Made in the USA Sold in China: Why Exporting to Asia Makes Sense

Craig Allen’s boss -“Undersecretary of Commerce for International Trade Francisco J. Sánchez -“ recently quoted an old Chinese proverb: “Be not afraid of growing slowly; be afraid only of standing still.”

Craig Allen, Deputy Assistant Secretary for Asia U.S. Department of Commerce International Trade Administration.

Allen, the Commerce Department’s International Trade Administration Deputy Assistant Secretary for Asia, long ago took that proverb to heart -“ and then some. You can hear the exuberance in his voice when he talks about the many opportunities American businesses have to grow more than slowly by doing business in the countries of Asia as well as some of our free trade partners along the eastern shore of the Pacific.

“It’s only a very small number of American companies that export -“ I believe it’s about 3 percent -“ and only a small percentage of those export to more than one market. We have a lot of Midwestern companies that are exporting to Canada, for example, or Mexico. We very anxious to help such companies to expand to a second, and a third, and a fourth -“ and a fifth market as rapidly as possible,” Allen says.

The International Trade Administration has a number of functions, he says, but one of the main ones is to provide a level playing field for both importing and exporting.

That can often involve “working on trade policy issues,” Allen explains. “The ITA’s market and compliance side works to ensure that our trading partners are following the rules. When they’re not we try and encourage them to do so.”

“We have another part of ITA that does the fair trade side. That covers when foreign companies are dumping -“ selling a product in the U. S. market that is below the cost of production, or is receiving illegal subsidies as defined by the World Trade Organization. We work to put a stop to that so that American companies can have a level playing field.”

“So, we have both and offensive and a defensive role to play and we’re very active on both sides.”

Asked about how the 97 percent of American companies that don’t participate in the export market can do so, Allen replies, “This is an area I’m pretty passionate about. All markets are volatile, so the more markets overseas one has distribution to, the more you can smooth out that volatility. For example, the last three years have hit Midwestern manufacturers pretty hard. However, those that have been involved in Asia have done relatively well, based on rapidly growing markets in that part of the world.”

Craig Allen speaking before a South Asian Chamber of Commerce group.

It’s not just China, whose economy is slowing a bit from the double-digit growth rates earlier, but also, says Allen, “Australia, with whom we have a free trade agreement. On the basis of their high commodity prices, Australia’s economy is booming. American companies that are doing business there, or have active distribution agreements there, are much more likely to smooth out that volatility and grow their business in a more predictable manner.”

Allen then takes a side trip to Canada, another free trade partner. “Canada’s been doing reasonably well. The free trade agreement has removed many, many barriers to that market. Yes, it’s a different country, yes, the regulatory environment is somewhat different, and yes, the currency is different, but you can export to Canada -“ and a lot of people are and we want more.”

Returning to his favorite topic of the Asia Pacific countries, Allen says his agency is “very excited about KORUS [The Republic of Korea-United States Free Trade Agreement (also known as KORUS FTA)]. Basically, it removes all tariff barriers on 80 percent of U.S. exports [to Korea] as of March 15. Just boom! Gone! Finished! That gives us an advantage over countries that don’t have a free trade agreement.”

It’s not just American manufacturers that have opportunities for export. “We have tremendous opportunities for service exports. We’re talking about architectural services, financial and entertainment, educational and telecom services, even travel and tourism. In the past there had been many barriers for those services to invest in, and enter, the Korean market. And those are gone at the stroke of a pen.”

“We have to remember that the U.S. is largely a service economy,” Allen reminds us. “Nearly 80 percent of our GDP is services, so American service companies have a tremendous export opportunity there. There are companies here in the hotel, logistics and financial services areas that are ready to expand. Their investments in Korea help create jobs back here as well. The International Trade Commission estimates that there will be 70,000 new jobs created here in the U.S. That’s fabulous!”

Free trade seems to be a key to increasing export business as well as creating jobs. Allen explains, “Right now, we’re creating something called the Trans-Pacific Partnership. That is a draft agreement that is being discussed by nine countries, including Australia and New Zeeland, Brunei, Viet Nam, Singapore and Malaysia, Chile and Peru -“ and the United States. It’s a very comprehensive free trade agreement by like-minded partners. While we have free trade agreements with some of them already, there are some that we don’t. It’s moving very quickly and we’re hoping to have it ready for submission to Congress by the end of the year. The President has suggested June or July so we’re working very hard.”

“If you look at markets where we have free trade agreements already, U.S. exporters are doing really well,” Allen points out. “Besides Canada and Australia, Singapore would be one where we have an enormous trade surplus. That’s partially a result of the free trade agreement as well as the fact that we export a lot there and it’s dispersed to neighboring countries from Singapore. We’re hoping to have more of these so that we can have more jobs in American manufacturing, agriculture and services.”

“A free trade agreement is designed to give American companies maximum choice and freedom to find the arrangement that suits their business best.”

Allen being interviewed by a journalist from the South China Media Group in his Washington office.

What’s the best way for an American company to stick their toe in the export waters? “The U.S. Foreign and Commercial Service plays a very hands-on role to assist companies in starting up exports and diversifying export markets for relatively small, new exporters and then helping them diversify into the hot markets around the world. They have field offices all over. We probably have 25 or 30 in the Midwest alone.”

“The best thing is for companies, particularly those that have never exported before, to talk with some of the experts there,” Allen continues. “This is not like selling to the next state. There is currency risk, transactional and logistical risk -“ it does us no good to understate that risk. That said, it does make sense to explore exporting to markets that are most similar to ours -“ Canada comes to mind, as do Mexico and England -“ where, with free trade agreements there are advantages.

Allen says that if “that makes sense and after a couple of transactions and the sky doesn’t fall, then it’s time to explore a little further afield. Generally, what that means if finding an agent or a distributor. A distributor reduces your risk because you sell to the distributor and the distributor sells to that country. You could also find an agent in that country. You have a contractual relationship with the agent, maybe they get 3 percent, maybe they get 10 percent -“ it depends on how difficult it is to sell -“ it can be exclusive or not. Often this can all be done without leaving the United States. I would advise people to be careful of unsolicited requests. There are scams out there. Take those requests to your foreign commercial services representative and say ‘what do you think?’ We can vet them and if they’re legitimate it might be useful to bid and see what happens.”

While the government will do all it can to facilitate international trade, Allen points out that doing your own research is a good thing as well. “Another resource can be a company’s trade association. Many of them have an international component. Think about the large multinational members of your association. You might be able to supply some of their needs overseas. GM sells more cars in China than in the U.S., so maybe you could supply GM China. Smaller Tier Two or Tier Three manufacturers have opportunities as well. We’re anxious to have them explore those opportunities to create growth in our markets and more healthy businesses for them as well as the employment opportunities, which we so desperately need.

“The world is a big place, and much of it is growing at a faster pace than we are. It’s incumbent on us to take advantage of that growth -“ and get out there and sell. That’s what the Department of Commerce is here for.”

Basic stats about why exporting is a good thing

  • In 2011, more than 41 percent of U.S. goods exports went to our FTA partners, even though those countries only account for 8.3 percent of global Gross Domestic Product.
  • In 2011, the United States enjoyed a $23 billion non-oil trade surplus with our FTA partners, as compared to a $423 billion trade deficit with the rest of the world.
  • In 2011, U.S. merchandise exports to our 17 Free Trade Agreement partners totaled $613 billion, up 17 percent from the $522 billion exported to these countries in 2010.
  • The U.S. had a trade surplus in manufactured goods with our 17 FTA partners totaling $49.9 billion in 2011, more than double the $23.4 billion surplus in these goods recorded in 2010.