China’s role in trade evolving

contributing writerMay 20, 2012 

Those of us of a certain age grew up with the notion of China as impoverished, backward, sealed off from the rest of the world and suffering under the brutal repression of Mao Zedong’s misrule.

Thus the remarkable transformation of the country to a quasi-capitalist, semi-open, wealth-creating, economically vibrant and technologically advanced state has required a significant adjustment bordering on mental whiplash. By now many Americans have come of age not knowing China as anything but a massive engine of production and economic growth, sometimes at the expense of jobs and prospects here.

It would appear, however, that the younger set should get no more comfortable with their current perspective of China than their elders might have been with their assumption that China’s woeful situation was permanent.

That is part of the message of a recently published book, “The End of Cheap China,” by Shaun Rein, head of a market research firm specializing in China.

Here’s a summary of Rein’s argument, taken from the prologue: “China’s evaporating cheap-labor pool will disrupt supply chains and consumption habits around the globe. ... Companies can no longer manufacture cheaply in China, and may need to rethink their strategies and shift manufacturing to lower-cost production centers like Vietnam or Indonesia – or even back to the United States in some cases.”

The end of cheap China, he adds, will mean Chinese companies will focus more on producing higher-value goods for an increasingly wealthy home market, and will develop brands to do so that also will compete internationally. China will continue to scour the globe for the raw materials to feed that production. Goods from China will be more expensive in the United States.

The ramifications and implications, not just in this country but around the world, are potentially even greater than China’s recent emergence as a global economic power. But what does this mean for us?

“Us,” as in South Puget Sound, where China is a pervasive factor in everything from Port of Tacoma operations and related shipping and warehousing businesses to the purchase and export of raw materials such as logs, scrap metal and waste paper to the companies that sell into China or compete with Chinese companies.

News of another radical transformation in China shouldn’t come as a shock to the region. Peter Tirschwell, senior vice president of strategy for the Journal of Commerce/UBM Global Trade, noted at a port event last month that China’s share of total imports to the U.S. plateaued several years ago and last year actually declined.

China still represents about half of the shipping containers entering the United States, and Tirschwell called the shift of production from China “a trickle, not an exodus.” Rein notes that Vietnam and Indonesia don’t have the infrastructure or the level of production sophistication of China.

But that can change quickly. China’s infrastructure was in terrible shape when it launched its strategy of economic growth, and it wasn’t up to producing much more than the cheap, noncomplex, low-value goods.

So if production does shift somewhere else, where does that leave us? Does that make other U.S. ports more attractive as a shipping destination? Vietnam and Indonesia ranked sixth and eighth among the Port of Tacoma’s international trading partners in 2011.

Added together, they represented less than 5 percent of the value of trade with China.

This isn’t necessarily a good news or a bad news story, but it is a story, one that’s still in the early stages of writing. That in itself might be good news, because it means we might be able to write a few new chapters of our own about U.S. competitiveness and economic strength that contradict the current prevailing version of the tale.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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