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Tech Trade Deficit With China Swells While Europe Gains
The trade deficit with China for high-tech goods keeps climbing. But don't blame companies like Milford, Mass.-based Waters Corp., a maker of scientific instruments.
Waters' (NYSE:WAT - News) sales in China, estimated by analysts at roughly $100 million in 2008, are growing nearly 20% annually. One thing its scientific gear does is check food products for contaminants.
Demand for Waters' analytical tools in China picked up after a food safety crisis erupted in early 2007, says Gene Cassis, vice president of worldwide business development.
Scientific tools like those made by Waters are one of the few areas where the U.S. still holds a tech trade surplus with China.
In 2008, the U.S. shipped more life science, biomedical, robotics and advanced materials to China than it imported. The biggest areas where the U.S. still runs high-tech trade surpluses are aerospace, boosted by sales of civilian aircraft, and semiconductors.
The U.S. aims to find more high-tech areas where it can boost exports to China. The Commerce Department says U.S. companies should target transportation infrastructure, clean energy, health care and disaster preparedness technologies.
The U.S. and China held high-level trade talks in October. China agreed to scrap a requirement for wind-power gear to be made in the country. China also said it will treat products of U.S.-China joint ventures as local for government procurement purposes.
President Obama was set to arrive in China on Sunday to talk trade and global security. The U.S. isn't alone in pursuing commercial diplomacy in China. The world's biggest exporter -- the European Union -- is also pushing for deals in infrastructure, environmental protection technologies and clean energy.
"There's no doubt Europe has done well in capital-intensive industries and has clearly benefited from having governments that are cheerleading, promoting exports, during official state visits," said Jacob Kirkegaard, research fellow at the Peterson Institute For International Economics.
He says Germany and France have been "very adept" at winning big trade deals in China.
The Airbus A320 is one example. To seal the deal, France and Germany agreed to assemble the jet outside Europe. The first A320 was completed in China in June.
The U.S. trade deficit, meanwhile, widened in September to $36.5 billion from $30.8 billion in August. The U.S. trade deficit with China increased to $22.1 billion from $20.2 billion, the highest in nearly a year. U.S. exports to the world and China specifically rose smartly, but in both cases imports rose even more.
The fastest-growing exports to China are commodities -- cotton, oil seed, pulp and paper as well as chemicals and metals -- that often come back here in finished goods.
China has claimed that easing U.S. export controls on high-tech goods would lower the trade deficit. Congress fears easing controls could endanger national security.
There are other steps the U.S. could take to boost tech exports, observers say.
It's much easier for Chinese businessmen and engineers to get visas to visit factories in Europe than it is in the U.S., says Bill Reinsch, president of the National Foreign Trade Council and a former Commerce trade official.
He says that's important if Chinese companies want to "test drive" equipment before buying. "The Germans have told the Chinese, 'we can get you a visa to come to Frankfurt in 48 hours,'" he said.
Germany's exports of machine tools, vehicle parts and electrical products to China have surged. While still lagging Hong Kong, the U.S. and Taiwan, Germany's direct investments in China have surged.
Europe Besting U.S. In China
The U.S. is losing ground to Europe in China, the National Association of Manufacturers contends in a report.
"In 2008, the U.S. share of total Chinese imports of manufactured goods was only 8.2%; far behind Japan, 17.7%; the EU, 15.6%; South Korea, 12.4%; and Taiwan, 12.1%," says the NAM report. "The relative loss of market share to the EU is particularly noteworthy."
Kirkegaard says fewer of Europe's products have been commoditized. "Many products Europe exports to China, as in the case of German machine tools, are world-class in niche markets," he said. "They're not as exposed to local Chinese competition."
John Frisbie, president of the US-China Business Council, says Europe has done a good job cooperating with China on technology standards, such as in telecom. That has helped Europe get in on the ground floor of emerging markets, he says.
"U.S. companies might be at a disadvantage as a result of that," Frisbie said. "We could engage China more on those kinds of things (standards)."
A Commerce Department Web site, www.export.gov, gives U.S. companies trade and market data. China's demand for medical equipment, for example, is projected to grow 15% annually, says the China Association for Medical Devices Industry.
That's consistent with some company reports. Chinese orders for GE Medical, part of General Electric (NYSE:GE - News), are up 15% to 20% so far in 2009, say analysts.
China's trade policies are key. U.S. companies are still locked out of potential markets. However, China recently eased its approval process for medical device imports.
Moving Up Tech Ladder
In September, Beijing announced changes to open up Chinese airspace for business jets, unlocking the market, says a Morgan Stanley report. Business jet makers like General Dynamics (NYSE:GD - News) could benefit, says the report.
The problem is that China has been steadily building up its own industries, such as shipbuilding. China could soon make its own business jets as well.
As China moves up the high-tech production ladder, its trade surplus with the U.S. will likely grow, analysts say. Toys, assembled computers, cameras and other electronics account for much of the U.S. high-tech trade deficit with China.
But, China is quickly emerging as an exporter in new areas, such as telecom equipment. In August, Huawei Technologies cracked the U.S. market, winning a deal to provide fourth-generation "WiMax" network gear to Clearwire (NasdaqGS:CLWR - News), a wireless startup controlled by Sprint (NYSE:S - News) and cable TV companies.
"A company like Huawei is clearly moving up the food chain," said Kirkegaard. "They have the benefit of being a local industrial champion in China. They have an enormous home market helped by quasi-protectionist trade barriers."
The U.S.'s high-tech trade deficit with China rose to $72.7 billion in 2008, up from $67.7 billion a year earlier, says the Census Bureau.
Overall, the U.S. high-tech trade deficit was a bit lower, $55.5 billion, in 2008, as the U.S. ran surpluses with most other countries but not product "assemblers" like Mexico and Ireland.
The Census data don't include what's made and sold in China by multinational companies that have joint ventures there. Nor does it include areas like automobiles, where China is ramping up exports.
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