The China U.S. Business Council has just published its yearly U.S. Exports to China by State Report. It provides a good opportunity to take stock of where Wisconsin and the United States are in terms of trade with China.
The good news
Wisconsin’s 2012 exports to China grew 16.4 percent year on the year to $1.959 billion, capping a 10-year increase of 256 percent growth, which compares favorably with the growth of our exports to the rest of the world, which was only 101 percent over the same period. 2012 saw a 49 percent increase in agricultural exports to China which was propelled in part by Wisconsin’s 22 percent increase in dairy exports. Overall, exports have grown at roughly, 9 percent a year, almost 3 times the states GDP since 2003. Trade-related employment has grown 22 percent while total job growth has stagnated.
Today, one in five Wisconsin jobs (746,000) is related to trade. Major exports, which made up 61.4 percent of exports to China are:
- Industrial machinery, $475 million (up 9.9 percent).
- Medical and scientific instruments, $283 million (up 21.6 percent).
- Electrical machinery, $191 million (down 3.8 percent).
- The biggest percentage gainer was agriculture, which grew by 49 percent propelled by strong interest in dairy related products and services.
On the national front, the United States increased exports to China by 27.5 percent, year on year, in 2012, to $108.6 billion, capping a 10-year 294 percent increase in trade with China, vs. 111 percent, over the same period increase in exports to the rest of the world. While China remains a distant third in terms of export markets, behind Canada’s $263 billion and Mexico’s $208 billion, it is by far the fastest growing market, other than Brazil. The mainstays, which account for more than 50 percent of U.S. China trade, are:
- Agriculture, $21 billion.
- Transportation Equipment, $16 billion.
- Computers and electronics, $14 billion.
- Chemicals, $12 billion.
- Machinery, $10 billion
The EU’s lackluster 0.4 percent export trade increase (to $212.05 billion) gives us some hope of narrowing the gap with our main industrialized competitor. Japan’s territorial dispute with China has also created opportunities, for U.S. car manufacturers in particular, as Chinese netizens shy away from Japanese brands.
The bad news
Wisconsin was only one of 42 states with triple digit growth, we, in fact, lag many states and the U.S. average, 4 states had quadruple digit growth and 12 managed to double their exports within the past three years. Like the United States as a whole, our volume is growing, but we are losing market share race, both at home and abroad.
On the national front, the U.S. share of the Chinese import market has dropped from 8 percent to 7 percent since 2003. In dollar terms, we continue to lag the EU, Japan, South Korea and even Taiwan, unless you add in Hong Kong. In 2012, we became China’s largest export customer, replacing the EU. Unfortunately, our new source of competition is increasingly South Korea and other ASEAN nations whose proximity and lower costs make them formidable.
What does it mean for you?
The trend lines clearly point to increased trade ties between the United States and China. The question is how Wisconsin and you can position yourselves within this trend. It means looking at things from the perspective of the Chinese market, rather than your own existing assumptions. For example, strangely enough, Wisconsin is now benefiting from China’s pollution. Concerns about health and food safety are pushing Chinese consumers toward products from places like the Midwest, which they consider safe and clean, even at higher prices. This extends all the way down the food chain.
Chinese consumers are paying five times the regular price for imported baby formula because of their concerns about safety. Concerns about the food chain in China will continue to grow. If Wisconsin can effectively market itself as a clean/organic state and create a certification the Chinese trust (think about what the French have in Champagne and Bordeaux), there could be great opportunities, not only in dairy, but food in general. Creating value through a brand would result in higher prices and therefore profits for our agricultural products and could be leveraged to help other industries like water and green industries.
So, while delegations to China are fine, it might be useful to start creating a brand which helps many, rather than a trip which helps a few.
As said before, your success in China will depend on your ability to understand the market, which means its consumers and what drives them. To do this means getting beyond the set of assumptions you operate on in Wisconsin and taking the actions that create the best chance of success. This means having a strategy not running blindly.
To view the full report, visit: https:// www.uschina.org/public/exports/2003 _2012/full_state_report.pdf.
This marks the fifth anniversary of this column. It is an interesting exercise to sit down every two weeks and look at business issues between Wisconsin and China. Thank you for your interest. If there are topics you feel other might be interested in, please do not hesitate to let me know.
Einar Tangen, formerly from Milwaukee, now lives and works in Beijing, China. He is an adviser to Heilongjiang Province, Hebei Province QEDTZ, China.org.cn, China International Publishing Group, Beijing Baotong and DGI DESIGN. He is also a weekly public affairs commentator for CCTV News’ Dialogue and the author of “The Kunshan Way,” an economic development history of China’s leading county level city. While in Milwaukee, he was a partner at Jackson, Morgan and Tangen, president of E-Tech and a senior vice president at Stifel Nicolaus. He chaired various boards in Milwaukee and was a member of the Federal Home Loan Bank of Chicago. Readers who would like to submit questions or suggest areas of interest can send an e-mail to steve.jagler@biztimes.com.
