Editor's note: Updated material is in italics below.
The Seattle Times had two interesting stories on trade recently, played on the same day in different parts of the paper but closely linked. On Page One was a story about trade with China and the fact that Washington state exports of goods to China are generally raw materials — almost like those from a developing country — while imports from China are increasingly sophisticated and high tech. Like the iPhone.
Then on the Business page was a story about Stuart Silk, a local architect who is having great success designing homes for the nouveau riche of China in Shanghai. The link? Whether you are talking about Boeing jets, containers full of waste paper, or architectural plans for a fancy new house, they are all exports.
We hear a lot about the imbalance of trade for the U.S. The latest figures came out in early February, showing December exports of $163 billion and imports of $203.5 billion, resulted in a goods and services deficit of $40.6 billion, up from $38.3 billion in November, according to the Bureau of Economic Analysis.
For all of 2010, the deficit is huge, totaling $497.8 billion, $123 billion more than the previous year. The deficit with China alone hit $270 billion, the source of much of the friction between the two countries and the basis for the Page One story in the Times.
China has grown to be the state’s largest trade partner, especially Boeing planes and parts. The state had more than $10 billion in merchandise trade exports to China in 2010, according to the U.S. Department of Commerce’s International Trade Administration.
But the Times story said, “The nature of that trade is subtly changing, reflecting China's appetite for materials to feed its booming industries. What we're shipping from Seattle to ports such as Shanghai are more raw materials, food and basic commodities, things such as timber, copper and silicon.”
The trade deficit is an important problem for the country. That deficit is, for example, subtracted from gross national product figures because the goods and services were not produced in the United States. Many argue that the deficit represents a loss of jobs, since it represents the manufacturing of goods in other countries.
How that plays out can be seen in the most recent figures for Gross National Product. The second of three updates on the fourth quarter GDP report, released today (Feb. 25) was disappointing, showing growth of about 2.8 percent in the fourth quarter, down from the initial estimate of 3.3 percent. There were many factors going into that report as there usually are.
But the Census Bureau, which keeps track of GDP, said one of the reasons was that imports fell less than previously estimated after figures were updated with U.S. trade with Puerto Rico and the U.S. territories. That in turn offset an upward revision to exports, which were up 9.6 percent in the fourth quarter, compared with an initial estimate of an increase of 8.5 percent.
Exports were up, that was good. But imports were up, too, reducing the impact of the rise in exports. For a city like Seattle, a rise in imports is not all bad since at least a portion of them come through Puget Sound ports, providing jobs for Longshoremen, truck drivers and railroads.
But if the focus is always on goods — the things we buy, from fancy BMWs to underwear at Wal-Mart — then the picture is skewed. When the focus is on services — somewhat less tangible but also very real — the problem becomes much different.
That’s because the U.S. runs a surplus, quite a sizable one, in services. In 2010, looking at just services, exports were $542.8 billion and imports were $394.1 billion, resulting in a services surplus of $148.7 billion. And it is a growing part of the economy with export of services up $40.5 billion from 2009.
Export of services is an important part of the Seattle economy. Boeing jets are a visible merchandise export, but services are a bit harder to define. For example, a foreign student studying at the University of Washington is a services export — the UW has “sold” a solid education to the parents of the student.
Silk’s architectural services in Shanghai are trade in services. Three architectural giants — NBBJ, Callison, and Mulvanny G2 — do a tremendous foreign business. Callison recently announced that former CEO Bill Karst will head a newly formed joint venture in China, Callison-China. Working with top-ranked HAYA Architects in Beijing, the joint venture will expand Callison’s presence in China, according to the company.
Another problem with measuring trade is that statistics are often misleading.
“Trade statistics are like baseball statistics 30 years ago,” said Sam Kaplan, the incoming president of the Trade Development Alliance of Greater Seattle. “They measure the wrong things and lead to bad decisions.” Kaplan said trade statistics should become like the new sabermetrics in baseball that measure things differently. Instead of just how many errors a player makes a year, the new statistics show how well a player fields his position, for example.
Pascal Lamay, the director general of the World Trade Organization, makes a similar point.
“We still think in terms of Adam Smith's world of trade between nations,” he said in a speech last October, “but in reality most trade now takes place within globe-spanning multinational companies and their suppliers. It is not competition between China and the U.S. that is relevant, so much as competition between Nokia's and Samsung's value chains. Instead of ‘Made in China’ on the back of an iPhone, the label should read ‘Made in the World,’ reflecting Japanese microchips, U.S. design, Korean flat-screens and Chinese assembly.”
However, under current trade reporting rules, the entire $150 value of an iPhone is counted as an export from China to the U.S. Lamay said researchers have estimated that less than $10 of the value of the phone is added in China.
How does that result in bad policy? There are calls for the revaluation of the Chinese currency, the yuan, but Lamay said that if its true export value were counted, revaluation of the yuan “would only have a modest impact on the sales price of the final product and would probably not restore the competitiveness of competing product.”
Much is made of the trade deficit with China, but Lamay said “a series of estimates based on true domestic content cuts the deficit by half, if not more.”
Last summer, former Washington Gov. and now Commerce Secretary Gary Locke was in Seattle to speak to the Greater Seattle Chamber of Commerce and promote the Obama Administration’s new export policy initiative. The goal is to double exports in five years, thereby creating jobs in the U.S. through all that activity.
“As American consumers spend a little less and save a little more, it has never been more important to connect U.S. businesses to the 95 percent of the world's consumers who live outside our borders. Helping American companies sell more abroad will create jobs and boost our economy. This report is a blueprint for doing just that,” Locke said in a statement.
Washington state is per capita the most trade dependent state in the country. Elected leaders often quote the statistic that one in three (sometimes one in four) jobs in the region are tied to trade. That makes sense with Boeing (a majority of its planes are exported), Microsoft, Paccar, the Ports of Seattle and Tacoma, and agricultural exports such as timothy hay, apples and wheat.
But trade in services still remains unmeasured to its full extent. The Gates Foundation works overseas with many of its world health initiatives. That results in oversight, administrative and support jobs here. World health is becoming one of the more important business “sectors” in the Seattle economy, increasing further the impact of “exports” and jobs.
Environmental services is another growing area where the U.S. — and more than 200 firms in the Seattle area — compete in world markets.
Those big container ships in the harbor are important. In fact the Port of Seattle set a record last year with 2.1 million containers moved through the port. Boeing airplanes leaving Boeing Field on a delivery flight frequently are headed to overseas destinations. Paccar, one of the world’s largest heavy-truck manufacturers, will open a new plant in Brazil to tap into that growing market. Almond Roca candies, made in Tacoma by Brown & Haley, are one of the most popular treats in China.
All are important aspects of trade in Seattle, but they are all merchandise trade. And they don’t tell the whole story.