Speech

Chinese Growth: A Source of U.S. Export Opportunities FiscalAffairsandGovernmentOperationsCommittee CouncilofStateGovernments’SouthernLegislativeConference(SLC) Louisville,Kentucky July31,2006 PublishedintheFederalReserveBankofSt.LouisReview,November/December2006,88(6),pp.471-83 With all the press reports about the 16memberstatesoftheSouthernLegislative enormous growth of China’s Conference(SLC)areengagedinsubstantial exportstotheUnitedStates,Istart exportingactivitytoChina.I’lldiscussmajor with a story running in the oppo- featuresoftheeconomicrelationshipbetween site direction. Kanawha Scales and Systems is a theUnitedStatesandChina,butwithspecial company located in Poca, West Virginia, which emphasisonU.S.exportstoChinabecausethat has a population of roughly 1,000. Chinese pur- criticallyimportantpartoftherelationshipisnot chases of this company’s coal-loading machines wellunderstood. have grown to account for about one-third of Beforeproceeding,Iwanttoemphasizethat the company’s $50 million in annual revenues.1 theviewsIexpressherearemineanddonot HowmanystoriesarethereliketheKanawha necessarilyreflectofficialpositionsoftheFederal Scalesstory?Well,I’llshareanotherexample.A ReserveSystem.Ithankmycolleaguesatthe recentreportindicatesthatagroupfromKentucky FederalReserveBankofSt.Louisfortheircom- willbeinvolvedintheconstructionofaThorough- ments,particularlyCletusC.Coughlin,vice bredracetrackinChina,thefirstinmainland presidentanddeputydirectorofResearch,who China.2Aspartofthisdeal,1,500Kentucky providedspecialassistance. ThoroughbredswillbesoldandshippedtoChina anditisalsopossiblethatanumberofChinese willcometoKentuckytolearnhowtobetrainers, TRADE PROSPECTS exerciseriders,jockeys,grooms,andhotwalkers. Aretheseisolatedexamples?Justhowimpor- Increasesininternationaltradedependon tanttotheUnitedStatesaresalesofU.S.goods threekeyfactors—incomegrowth,reductionsin andservicestoChina? tradebarriers,anddeclinesintransportationcosts. Mypurposethismorningistoconvinceyou Incomegrowthhasbeenthemostimportantof thattheanswertothisquestionisclear.Salesof thesethreefactorsstimulatingincreasedtrade U.S.goodsandservicestoChinaarelarge,are worldwide,withreductionsintradebarriersa growing,andareveryimportanttotheUnited distantsecondanddeclinesintransportation States.Infact,asI’lldetailshortly,firmsinthe costsanevenmoredistantthird.3Thedirectimpli- 1 Seewww.usatoday.com/money/world/2006-04-19-china-exports-usat_x.htm. 2 Seehttp://charlotte.bizjournals.com/charlotte/stories/2006/03/20/story6.html. 3 SeeBaierandBergstrand(2001).Tradebarriersandtransportationcostsarekeycomponentsoftradecosts,whicharediscussedindetailby AndersonandvanWincoop(2004). 1 INTERNATIONALTRADEANDFINANCE cationofthisresearchfindingisthatanydiscus- $8trillion,whichwasroughlytwo-thirdstheU.S. sionoftradeflowsshouldbeginbyexamining GDP.(SeeFigure2.)Notsurprisingly,thesetwo incomegrowth.Infact,almostwithoutexception countriesweretwoofthethreeleadingexport- overthepast55years,growthinworldmerchan- ingandimportingcountriesintheworld.7(See diseexportshasexceededgrowthingrossdomes- Figure3.) ticproduct(GDP).4(SeeFigure1.) ThemostvividillustrationofrapidChinese Itisreasonable,therefore,toanticipatea growthcanbeseenbyexaminingtheChinese strongrelationshipbetweenChinesegrowthand economyonapercapitabasis.Adjustedforinfla- U.S.exports,andthat’sexactlywhatweobserve. tion,China’spercapitaGDPin2004was6.6times ThetransformationoftheChineseeconomyhas its1980level.