Scrap Really is Our Top Export to China

My last post was about U.S. container exports to China. It focused on wastepaper measured in TEUs (20-foot equivalent containers). This post looks more closely at the value of our exports to China. (For some info about shipping containers and TEUs, click here.)

Trade Overview

China has been the largest source of imports into the U.S. since 2007 when it overtook Canada. It is also the biggest driver of our trade deficit. In 2011, the U.S. had roughly a $300 billion trade deficit with China in goods (our total goods trade deficit was a bit less than $900 million). We imported about $400 billion in goods from China in 2011, while exporting $100 billion. (Note – December trade data are not yet out, so 2011 is the last year for which full-year info is available. However, 2012 will end up looking very similar to 2011, though our trade deficit in goods with China will increase to about $320 billion.)

China is an important export market for the United States. The only countries ahead of it are Canada ($234 billion in 2011) and Mexico ($160 billion). If one considers the EU a single market (I don’t), China would be behind them, as well. Nevertheless, at 7-8% of all U.S. exports at present, China is significant.

China Exports

But what exactly do we export to China? “Boeing and beef” was how one international economist described it back in 2006 (Dong Tao of Credit Suisse – http://www.nytimes.com/2006/07/10/business/worldbusiness/10iht-chitrade.2166399.html). While not completely false, this statement was at best half true. Aircraft at that time had been our top export to China for many years. Beef, however, had not. The high water mark for beef exports to China was in 2002, and that year we sold less than $16 million into the Chinese market. (China placed a ban on U.S. beef imports in late 2003 in response to the mad-cow disease scare. It was never lifted.) In 2006, our top 3 exports to China were aircraft (12%), microchips (9%), and soybeans (5%).

Unfortunately, not too much appears to have changed in 6 years. In 2011, the top 10 export commodities the U.S. sold to China (in terms of value) were soybeans, aircraft, cars, copper scrap, microchips, aluminum scrap, raw cotton, iron and steel scrap, waste paper, and semiconductor manufacturing equipment. (This list has been the same since 2007; coal, however, will displace semiconductor manufacturing equipment this year.)

U.S. Exports to China – 2011 Info

U.S. exports to China All export data in this post are domestic exports and were extracted from the USITC's online database - http://dataweb.usitc.gov

(Note – HTS codes (the second column from the left) are used to collect trade data (and to levy duties on imports that are not freely traded). For a brief explanation, see here.)

As can be seen, our top 3 exports to China in 2011 were soybeans, aircraft and cars. For info about them, go here.

Scrap

Four (4) of the next 6 export categories on our list are scrap – copper, aluminum, ferrous metals, and paper scrap. Together, these items accounted for $10.8 billion of U.S. exports to China in 2011. It should be noted that except for ferrous metal scrap, China is far and away the biggest foreign consumer of these items. In 2011, China accounted for 69% of U.S. copper scrap exports, 72% of aluminum scrap exports, and 60% of paper scrap exports. (Turkey, China, Taiwan and Korea are the major export destinations for U.S. iron and steel scrap. Turkey was #1 in 2011.)

HTS 3915 is the code for plastic scrap and waste. In 2011, the U.S. exported $547 million of such plastic to China. (That was more than half of HTS 3915 exports to all countries. Plastic scrap and waste ranked 34th in exports to China in 2011.) Adding HTS 3915 to the other 4 scrap codes, U.S. exports of all scrap to China totaled $11.3 billion, almost $1 billion more than our official #1 export to China in 2011 – soybeans.

That is amazing. Our top export to China – by value – is now scrap and waste. Scrap from our manufacturing operations, coupled with paper and plastic waste generated by consumers, constitute the most popular product we sell to the Chinese. (Wow.)

How Long Has This Been Going On?!

Scrap and waste exports to China have been growing rapidly for more than a decade. Since 1997, they have increased every year but one (2009 – the bottom of the great recession). U.S. scrap and waste exports to China have grown from $182 million in 1997, to $11.3 billion in 2011. That’s a 34.3% CAGR over a 14 year period!

U.S. Scrap and Waste Exports to China

Growth in scrap and waste

Up until 2008, aircraft and aircraft parts constituted our biggest export to China. That year, soybeans jumped into the top spot, while scrap and waste moved up to #2. Soybeans remained #1 for 3 years.

2011 is the first year scrap and waste was the biggest U.S. export to China. Take a look at the table below. (The $s are in billions.)

Top U.S. Exports to China - 2006 - 2011

Scrap and waste totals

So What? (should we care?)

Scrap and waste are not garbage. They’re a manufacturing input, a raw material commodity. China consuming more and more of our scrap has undoubtedly helped drive prices up here in the U.S. (both for scrap and virgin materials), but that’s the way markets work. While it’s frustrating and creates difficulties for some U.S. manufacturers, dealing with raw material price pressures is just a part of doing business.

However – scrap and waste now being our top export to China is indicative and emblematic of our overall trade relationship. It clearly illustrates how uneven and unhealthy the situation is for the U.S. China sells the U.S. computers, phones and TVs (the top 3 import commodities from China in 2011 – toys were only #4), while we sell scrap, soybeans and aircraft to them. This is a problem. This is not a mix of goods one expects to see being traded between the two biggest economies in the world. It does not look like trade between economic equals. And it certainly doesn’t look like the flow of goods we have with our other major trade partners.

