining equipment, where we face competition from companies within China.
Conclusion
China will probably not be our biggest trade partner within the next four to eight years. There are too many political and economic variables in the hopper at the moment to envision a smooth growth curve. Increasing international protectionism and economic weakness in both China and the West are the main concerns. But, China will continue to be one of the most important markets in the world for the U.S. and Wisconsin.
In 2005, I had dinner and sat on a panel with the then Chinese Ambassador to the United States, Zhou Wenzhong. I mentioned that I thought that the E.U. was “eating our lunch” in China. Looking at the numbers, it seems this is still true.
We need to recognize that our competition in China is mainly the E.U. To stay ahead of them, we need to open new markets in which we have more expertise than our competitors, or face declining margins. One has only to look at Kodak to understand that competing on price rather than ingenuity is not a successful strategy when others are bring new innovations to the table.
Succeeding in business requires that you have something that is profitable to sell and that you know who you are competing with. Too often the real story is lost in the rhetoric, so it often pays to look at the numbers without the hype. Whether they make you want to celebrate, laugh, cry or despair, you will at least be going in with your eyes open.