(SeeFigure4.)Annualgrowthrates beenaccompaniedbyahugeincreaseininterna- ofrealpercapitaGDPinexcessof5percenthave tionaltradeandcapitalflows.U.S.exportsto beenthenorminrecentyears.(SeeFigure5.)In Chinahavealsobeenspurredbyreductionsin thelate1970s,China’srealGDPpercapitawas Chinesetradebarriers,especiallyaspartofChina’s slightlylessthan5percentoftheU.S.level.Today entryintotheWorldTradeOrganizationin2001. itexceeds10percent.(SeeFigure6.)Thus, Inadditiontoasubstantialdeclinesince1982 althoughtheoverallChineseeconomyislarge, inimporttariffs,in2005Chinaeliminatedthe Chinaisstillacountrywitharelativelylowlevel licensesthatwererequiredfortheimportation ofpercapitaincome.Toprovideperspective, ofmanygoods.5 China’srealpercapitaGDPtodayisaboutequal toU.S.percapitaGDPin1886. CHINESE AND U.S. GROWTH THEORY OF INTEGRATING A China,withapopulationinexcessofone LARGE LABOR-ABUNDANT billion,hasmaintainedanastonishingrateof COUNTRY INTO THE WORLD economicgrowthoverthepast28years.Beginning ECONOMY in1978,Chinaembarkedonaseriesofpolicy changesthathaveledtoaneconomyincreasingly Somebasiceconomictheorywillprovidea reliantonmarketsandpricesignalsforallocating foundationforviewingtheintegrationofthe productiveresources.6 Chineseeconomyintotheworldeconomy.The AsofJuly2006,theChinesepopulationwas analysisappliesnotonlytotheintegrationof 1.3billion,whichismorethanfourtimesaslarge theChineseeconomybutalsotosimilardevelop- astheU.S.populationof298million.Intermsof mentsthatareoccurringsimultaneouslyinIndia totalproduction,measuredindollarsatpurchas- andthecountriesoftheformerSovietUnion.8 ingpowerparity,theChineseeconomyisthe Economistsviewtheintegrationofthese world’ssecond-largesteconomy,trailingonlythe economiesintotheglobaleconomyasalabor UnitedStates.In2005theChineseGDPexceeded “shock.”Theirintegrationcanbeviewedasa 4 UsingannualdatafromtheWorldTradeOrganization’sInternationalTradeStatistics2005,worldmerchandiseexportgrowthexceeded worldGDPgrowthinallbuteightyearsbetween1950and2004. 5 See“BuildingExplosioninChinaPumpsUpExportsfromUSA,”awebarticleatwww.usatoday.com/money/world/ 2006-04-19-china-exports-usat_x.htminUSAToday. 6 PrasadandRajan(2006)estimatethatbetweenone-halfandtwo-thirdsoftheChineseeconomyiscurrentlymarket-based. 7 For2004,theleadingcountriesintermsoftotalworldexportswereGermanywitha10.0percentshare,theUnitedStateswithan8.9percent share,andChinawitha6.5percentshare.Intermsofimports,theleadingcountriesweretheUnitedStateswitha16.1percentshare, Germanywitha7.6percentshare,andChinawitha5.9percentshare. 8 ThisideahasbeenexpressedbyWolf(2006). 2 ChineseGrowth:ASourceofU.S.ExportOpportunities Figure 1 World Merchandise Export Growth and GDP Growth, 1950-2004 Growth(%year/year) 16 12 ExportGrowth 9.0 2004 8 4 3.7 GDPGrowth 2004 0 –0.6 1981 –2.2 –0.6 –4 –2.8 1988 2001 1958 –7.3 1975 –8 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 SOURCE:WorldTradeOrganization,InternationalTradeStatistics2005. Figure 2 China:The World’s Second-Largest Single Economy in Terms of Purchasing Power Parity U.S. $12.37 E.U. China $8.16 Japan India Germany U.K. France Italy Brazil Russia 0 2 4 6 8 10 12 14 $Trillionsin2005 SOURCE:CIAWorldFactbook. 