Finding Opportunity in the Current Export Market
If you’re a global exporter, recent trade talks are likely top of mind. Tensions between some of the world’s biggest markets have created uncertainty, particularly with businesses whose primary exports go to China.
When considering the current climate, its always good to look through a long-term lens and realize the evolving nature of opportunity. When one door seems to be closing, another is always opening. Even in today’s market, there are emerging opportunities to capitalize on if you understand where to look.
Looking at the Impact of Trade Negotiations
In the current economic environment, we’re seeing rising tariffs on markets where U.S. exporters have traditionally done business. For example, in May, China’s Finance Ministry increased duties on U.S. imported goods from 10 percent to up to 25 percent starting June 1. These new tariffs will impact $60 billion worth of goods.
There is a historical precedence for countries employing actions like these during trade negotiations. Last summer, we saw China impose a 25 percent tariff on American-made cars and soybeans, but tactics such as these aren’t the only potential threat to U.S. exporters as trade talks continue.
According to The New York Times, China delayed imports during trade talks last summer through elaborate customs inspections and quarantines of apples, oranges and cherries from U.S. farmers. The country took similar action against Canada in 2018 by blocking shipments of pork, claiming labeling issues. Canola seed farmers also had their shipments blocked due to an alleged pest infestation.
While tactics like these obviously result in delayed payments for exporters, other participants in global trade have faced loss of sales. According to USDA data, China recently rescinded orders for 3,247 metric tons of U.S. pork products, leaving the $6.5 billion pork export market in a bind.
China has also dropped many U.S. soybean exporters in favor of goods from Brazil. As a result, U.S. farmers are now faced with a surplus of goods.
Finding the Window of Opportunity for Exporters
The fact that China has shifted to other countries for imports during the U.S. trade negotiations only underscores the fact that opportunities emerge even as existing relationships shut down. For many U.S. exporters, those opportunities are reflected in Asia’s emerging markets.
Economists tend to agree that these rising markets are in a sweet spot of economic activity, with strong growth and trade as well as manageable inflation. According to the International Monetary Fund, Asia’s emerging economies are expected to grow over 6 percent in the coming year.
In addition, Asia is the fastest growing segment of the developing world and has some of the strongest credit ratings. South Korea, Malaysia and Singapore all carry single-A or higher ratings from all three major rating agencies. Currently, these markets make up more than 50 percent of the MSCI Emerging Markets Index.
Southeast Asia overall offers many opportunities for U.S. exporters, particularly those in the agricultural sector. Since 2008, the number of U.S. agricultural imports has grown 68 percent in these regions.
Much of the growth in imports is inspired by shifts in demographics. For instance, Taiwan’s aging population has sparked an interest in healthy food consumption as well as an increasing demand for prepared foods. The USDA reports that related imports from the U.S. increased 18 percent in 2018.
Indonesia is also driving growth for U.S. exporters with a large young population focused on health and food safety. Spending on food and non-alcoholic beverages grew at a rate of nearly 14 percent during the five year period from 2010 to 2015. As a result, agricultural imports have increased 8 percent according to the USDA.
Vietnam is another rising market with strong opportunity, particularly for food and beverage suppliers. The country has the fastest-growing middle class and a young population that enjoys eating out. Infrastructure growth is also inspiring demand for imports from the chemicals and fuels sectors.
The country is now considered a primary alternative to China for low-cost manufacturing with labor costs that are 50 percent lower than their northern neighbor. Several textile and technology companies have already made the move to Vietnam, and demand is high for imported goods, such as fabrics and machinery, as well as iron and steel.
In addition, the U.S. currently ranks seventh among agricultural suppliers to Malaysia, but the opportunity there is rising. IHS Markit Economics predicts that the country is on track to realize a 5.4 percent population increase by 2021. Simultaneously, the number of middle class households is expected to increase from 5 million in 2016 to 6 million by 2021.
In response, the retail food sector is anticipated to grow, particularly in the areas of infant food, fruit and vegetable juices, dried fruits, edible nuts, and temperate fresh vegetables and fruits, according to the USDA.
The region is also expanding its own agricultural base, creating opportunity for U.S. soybean farmers to place overstocked supplies. The USDA predicts that Southeast Asia will overtake the European Union as the largest importer of soybean meal by 2022, as native pork and poultry production ramps up.
Opportunities Opening in Established Markets
Recently, new trade negotiations with Canada and Mexico could open doors for struggling pork farmers, as well as exporters of aluminum and steel. Both nations agreed to lift heightened tariffs on many U.S. goods that were levied last year. This move would reduce tariffs on many U.S. farm exports, including pork, resulting in escalated demand.
New agreements with Japan are also creating opportunity for U.S. farmers. The country recently agreed to lift restrictions on U.S. beef imports. Japan is currently the third-largest importer of beef, and U.S. beef sales are anticipated to increase 7 to 10 percent as a result of the less restrictive policies.
Opportunity Still Exists for U.S. Exporters
While we can’t predict the outcome or the impact of the prolonged trade negotiations with China, the bottom line is clear. U.S. export opportunities remain strong in both existing and emerging markets.
About the Author
Michael Salerno joined the bank in 2002 and currently leads the Global Banking team, which includes business development, international payments, foreign exchange risk management and trade finance solutions for corporate and correspondent banking customers. International issues can present challenges for organizations, and Michael enjoys creating simple and transparent solutions that reduce the complexity of doing business internationally.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.