I’ll put up one more post on this topic (in which I’ll contrast our trade flows with China to those with our other major trade partners). Feel free to email me if you have questions, comments or insights. Thanks much.

 

 

 

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U.S. Exports to China Other Than Scrap & Waste

Soybeans

At the 4-digit HTS level, soybeans are our top export to China. In 2011, we shipped $10.5 billion to China. (Most of these soybeans are fed to livestock or used to produce cooking oil.) Soybeans were responsible for 10.8% of all U.S. exports sold to China in 2011. The majority of soybeans grown in America are now exported. And China is the top foreign market – it was the destination for 60% of all U.S. soybean exports in 2011. The Chinese market is thus extremely important to American soybean producers. (back)

Aerospace

Aircraft and aircraft parts constitute our second biggest export to China. At $6.3 billion, they were 6.5% of all U.S. goods sold to China in 2011. However, the aerospace industry is not nearly as reliant as soybean farmers on China as a market. Although China is its #2 export country, only 8% of all U.S. aerospace exports were sold there. This U.S. industry (which is dominated by Boeing and its supply chain) truly serves an international market. Over half of domestic production is exported. So, although China is an important foreign market, it does not dominate aerospace exports. In 2011, the U.S. industry exported at least $1 billion of product to 20 different countries – at #2, China was responsible for 7.6% of all aerospace exports. (France was the biggest foreign purchaser of U.S. aerospace products in 2011 at 7.8%. However, China will almost undoubtedly surpass France as the aerospace industry’s biggest foreign market in 2012.) (back)

Cars

HTS 8703 is “Motor Cars and Other Motor Vehicles Designed to Transport People (other than public-transport type),” which is more or less cars. (This code includes SUVs but not pickup trucks.)

China has a huge and growing car market. It is now, in fact, the largest car market in the world. The Chinese bought about 15 million cars in 2011. They imported about 1 million. (It’s unclear if those imports are included in the 15 million figure – the stats are confusing – but for our purposes, it doesn’t matter: imported cars make up a small portion of the overall Chinese car market. Furthermore, the U.S. is only the #3 source of car imports into China – Germany and Japan are 1 and 2.) About 2/3rds of the cars imported by China are luxury brands; and around 60% of all Chinese car imports are SUVs.

In 2011, the U.S. exported $5.0 billion of cars to China. That was 11% of all cars exported from the U.S. (measured by value). And if one excludes Canada (which is appropriate because North America functions as a single market), 16% of all 2011 car exports went to China. That would seem to be fairly significant.

Well, it is and it isn’t. $5 billion is a sizeable sum, but that was for only about 153,000 cars, which wouldn’t even fill the capacity of a single auto assembly plant. Viewed another way, the U.S. shipped about 7% of its car output to China in 2011. However, if one adds light trucks back to the mix (which one really should), that percentage falls to about 2 ½%.

GM, together with its 2 Chinese joint venture partners, is the leading automaker in China. And GM now actually sells more cars there than in the U.S. So I was surprised to learn that GM is not the top exporters of cars from the U.S. to China. BMW is. Their South Carolina plant shipped over $1.5 billion in product to China in 2011. (That figure sounds low to me.)

Finally, I would be remiss if I didn’t highlight how dramatically U.S. car exports to China have grown in recent years. Before 2005, our car exports were less than $100 million per annum. They grew steadily from then through 2008, dipped slightly in 2009, then took off again. U.S. exports to China jumped from $1 billion in 2009, to $3 billion in 2010, to $5 billion in 2011. In December of 2011, the Chinese government slapped import duties on U.S.-made cars (of up to 21%), which has effectively dampened demand. Car exports have been flat this year. Nevertheless, they are on track to again be our #3 export to China in 2012 (measured at the 4-digit HTS level). (back)

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Shipping Containers

There are about 20 million shipping containers in the world today. Naturally, these are standardized. The vast majority are either 20 feet or 40 feet long, essentially all are 8 feet wide, and most are 8 ½ feet tall. The shipping industry measures container cargo in TEUs, or twenty-foot equivalent units. (One TEU is 20 feet by 8 feet (with no height measurement), so a standard 20-foot container is 1 TEU, and a 40-footer is 2 TEUs. The current global stock of shipping containers is roughly 30 million TEUs. (back)

(See http://www.worldshipping.org/public-statements/2011_Container_Supply_Review_Final.pdf for a very interesting analysis of global shipping container supply.)

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HTS System

Imports and exports are categorized by the Harmonized Tariff Schedule system. The HTS system is hierarchical, starting with 2-digit codes [eg. 01 is live animals; 97 is works of art]. All categories are further divided into 4- and then 6-digit codes [eg, 0101 is horses, asses, mules and hinnies; and 010121 is purebred horses]. In the U.S., the system goes up to 10 digits; however it is standardized across the world through the 6-digit level. (back)

(For more fun than you know what to do with, go to www.usitc.gov/tata/hts/bychapter/index.htm.)

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