3 INTERNATIONALTRADEANDFINANCE Figure 3 Leading Exporters and Importers in World Merchandise Trade, 2004 Value Share Value Share Rank Exporters ($billions) (%) Rank Importers ($billions) (%) 1 Germany 912.3 10.0 1 UnitedStates 1,525.5 16.1 2 UnitedStates 818.8 8.9 2 Germany 716.9 7.6 3 China 593.3 6.5 3 China 561.2 5.9 4 Japan 565.8 6.2 4 France 465.5 4.9 5 France 448.7 4.9 5 UnitedKingdom 463.5 4.9 6 Netherlands 358.2 3.9 6 Japan 454.5 4.8 7 Italy 349.2 3.8 7 Italy 351.0 3.7 8 UnitedKingdom 346.9 3.8 8 Netherlands 319.0 3.4 9 Canada 316.5 3.5 9 Belgium 285.5 3.0 10 Belgium 306.5 3.3 10 Canada 279.8 2.9 SOURCE:WorldTradeOrganization. Figure 4 China’s GDP per Capita RMB 12,000 10,000 8,000 6,000 4,000 2,000 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 SOURCE:NationalBureauofStatistics,ChinaStatisticalYearbook2004;NationalBureauofStatisticsPlanReport. 4 ChineseGrowth:ASourceofU.S.ExportOpportunities Figure 5 Chinese and U.S. Growth Rates of Real GDP per Capita Percent 15 10 China 5 U.S. 0 –5 –10 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 SOURCE:PennWorldTables(constantprices:chainseries). Figure 6 China’s Real GDP per Capita Relative to the U.S. Percent 15 10 5 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 SOURCE:PennWorldTables(U.S.=100incurrentprices). 5 INTERNATIONALTRADEANDFINANCE verylargeincreaseintheworld’seffectivelabor unlikelytobeagoodsolutionbecausetheUnited supply.Tofacilitatemydiscussion,assumethat Stateswouldsimplybeforgoingthebenefitsof thebulkofthisincreaseinthelaborsupplyin Chineseimports.Indeed,thoselower-pricedgoods recentyearshastendedtobelow-skilled.Employ- areimportanttolower-income,workingfamilies ingthissimplifyingassumption,twoconsequences intheUnitedStates.Theonlyappealingsolution areadirectresultoftheincreasedsupplyoflow- fortheUnitedStatesasawholeistoadoptpoli- skilledlabor.Oneisthatwagesoflow-skilled ciesthatwillincreasetheskilllevelsofaffected laborinhigh-incomecountrieswilltendtofall, workers,sothattheycanincreasetheircompen- ortoincreasemoreslowly,thanbeforeChina’s sationandemploymentprospects,whichwill entryintotheworldtradingsystem.Second,prices allowthemtoadjusttotheevolvingeconomic ofthosegoodsthatrequirerelativelylargeamounts environment. oflow-skilledlaborshouldtendtodeclinerelative Nowconsidertheeffecttendingtoreduce tothepricesofthosegoodsthatrequirerelatively thepricesofgoodsmadewithlow-skilledlabor. largeamountsofhigh-skilledlabor.Forconven- Thisrelativepricechange,inwhichlow-tech ienceofexposition,I’llrefertogoodsproduced goodsdeclineinpricerelativetohigh-techgoods, withlow-skilledlaboras“low-tech”goodsand isassociatedwithtwootherimportantprice goodsproducedwithhigh-skilledlaboras“high- changes.Thefirstinvolvesacountry’stermsof tech”goods.Obviously,thereisacontinuumof trade,whichisthe(average)priceofacountry’s goodsfromlowtohightech,butthesimplification exportsrelativetothe(average)priceofitsimports. willmakeiteasytounderstandthebasiceconomic InthecaseofChina,thepricesofthegoodsthat