2nd Quarter 2009


(Click on graph for larger view.)

printers and parts

telephony

monitors

cotton sweaters and pullovers

oil, gas drilling casing and tubing

organo-inorganic chemical compounds


(Who's Next in Line?)

continued from page 1

About 10 manufactured goods have experienced Chinese import growth at levels similar to the tire sector. Half of these are apparels. We show those goods, and their Chinese import profiles, in the accompanying charts. (We show only the most heavily affected among the five apparel goods: cotton sweaters and pullovers. The other apparels have similar profiles.) Domestic production is stagnant or shrinking in all of these goods except the chemical compounds. We would predict that the most likely future trade cases are going to involve these other products. We have some verification that this will be the case. Just a little over a month ago, the U.S. ITC did in fact open a safeguard investigation of oil and gas tubing imports from China.

But none of these potential cases would have a large, direct impact on Tennessee. The once-large apparel industry has all but vanished, and none of these other goods are significant parts of the Tennessee economy. The largest is organo-inorganic chemical compounds, which is also the least likely to be implicated under a safeguard action, as it is the industry in which domestic production continues to grow. Several thousand workers are involved in Tennessee's TV and video monitor industry, making it the most sizable of the sectors that could see more import protection under the safeguards clause.

Of course, the state could also be affected by any retaliation taken by the Chinese. China has already targeted American frozen chicken imports, and it has threatened action on U.S. automotive imports. Tennessee has long been a major automotive exporter and has recently seen a tremendous expansion in chicken exports, too. In the former case, however, only a very small amount of the state's automotive exports go to China. Any Chinese action here will have only a secondary impact on the state. Tennessee chicken exports to China, on the other hand, have been growing rapidly. They have increased in value from about $75,000 in 2004 to just under $8 million in 2008. In 2008, China took one-third of Tennessee's chicken exports. Restricting the Chinese market would thus have a significant impact on the state's chicken processors. However, the crash of 2009 has already reduced sales in China by three-quarters, so any additional damage may be limited. We should also bear in mind that chicken meat makes up far less than one percent of Tennessee's sales to China, so the overall impact on the state's economy is going to be limited.

But this threatened Chinese retaliation signals the potential contours of future Chinese actions. The Chinese government has aimed at two rapidly growing American imports into China, and they are imports that are not primary or intermediate products needed for the continued growth of China's manufacturing sector. If we presume that this will be the criterion for future decisions, we arrive at a list of "most likely targets" for future Chinese restrictions. We can characterize these targets as automotive, chemical, or other. As already mentioned, Tennessee exports virtually no automotive-related products to China. It similarly sends very few chemicals to China, somewhat surprising in light of the state's large chemical industry. In our miscellaneous category, even though the state exports tens of millions of dollars worth of soybean oil and off-road dumpers, practically none of either goes to China. The bottom line is that Tennessee exporters don't appear first in line to absorb significant hits from any Chinese response to American trade actions. A caveat is if China should decide to shoot itself in the foot and aim at goods used in its own industrial production. Its recent imposition of tariffs on adipic acid, though unrelated apparently to the tires case, suggests that we can't rule this completely out. (Tennessee, by the way, is again pretty unaffected by this action.)

continued on page 3 »