By Bill Virgin, October 19, 2014, The News Tribune
We’ve been so immersed in the business of wondering how we’re going to run the ports of Tacoma and Seattle that we’ve paid scant attention to what’s happening with the economies of the countries that are supposed to be sending (and to a lesser extent receiving) all the stuff those ports are supposed to be handling.
That might be a mistake. While our attention has been focused inward, looking outward only to check on what other North American ports might be up to, there have been some developments, trends and shifts in global trade, and more than a few of them have big implications for port operations and the regional economy here.
The widely assumed assumption is that “global trade” for ports such as Tacoma and Seattle essentially means “China.” That’s not the full picture, but it’s a big chunk of it. In 2013, according to Port of Tacoma data, the value of two-way trade with China/Hong Kong was $20.2 billion. Japan was a distant second, at $13.6 billion, and from there it’s a waterfall drop to third, South Korea at $4 billion. (The port says shipments to and from Alaska, if counted as an international trading partner, would rank fifth, just behind Taiwan).
Thus China alone represents about 41 percent of Tacoma’s international trade — not a majority, but big enough to warrant attention should things be happening.
And they are. The World Bank, in its semi-annual East Asia Pacific Update, warns that growth rates for China and the developing economies of that region (basically everybody except China) will slow in 2015 and 2016.
That sounds bad. But it’s all relative. China, for example, will “gradually moderate” to 7.4 percent in 2014, 7.2 percent in 2015 and 7.1 percent in 2016, rates that in this country would have people howling for the Fed to tamp down inflation (GDP growth was 7.7 percent in 2012 and 2013).
In the rest of East Pacific Asia, growth is expected to “bottom out” at 4.8 percent in 2014, before rebounding to 5.3 percent. That hardly sounds like the stuff of recession.
But those heady growth rates mask some problems. Housing prices in China are falling, and weak housing demand is already having an effect here. The Port of Tacoma reported that through August log exports were down 16 percent from the same period a year ago “as demand in China lagged due to weak housing sales.”
So if your domestic economy is showing some signs of weakness — too much supply for too weak demand, too much leverage in the banking system — what do you do to keep the whole thing from unraveling? Same thing you did to build the economy in the first place, at least in China’s case — you export like mad.
And that is what China is doing, according to World Bank data. Exports are growing — strongly — while imports are falling. The World Bank expects continued export growth in 2014, 2015 and 2016.
That sounds like good news for West Coast ports, if that means more stuff moving across docks here. That’s not an assumption to be automatically made, for multiple reasons.
One: that export growth might not occur at all, especially if, as the World Bank notes, the economic recovery in “advanced economies” (i.e., the U.S. and Europe) weakens. Second, those exports may not be North America-bound, if the emerging economies of Southeast Asia take a greater share. Third, North American buyers might not be in the market for more Asian imports.
Let’s think about that third point. In the past we’ve discussed the reshoring movement, in which production work is shifting back to the U.S.
Cheap imports from China are a mixed blessing even if you’re being supplied with them instead of competing against them. Between rising labor prices in China, long lead times for shipping and the costs and hassles of shipping, some American manufacturers have decided it pencils out equally, if not favorably, to produce here rather than import. Even Boeing — once the great proponent of the extended outsourced global supply chain — recently and proudly announced that it will produce 777X parts at its own facilities in St. Louis, work that had been done by suppliers or overseas.
Let’s be realistic — reshoring is not going to result in giant cobwebs growing on container cranes because imports from China disappeared. China still has advantages in low-value mass-quantity items. But if reshoring takes one sliver from China production, and Southeast Asian producers who can undercut China on price take another, that means something for regional ports. Would countries such as Vietnam, Singapore and Indonesia trade with Northwest ports or go somewhere else? (Actually, they do trade through Tacoma already, although the three together represent barely 9 percent of China’s total.)
Have we got you thoroughly dizzy yet? Most likely, and we haven’t even gone to work on the U.S. export side of the equation and all the complications there (examples: Tacoma appears to have a more diversified menu of commodities and cargo it can handle. But the growing category of exports is likely to be in coal, oil and LNG, which neither port seems interested in.)
Now think of the task ahead for those who are supposed to come with the details behind the Seaport Alliance. Writing plans for asset investments and cargo-traffic allocations to accommodate the growth you’re sure you’ll be getting can be lots of fun. Getting the rest of the world to go along is much tougher, especially when the rest of the world has been making plans of its own.