forcesatwork. Chinashipstotherestoftheworldshouldtend Thefirsteffecttendstodepressincomegains todeclinerelativetothepricesofgoodsthatit oflow-skilledlaborinhigh-incomecountries. buysfromtherestoftheworld. Obviously,theshareintotalpopulationofhigh- Generallyspeaking,asthepriceofChinese skilledworkersisgreaterinhigh-incomecountries exportsdeclinesrelativetothepriceofitsimports, thaninlow-incomecountries.Becauseofthelarge countriespurchasingChinesegoodsshould increaseinlow-skilledworkersworldwide,low- becomebetteroff.Intheory,themoredissimilar skilledworkersintheUnitedStatesarelikelyto anothercountry’sproductionandconsumption experiencedownwardpressureontheirrealwages istoChina’s,themorelikelythecountryistobene- duetotheincreasedcompetitionassociatedwith fitbyChina’sintegrationintotheworldeconomy. Chineseexports.9Theadverseincomechange Thus,acountrysuchastheUnitedStatesshould generatesdemandsforagovernmentresponseto tendtobenefitfromChina’sintegration.Ofcourse, amelioratetheadversemarketchange. themagnitudeofthegainsfortheUnitedStates Theproblemisreal:Low-skilledworkersin dependsontheimpactofChineseexportsonU.S. theUnitedStateshavebeenadverselyaffectedby importprices.Recentresearchbystaffeconomists importsofgoodsproducedbylow-skilledworkers attheBoardofGovernorsoftheFederalReserve abroad.However,thenatureofthegovernment SystemfoundthatChineseexportshavecaused responseisveryimportant.Traderestrictionsthat declines,albeitsmall,inU.S.importprices.10,11 hindertheimportationofgoodsfromChinaare Thepublic-policychallengeisconsiderable,how- 9 Infact,decliningrealcompensationforlow-skilledworkershasbeenanissueformanyyearsintheUnitedStates. 10SeeKamin,Marazzi,andSchindler(2006). 11Rodrik(2006)arguesthatChina’sexportbundleismoresophisticatedthanothercountrieswithsimilarpercapitaincomes.Whilelabor- intensiveexports,suchastoys,clothing,andelectronicsproductsthatentailsimpleassemblyoperations,areimportantinChina’sexport basket,RodrikarguesthatforeigninvestmenthasplayedamajorroleintheevolutionofChineseexports.Foreigninvestorsdominate Chineseexports.Theircontributionofadvancedtechnology,andtheresultingtransferoftechnology,hasresultedinChineseexportsthatare relativelymoresophisticatedthanthoseofcomparablydevelopedcountries. 6 ChineseGrowth:ASourceofU.S.ExportOpportunities ever,becausegainsfortheUnitedStatesasawhole AsChineseexportshavegrownfasterthanits areaccompaniedbydownwardpressureonwages imports,theChinesetradebalancehasincreased. ofU.S.low-skilledworkers,asalreadynoted. AcloselookatChina’stradebalancerevealsthat Thereisanotherchangethatreducesand from1979tothemid-1990s,theaverageyearly possiblynegatesthenetbenefitsfortheUnited balancewasroughlyzero.(SeeFigure8.)Since States.CoincidingwithChina’srapidgrowth themid-1990s,thebalancehastendedtorise, hasbeensubstantialincreasesinChina’simports reachingalevelof$102billionin2005,whichis ofcommoditiessuchasoil.Infact,Chinahas 4.4percentofChina’sGDP. becometheworld’ssecondlargestconsumerof oil.Chinesedemandforoilhasundoubtedly contributedtohigheroilprices.Giventhescale UNITED STATES–CHINA TRADE ofU.S.oilimports,higheroilpriceshavecertainly TheincreaseofChina’stradesurplussincethe reducedthebeneficialeffectsfortheUnitedStates mid-1990scoincideswithasubstantialincrease ofrecentdevelopmentsinChina.12 intheUnitedStates–Chinabilateraltradebalance. In1995theU.S.bilateraltradedeficitwithChina wasapproximately$20billion.