Before last October, the U.S. had exported $8 billion in goods to China in a single month only once: December 2009, at the beginning of the economic and trade recovery. In October, the U.S. not only hit $8 billion again, but also zoomed right past it to $9.3 billion, easily the best exporting month in the history of U.S.-China trade.
It’s one landmark in the burgeoning 2010 growth in U.S. exports to major trading partners in the region that, driven by Asia’s rising prosperity and rapid economic growth, shows no signs of slowing.
A report by Morgan Stanley projects economic growth of 7.9 percent in Asia, excluding Japan, this year, compared with 9 percent in 2010. The investment firm forecasts 9 percent growth in China, although other analysts project closer to 10 percent, compared with about 10.5 percent in 2010. But that will still be strong enough to accommodate substantial import growth as China’s economy becomes more oriented to domestic consumption, and its middle class expands.
Side Bar: Asia Trade Looking Up.
China’s slower economic growth is partly by design as the government seeks to avert runaway inflation fueled by a real estate bubble.
U.S. exports to China, the U.S.’s largest source of imports and third-largest export market, grew 34 percent in the first 10 months of 2010 to $72 billion, according to Census Bureau figures. But the trade deficit ballooned to $227 billion as imports climbed $57 billion — three times the $19 billion gain in U.S. exports.
One indication of the prospects for export growth may come this week when President Hu Jintao and Chinese business representatives visit the United States. Major trade deals often occur during such state visits, as happened when U.S. executives accompanying President Obama to India last November signed contracts worth billions of dollars.
Obama sparred with Hu over China’s currency policy at last November’s APEC summit, but came away empty-handed. Critics believe China’s yuan renminbi, which was essentially pinned to the dollar until last summer when China allowed the currency to float in a narrow band, should rise at least 20 percent. The yuan has risen just 3 percent since Beijing loosened the strings, and it will rise no more than 6 percent this year, according to Morgan Stanley, which quoted Li Jian, an official with an agency under China’s Ministry of Commerce.
The free trade agreement with South Korea offers tantalizing prospects for U.S. companies, assuming Congress and the Korean Parliament ratify the accord. Exports to South Korea jumped 39 percent in the first 10 months of last year to $32.2 billion, making it the seventh-largest U.S. export market. Under the free trade agreement, most tariffs would be eliminated immediately, though some will be phased out over the next five years. The average effective rate on non-agriculture goods, mostly manufactured products, is 7.6 percent, while the average tariff on agriculture goods is 54 percent.
“The biggest bump initially will be in agriculture, but I think we will see increased benefits across the board, including services and intellectual property protection,” said Tami Overby, president of the U.S.-Korea Business Council and vice president, Asia, for the U.S. Chamber of Commerce.
Southeast Asia is often overlooked as a market for U.S. goods, but exports there jumped 34 percent in the first 10 months of 2010 to $58 billion — not far behind exports to China, which has more than twice the 600 million combined population of the 10 countries comprising the Association of Southeast Asian Nations. The average ASEAN consumer spends twice as much per capita on U.S. goods than the average Chinese citizen and nine times as much as the average Indian consumer, according to the US-ASEAN Business Council.
“There are a lot of opportunities for U.S. companies,” said Anthony Nelson, the council’s senior manager for public relations. “ASEAN is one of the most dynamic growth markets in the world.”
The biggest growth for ASEAN members comes from trade among each other as their own markets become more developed and as the bloc moves toward its goal of regional economic integration by 2015. ASEAN’s free trade agreements with China and India “make it a more attractive environment for investment because it gives you access to both of these very large markets by working through ASEAN,” he said.
Nelson said one of the challenges for members is to make sure they upgrade their infrastructure to support incoming foreign investment.
Poor infrastructure remains one of India’s biggest obstacles to trade and investment growth. “It gives producers and consumers less access to global markets,” said Paul Bingham, a consultant with Wilbur Smith Associates in Columbia S.C.
Infrastructure is also one of the biggest areas of opportunity for U.S. companies in India. The 10-year economic plan set to begin in 2012 is expected to call for $1 trillion to $2 trillion in infrastructure spending, mostly on ports, airports, roads, railways and energy, said Michael DiPaula-Coyle, director of policy advocacy for the U.S.-India Business Council.
Side Bar: Obama’s Ambitious Trade Agenda.
Exports to India grew 16 percent in the first 10 months of 2010 — much more modest than the rate to most Asian nations — and the total came to just $16 billion, far below the $24 billion in sales to tiny Singapore, with a population of just 5 million. Still, the combination of India’s rapid industrial development and a population of 1.2 billion — with a middle class of 150 million to 400 million, depending on how it’s calculated — makes it a huge potential market for U.S. exporters and investors.
“Not only do you have a huge untapped labor force for low-end manufacturing, but you also have a very large educated work force to complement it for high-end manufacturing, research and development,” DiPaula-Coyle said. “The sky’s the limit.”
Japan gets little public attention these days because of its stagnant economic growth — Morgan Stanley projects its economy will grow only 1.75 percent this year — but it’s still the fourth-largest U.S. market for exports and imports. Exports totaled $50 billion in the first 10 months of 2010, up 18 percent.
Like Japan, Taiwan has been overshadowed by China, but U.S. exports there grew 44 percent, the fastest pace in Asia. More than any other economy, Taiwan’s is closely linked to China. Thousands of Taiwanese-owned factories operate in China, producing billions of dollars worth of exports sold worldwide.
Just as manufacturers in Taiwan, Japan and elsewhere shifted production to China to take advantage of its lower labor costs, rising costs in China are helping to drive manufacturing growth in Vietnam. That has prompted a surge in new ocean carrier services and investments in port development there.
Bangladesh, Laos and Cambodia also have benefited from the diversification of manufacturing away from China.
Rapid economic growth, regional trade agreements and cross-border investments have driven the surge in intra-Asia trade, with China the largest trade partner for most Asian countries.
But there’s still plenty of room for increased U.S. exports. They may never again grow at the same blistering pace as in 2010, largely because of the distortion caused by the decline in trade in 2009. Still, there’s no question that emerging markets, especially in Asia, offer the best potential for U.S. export expansion, according to Frank Vargo, the National Association of Manufacturers’ vice president for international economic affairs. Strong double-digit growth to Asia is essential for the U.S. to reach President Obama’s goal of doubling exports within five years, he said, especially in light of modest growth in exports to the European Union, which were up just 7.5 percent.
Contact William Armbruster at email@example.com.