Try this word-association game with a manufacturing executive: Say ``globalization'' and ``plastics,'' and the word that most likely follows is ``China.'' Looking at new U.S. government figures on plastics trade, it's easy to see why.
The U.S. plastic processing sector's global trade deficit increased $1.1 billion in 2004, to $3.3 billion, with 60 percent of that coming from a rising deficit with China.
Of course it's not all China; the processing sector's deficit with Canada increased as well, about half as much as China's.
It's not all bad news for plastics: The resin sector's surplus increased 27 percent to $9.3 billion last year, as its trade surplus with Mexico and China rose by more than $300 million with each country.
With Mexico, the picture was good across the board, with the U.S. plastics industry maintaining a $2.9 billion surplus in products, and boosting its trade balance in molds and machinery.
Still, some economists said rising trade deficits in plastics processing are cause for concern.
Economist Bill Wood said the rising deficit, along with Federal Reserve Board figures showing that growth in the U.S. plastics processing industry is lagging overall growth in U.S. industrial production, suggests rising penetration of imports.
``One explanation ... is we've lost a lot of volume to overseas production,'' said Wood, president of Mountaintop Economics and Research Inc., a plastics consulting firm in Greenfield, Mass. But it's hard to say for sure, and the Fed numbers could understate U.S. growth, he said.
The processing sector has seen a sizable turnaround in its trade picture from 2000, when it had a surplus of $1.1 billion. Since then, the numbers have marched steadily into deficit, at a clip of about $1 billion a year.
Trade experts can debate the causes, from currency to manufacturing moving offshore to high U.S. energy prices. But U.S. government statistics make one thing clear: The biggest change has come from China.
U.S. processors ran a $2.7 billion deficit with that country in 2000, growing to $4.5 billion last year. Rising deficits in commodity products such as tableware, household items and synthetic clothing increased the overall product deficit with China by $700 million in 2004.
Another economist said it is not clear how much of the rising Chinese exports are from U.S. or other Western companies using China as a manufacturing platform. Peter Mooney, an economist and president of Plastics Custom Research Services in Advance, N.C., said studies have shown that about 50 percent of trade from China comes from companies other than Chinese firms.
Mooney, who at times has suggested that U.S. firms have been too slow to react to global trends, said the growth of the deficit with China also could reflect manufacturers moving into China from other Asian countries, rather than just leaving the United States.
Still, the overall trade deficit for plastics processors is rising.
To put it in perspective, the $3.3 billion figure is a small part of the $310 billion U.S. plastics industry. But some studies indicate that figure could understate the actual situation dramatically, because it only reports industries the government considers literally plastics, like plastic kitchenware or bags.
A study by the Society of the Plastics Industry Inc. in Washington said that when trade is measured in plastic components that are part of finished goods, such as automobile parts or electronics, the industry's deficit was actually $14 billion in 2002, about 10 times larger than the official government figure.
Bag tariffs
One area that seemed to buck the trend somewhat was the plastic bag sector, which was active in pursuing its own trade complaint. A coalition of U.S. and Canadian makers of grocery sacks and other retail bags convinced Washington last year to impose tariffs on imports from China, Malaysia and Thailand.
Several sources, both importers and domestic producers, said it appeared that the U.S. producers boosted their market share.
But a lot of that shift back to U.S. producers came because Asian resin prices started rising in mid-2004, closing the price gap with the U.S. industry, said Frank Cannon, president of PDI Plastics in Westerville, Ohio. PDI imports and is part owner of a bag plant in Perryville, Mo.
``A lot of people went back to U.S. suppliers, but it was mainly an economic justification,'' said Cannon, who opposed the tariffs.
Rex Varn, president of Hartsville, S.C.-based bag maker Hilex Poly Co. LLC and part of the coalition that lobbied the U.S. government, said the U.S. anti-dumping ruling helped reduce imports, along with rising Asian resin prices.
``The combination of those two things had a positive impact on our industry in 2004,'' Varn said. Asian resin prices have dropped this year, which could boost imports, he noted.
Other importers said the U.S. decision did cut off some Asian companies, but it also is pushing the bag business elsewhere in Asia and in South America. U.S. government data indicates a slowing in the growth rate of Chinese and Thai imports in 2004, for example, but increases of more than 100 percent in bag imports from Costa Rica, India, Indonesia, the Philippines, Singapore and Vietnam.
Big picture
Overall, the plastics processing industry numbers mirror rising trade deficits across manufacturing. Frank Vargo, vice president of international economic affairs with the National Association of Manufacturers in Washington, expects the trade deficit to peak this year and fall by year's end, as trade flows catch up with the weaker dollar, at least measured against currencies like the euro.
But Vargo predicts the balance of trade will not correct itself fully until the Chinese currency moves to something resembling a market level.
The trade balance in plastics products with European Union countries improved in 2004, with the deficit dropping 22 percent to $73 million. It remains well below the surplus of $61 million the industry had as recently as 2002, and Wood said that even with the euro rising in value, it's taken longer to improve than he expected.
With Canada, the U.S. government figures show a worsening trade balance: The deficit in plastic products increased to just over $1 billion in 2004, even as the U.S. dollar got weaker.
Serge Lavoie, president of the Canadian Plastics Industry Association in Mississauga, Ontario, said Canadian government figures show ``anemic'' growth in Canadian plastic product exports in 2004, mainly because the Canadian dollar is much stronger than it was 18 months ago - making Canadian exports more expensive.
If the U.S. government figures are accurate, he said it could reflect that products Canada used to buy from the United States now are being imported from elsewhere, particularly Asia, rather than a surge in Canadian exports. Plastic product imports into Canada rose at a much faster rate than exports last year, he said.
The U.S. government data showed little change in other segments of the U.S. industry.
The deficit for machinery fell about 5 percent, to $785 million, as the U.S. industry boosted its surplus with Mexico and China, but saw deficits get worse with Germany, Japan and China.
For molds, the trade situation essentially was unchanged, with the deficit remaining at about $660 million. Government figures showed a better balance of trade with Mexico and Canada offset by an increasing deficit with Japan.
The rising resin industry surplus reflects both increased selling prices - as raw material costs have risen - and increased volumes of exports, said Kevin Swift, chief economist with the American Chemistry Council in Arlington, Va.
While he said the trade numbers may show increased international competitiveness for the U.S. resin industry, Swift argued that the United States still needs an energy policy that will boost supplies of natural gas.