(SeeFigure9.) HOW CHINESE GROWTH Subsequently,thisdeficithasincreasedyearly, AFFECTS TRADE reaching$202billionfor2005,whichwas28 Theprecedingdiscussionhasfocusedonthe percentoftheoverallU.S.tradedeficit.(See relative-priceimpactsofChina’sintegrationinto Figure10.)Surprisingly,in1995,China’sshare theworldeconomy.Changesinrelativeprices, oftheoverallU.S.tradedeficitwasactuallylarger, at35percentoftheoverallU.S.tradedeficit. however,arenottheonlyspurtochangesin economicactivity.China’seconomyhasreached Obviously,since1995thegrowthofU.S. suchasizethatinrecentyearsithasservedasan importsfromChinahasexceededthegrowthof engineofgrowthnotonlyinAsiabutalsoworld- U.S.exportstoChina.Between1995and2005, wide.Putsimply,awealthierChinameansrising U.S.importsfromChinaincreasedmorethan Chinesedemandforgoodsofallsorts,including fivefold,whileU.S.exportstoChinaincreased high-techgoodsthatChinadoesnotproduce. byafactorof3.6.(SeeFigure11.)Butnotethis OnemanifestationofthisfactisthatChinese importantfact:ThegrowthinU.S.exportsto growthhasresultedinlargeeffectsonoveralltrade ChinahasbeenfargreaterthanthegrowthofU.S. flows.TheintegrationoftheChineseeconomy exportsoverall.Between1995and2005,totalU.S. intotheworldeconomycanbeseenveryclearly exportsincreasedbyafactorof1.6,whichisless byexamininghowChineseexportsandimports thanhalftherateofincreaseofU.S.exportsto havechangedsincethelate1970s.In1979, China.InlightoftherapidChinesegrowth,itis ChineseexportsasashareofChineseGDPwas notsurprisingthatU.S.exportstoChinarose 5percent.Sincethenthesharehasrisento36 rapidly.Itisespeciallynoteworthythatin1995 percent.(SeeFigure7.)ThecourseofChinese Chinawasthe13thleadingexportmarketfor importshastakenasimilarpath,risingfrom goodsproducedintheUnitedStatesandin2005 roughly6percentofGDPin1979to34percent itwasthe4thleadingexportmarket.Putsimply, in2005.Theseimportandexportsharesmaybe awealthierChinaisabettermarketforU.S.goods comparedwiththesharesfortheUnitedStates: andservices,especiallyforhigh-techandagricul- Importsare16percentofU.S.GDPandexports turalgoods,whichtheUnitedStatesproducesin are10percent. abundance. 12Notsurprisingly,oilisatthecenterofacontentiouspoliticalissue.China’sdesireforincreasedoilsupplieshasledtorelationshipswitha numberofcountries,suchasSudanandUzbekistan,whomanyviewasunsavoryintermsoftheirrecordsonhumanrights. 7 INTERNATIONALTRADEANDFINANCE Figure 7 Chinese Exports and Imports as a Percent of GDP Percent 40 35 30 25 Exports 20 15 Imports 10 5 0 1979 1984 1989 1994 1999 2004 SOURCE:IMF,DirectionofTradeStatistics,andofficialChinesestatistics. Figure 8 China’s Trade Balance, 1979-2005 $Billions $101.9 100 2005 80 60 40 $32.0 20 2004 0 –20 1979 1984 1989 1994 1999 2004 SOURCE:ChinaStatisticalYearbook. 8 ChineseGrowth:ASourceofU.S.ExportOpportunities Figure 9 U.S.–China Bilateral Trade Deficit and U.S.Trade Deficit $Billions 100,000 0 U.S.