The Great Washing Machine Migration
By Jock O’Connell
International trade pundits have long expected that China would not always be the world’s factory floor, the country where the relative cost of doing business bottoms out. Cost-conscious manufacturers would eventually be tempted to migrate away from the People’s Republic as rising wages and a shrinking working-age population diminished China’s competitiveness as an export platform for consumer goods. If anything, President Xi seems bent on accelerating the process of transforming the Chinese economy into one increasingly focused on higher-value manufacturing and services.
Where China-based goods-producers would go next is a question that should trouble West Coast port officials. After all, ports along the Pacific Coast have long flourished because they have been the primary gateways for North America’s trade with the ascendant economies of East Asia. Port operations from Lazaro Cardenas to Prince Rupert could be jeopardized if the Chinese manufacturing diaspora began setting up shop in Southeast Asia or along the Indian Ocean littoral all the way to Africa. (For an illuminating account of the Chinese presence in Africa, see Howard French’s 2014 book, China’s Second Continent: How a Million Chinese Migrants Are Building a New Empire in Africa.)
The common, comforting response to such a scenario has generally been that any significant exodus of manufacturing industries out of China would take place later than sooner. After all, it’s argued, you simply can’t build a factory in, say, Vietnam or Thailand, recruit and train workers skilled predominantly in farming or fishing, construct new roads to ports (which themselves would need major upgrades), and then start shipping your products overseas inside of a couple of years.
Preposterous, right? Well, then, let’s consider the quixotic history of Whirlpool’s recent battles against imported household washing machines, most of them manufactured by two large Korean companies, LG and Samsung.
The tariff President Trump imposed last month on imports of residential washing machines was the culmination of a process that began in 2011, when Whirlpool filed a petition with the U.S. Department of Commerce contending that washer imports from Korea and Mexico were being dumped as part of an aggressive downward pricing strategy by LG and Samsung. When, in 2013, Commerce issued antidumping and countervailing duties on imported washers benefitting from unfair trading practices, the Korean companies shifted production to China.
The outcome of that maneuver was predictable. In 2015, Whirlpool sought relief under trade remedy laws after washer imports from China sharply increased. So, in early 2017, Commerce issued an antidumping order on washers from China, an action which prompted another shift in production. This time the move was to Thailand and Vietnam.
As Exhibit 4 (see next page) demonstrates, U.S. washing machine imports changed their pedigree dramatically in recent years. In 2010, South Korea accounted for 42.7% of what was then a $1.65 billion import trade. Mexico followed in second place with a 28.2% share. China’s was just 9.2%. By 2013, China’s share of the import trade swelled to 50.5% and would grow to 66.6% two years later before falling off to 6.5% last year.
Astonishingly, the combined share held by Vietnam and Thailand surged from about 1.0% in 2015 to 55.2% of the $1.97 billion U.S. import trade within two years. According to U.S. commercial representatives in Vietnam, the shift in market share was not the result of a logistical sleight-of-hand. There is little evidence that washing machines built in China or South Korea were being transshipped to the U.S. via Vietnam and Thailand to confuse Customs and Border Protection inspectors. Perhaps ironically, the increased washing machine manufacturing capacity in Vietnam and Thailand appears to have primarily resulted from investments that flooded into the two Southeast Asian nations in anticipation of U.S. ratification of the Trans-Pacific Partnership (TPP).
So, there you have a clear example that purposeful manufacturers can adroitly exploit new opportunities faster than economic pundits can revise their models. Later, it seems, may come sooner than we think.
California Port Day
For a state whose governing authorities routinely treat its seaports as little more than civic nuisances, the California Assembly is considering a resolution (ACR 170) that would designate February 21, 2018 as well as the third Wednesday of each subsequent year as “California Ports Day”. The measure by Assemblymember Patrick O’Donnell and coauthored by Senator Ricardo Lara, was introduced on February 5. No hearings have yet been scheduled, but some of us will be interested to see if anyone from the California Air Resources Board or the South Coast Air Quality Management District will show up to testify in opposition.
More on That Thing About Scrap Paper
Last summer, Chinese authorities advised the World Trade Organization that Beijing would impose stricter quality standards on imports of various recyclable materials as of March 2018. Waste and Scrap Paper was among the items on the list, specifically a subcategory (HS 470790) of unsorted scrap paper the Chinese found especially noisome. Evidently, they were growing weary of having to process old pizza boxes with pizzas still in them. The new standards, according to recycling industry leaders in the U.S., Japan, and Europe, are excessive. There are also claims the Chinese are unfairly imposing these new standards only on imported waste and scrap.
These restrictions could prove to be a serious matter for shipping lines and U.S. ports because scrap paper fills so many containers being backhauled to China. Last year, old magazine, newspapers and cardboard boxes constituted 40.9% of all containerized export tonnage to China from U.S. West Coast ports.
Not surprisingly, U.S. exports of waste paper to the People’s Republic have fallen in the months since last summer’s announcement. Most notable has been the collapse of trade in the most unsavory class of scrap paper, HS 470790. December containerized exports of this commodity from U.S. West Coast ports to China were down 50.1% from a year earlier. That amounted to a fall-off of 52,952 metric tons.
Interestingly, as we noted in last month’s newsletter, other nations have stepped up to offset a good deal of the loss of HS 470790 cargo going directly from U.S. ports to China. India, for example, took in 43,174 more metric tons in December than it had a year earlier. Indonesia similarly increased its HS 470790 imports from the U.S. by 128.1% or 14,755 metric tons. The most surprising increase involved Vietnam, long a conduit for gray market shipments into China, which saw its imports soar by 1857.5% or 14,173 metric tons. When all the adding and subtracting is done, U.S. containerized exports of HS 470790 (aka Paper Most Foul) were down a comparatively modest 14.3% in December.
Leveraging California’s Clean Air Initiatives
At a time when Chinese trade authorities are becoming unusually persnickety about the kinds of trash they import from us, there may be grist for a new marketing campaign to promote maritime trade between the People’s Republic and the Ports of Los Angeles, Long Beach, and Oakland. Let’s start with the fact that nearly 60% of the containers shipped from the two southern California ports are empty. At Oakland, nearly 28% of all outbound containers were likewise empty.
Well, they’re not actually empty, are they? They contain San Pedro or San Francisco Bay air that has been appreciably and demonstrably cleansed over the past decade through the expenditure of billions of dollars in new, more environmentally friendly technologies and practices. As the state’s ports propose to spend even more billions on the trek to zero-emission status, perhaps the ports might give some thought to how the fruits of these investments can be leveraged to commercial advantage. Why not start a campaign that touts the superior quality of the air in the more than 5 million empty TEUs that will sail out of California ports this year? After all, these are containers filled with a commodity that the California Air Resources Board could certify as being cleaner than the air lurking in containers shipped by most other U.S. ports. Wouldn’t dockworkers around the world prefer to handle containers bearing the label “Contents: Healthy California Air”. Perhaps the ILWU could use its leverage to persuade longshore workers abroad to insist on genuine California Empties©.
As a marketing campaign, it would be a breath of…well, you get the idea.
The commentary, views, and opinions expressed by Jock O’Connell are his own and do not reflect the views or positions of the Pacific Merchant Shipping Association. PMSA does not endorse, support, or make any representations regarding the content provided by any third party commentator.