–China Bilateral Trade Deficit –100,000 –201.54 –200,000 2005 –300,000 –400,000 –500,000 U.S. Trade Deficit –600,000 –716.73 –700,000 2005 –800,000 1978 1983 1988 1993 1998 2003 SOURCE:U.S.CensusBureau,ForeignTradeStatistics. Figure 10 China’s Portion of the U.S.Trade Deficit Percent 45 35 28.12 2005 25 15 5 –5 –15 1978 1983 1988 1993 1998 2003 SOURCE:U.S.CensusBureau,ForeignTradeStatistics. 9 INTERNATIONALTRADEANDFINANCE Figure 11 U.S. Exports to and Imports from China $Millions 250,000 ImportGrowth 200,000 150,000 100,000 $45,543 50,000 1995 Export Growth $11,754 1995 0 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 SOURCE:U.S.CensusBureau,ForeignTradeStatistics. ChinesepurchasesofU.S.goodstookcenter Systems.Thissamephenomenonofsmallfirms stageduringPresidentHuJintao’svisittothe sellingtotheChinesemarketisfoundalloverthe UnitedStateslastMay.Duringthevisit,President UnitedStates.ConsiderSharpeMixersofSeattle. HuagreedthatChinawouldbuy$16.2billion Thisfirmmakesspecialized“absorbersmixers” worthofBoeingjetsandvariousothergoods,such thatstripsulfurdioxidefrompowerplantemis- asnetworkingequipment,medicaldevices,and sions.Chinesepowerplantconstructionispro- beef.Acloselookatthetop10exportingindus- ceedingrapidlytomeetlargeincreasesinpower triestoChinain2005revealsthattheindustry demand.Mostofthesepowerplantsarecoal-fired, codeincludingaircraftwasthethirdleading andSharpehasseenitsChinesebusinessincrease exportindustryandthattheindustrycodeinclud- substantiallysincereceivingitsfirstorderin2004. ingmedicaldeviceswasthefourthleadingexport Thisadditionalbusinesshasledto10additional industry.(SeeTable1.)Thetwoleadingindustry employeesforatotalof30. codeswere(i)electricalmachineryandequipment and(ii)nuclearreactors,boilers,machinery,and mechanicalappliances.Together,theseindustries EXPORTS FROM SLC MEMBER accountedfor31.5percentofU.S.exportstoChina. STATES Largemultinationalcorporationsplayamajor roleinU.S.exportstoChina.However,according Let’slookmorecloselyatthetotalexports totheU.S.CommercialService,since1992the fromtheSLCstatestoChina.Itturnsoutthatthe numberofsmallandmidsizeexportershas twoleadingexportsectorsarethesameasforthe increasedfrom3,143to19,201,againof511 UnitedStatesasawhole.Together,theseindus- percent.13Iopenedmyremarkstodaywithan tries—electricalmachineryandequipmentand exampleofexportssalesbyKanawhaScalesand nuclearreactors,boilers,machinery,andmechan- 13Seewww.usatoday.com/money/world/2006-04-19-china-exports-usat_x.htm. 10 ChineseGrowth:ASourceofU.S.ExportOpportunities Table 1 Top 10 U.S. Exports to China—Ranked by 2005 Exports HSIndustryCodes($millions) ShareofU.S. Code Description 2005 exportstoChina(%) 85 Electricalmachineryandequipmentandpartsthereof; 6,851 16.3 soundrecordersandreproducers,televisionrecorders andreproducers,partsandaccessories 84 Nuclearreactors,boilers,machineryandmechanical 6,357 15.2 appliances;partsthereof 88 Aircraft,spacecraft,andpartsthereof 4,381 10.4 90 Optical,photographic,cinematographic,measuring, 2,397 5.7 checking,precision,medicalorsurgicalinstruments andapparatus;partsandaccessoriesthereof 12 Oilseedsandoleaginousfruits;miscellaneousgrains,seeds 2,289 5.5 andfruits,industrialormedicinalplants;strawandfodder 39 Plasticandarticlesthereof 2,259 5.4 72 Ironandsteel 1,555 3.7 29 Organicchemicals 1,475 3.5 52 Cotton,includingyarnsandwovenfabricsthereof 1,411 3.4 47 Pulpofwoodorotherfibrouscellulosicmaterial;recovered 992 2.4 (wasteandscrap)paperandpaperboard icalappliances—accountedfor25percentofthe toChinarelativetogrossstateproducttendtobe SLCstates’exportstoChinaduring2005. belowthenationalaverageforallstatestogether. LookingattheSLCstatesindividually,wesee Usingfiguresfor2005,only4ofthe16SLCstates substantialdifferencesintheirexportstoChina. hadsharesinexcessofthenationalaverageof Electricalmachineryandequipmentistheleading 0.36percent.ThosestateswereLouisiana(1.1), exportcategoryforonlytwostates—Texasand Tennessee(0.62),Texas(0.50),andSouthCarolina SouthCarolina—whilenuclearreactors,boilers, (0.45). machinery,andmechanicalappliancesisthe Whatisespeciallyencouraging,however,is leadingexportcategoryforfourstates—North thatfirmsintheSLCstateshaveplayedakeyrole Carolina,Missouri,Maryland,andOklahoma. inthegrowthofexportstoChina.Comparing (SeeTable2.)Fortheremaining10states,vari- 2002with2005,totalU.S.exportstoChina ouscommoditycodesappear:plasticproducts increasedbyafactorof1.9.However,13ofthe forAlabamaandWestVirginia,oilseedsfor 16statesrepresentedatthismeetingexperienced Louisiana,cottonforTennessee,woodpulpfor exportgrowthfasterthanthenationalaverage.The Georgia,basemetalsforVirginia,ironandsteel leaderwasTennessee,whoseexportsincreased productsforKentucky,fertilizersforFlorida, byafactorof4.2.Missouriwasthesecondlead- vehiclesandpartsforMississippi,andinorganic ingstate,withexportstoChinaincreasingbya chemicalsforArkansas. Forthesestates,2005exportstoChinarange factorof3.9.Theonlystateslaggingthenational from$4.9billionfromTexasto$0.1billionfrom averagewereMississippi(1.2),Florida(1.0),and Oklahoma.Onefactisthat,forSLCstates,exports WestVirginia(0.9). 11 INTERNATIONALTRADEANDFINANCE Table 2 SLC Top State Exports to China 2005 HS Topexport Total2005 Topexport commodity 2005value exportsvalue aspercentof State code Commoditydescription ($millions) ($millions) totalexports TX 85 Electricmachinery,etc.;sound 1,164.30 4,901.30 23.76 equipment;TVequipment;parts LA 12 Oilseeds,etc.;misc.grain,seed,fruit, 1,193.10 1,896.00 62.93 plant,etc. TN 52 Cotton,includingyarnandwovenfabric 760.40 1,411.40 53.87 thereof GA 47 Pulpofwood,etc.;waste,etc.ofpaper 139.30 978.70 14.23 andpaperboard NC 84 Nuclearreactors,boilers,machinery, 163.90 774.40 21.17 etc.;parts VA 81 Basemetalsnesoi;cermets;articles 77.20 721.50 10.70 thereof FL 31 Fertilizers 255.10 690.40 36.95 SC 85 Electricmachinery,etc.;sound 88.30 622.20 14.18 equipment;TVequipment;parts MO 84 Nuclearreactors,boilers,machinery, 84.60 499.50 16.94 etc.;parts AL 39 Plasticsandarticlesthereof 153.40 467.00 32.84 KY 72 Ironandsteel 103.60 400.90 25.85 MD 84 Nuclearreactors,boilers,machinery, 55.40 284.30 19.49 etc.;parts MS 87 Vehicles,exceptrailwayortramway, 22.00 164.80 13.38 andparts,etc. AR 28 Inorganicchemicals;preciousandrare 31.30 144.40 21.66 earthmetalsandradioactive compounds WV 39 Plasticsandarticlesthereof 53.90 135.40 39.82 OK 84 Nuclearreactors,boilers,machinery, 46.70 94.30 49.55 etc.;parts CONCLUSION alsobetter-payingemploymentopportunities. Thissimplemessageiseasytomissbecause Mymessageforyoutodaycanbesummarized thecontinuingintegrationofChinaintotheworld verysuccinctly:ThegrowthoftheChineseecon- economypresentsbothpoliticalandeconomic omyhasprovidedandwillalmostcertainlycon- tinuetoprovideU.S.firmswithimportantexport challenges.Itisstillveryeasytoidentifynumer- opportunities.ThisgrowingdemandforU.S. ousfactorsthathinderthesalesofgoodsand goodsandservicesprovidesnotonlymorebut servicestoChinabyU.S.firms.14Withoutques- 14E.AnthonyWayne,AssistantSecretaryforEconomicandBusinessAffairsintheU.S.DepartmentofState,enumeratedmanyofthecon- tentiousissuesinaspeechonMay25,2005,attheExecutive’sClubofChicago. 12 ChineseGrowth:ASourceofU.S.ExportOpportunities tion,Chineseinfringementofintellectualproperty historyhaveprovidedamplereasonsshowing rightsremainsaproblemthatlimitsU.S.exports. thatchangesinlegislationandregulationthat Inaddition,governmentprocurementpolicies, tilttowardeconomicisolationareunwise.Our restrictionsinvolvingthewholesaleandretail futureprosperitydependsoncontinuingtobuild distributionofforeignproductsinChina,and onpastsuccessesinextendingopenmarketsand thelackoftransparencyofmanyregulationsalso enjoyingthefruitsoftheproductivityadvances limitU.S.exports. openmarketspromote. AsIlooktothefuture,Icontinuetoseemuch negotiationbetweentheChineseandU.S.govern- mentsaswellasmanyadjustmentstothechang- REFERENCES ingeconomicandpoliticalenvironmentbyU.S. Anderson,JamesE.andvanWincoop,Eric.“Trade firmsandconsumers.Politicalpressureswill Costs.”JournalofEconomicLiterature,September continuetobefeltbyU.S.policymakers.Given 2004,42(3),pp.691-751. theinsightsfromeconomictheoryaswellasthe lessonsofeconomichistory,myhopeisthat Baier,ScottL.andBergstrand,JeffreyH.“TheGrowth policymakerswillresistthecallsforisolationist ofWorldTrade:Tariffs,TransportCosts,andIncome responses.U.S.traderestrictionsarehighly Similarity.”JournalofInternationalEconomics, unlikelytoincreaseemploymentopportunities February2001,53(1),pp.1-27. athome,butclearlywoulddepriveAmerican consumersoflower-costgoodsfromChina.The Kamin,StevenB.;Marazzi,MarioandSchindler, bestcourseofactionistocontinuetoencourage JohnW.“TheImpactofChineseExportsonGlobal Chinatoprotectintellectualpropertyrightsand ImportPrices.”ReviewofInternationalEconomics, tolowerbarriersontrade. May2006,14(2),pp.179-201. Takingadvantageoftheopportunitiespre- sentedbyChinesegrowth—ratherthansimply Prasad,EswarS.andRajan,RaghuramG.“Modernizing attemptingtonegatethecompetitivepressures— China’sGrowthParadigm.”AmericanEconomic isinthebestinterestofbothcountries.Oppor- Review,May2006,96(2),pp.331-36. tunitiestoincreaseexportsareinfactbeingseized Rodrik,Dani.“What’sSoSpecialaboutChina’s byU.S.firms,manyofwhicharelocatedinthe Exports.”NBERWorkingPaper11947,National 16statesservedbytheSouthernLegislative BureauofEconomicResearch,January2006. Conference.Recentexportgrowthbynearlyall ofthesestateshasexceededthenationalaverage. 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William Poole (2006, July 30). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_20060731_poole

@misc{wtfs_speech_20060731_poole,
  author = {William Poole},
  title = {Speech},
  year = {2006},
  month = {Jul},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_20060731_poole},
  note = {Retrieved via When the Fed Speaks corpus}
}