WA China Watch Digest Special!

Interview: Robert Hamilton on understanding Washington state’s exports to China amidst China’s economic slowdown

Robert HamiltonBy Wen Liu   Mar. 14, 2016

At the National People’s Congress in Beijing recently, Premier Li Keqiang announced the new target of China’s economic growth for 2016: 6.5%-7.0%. That would be in keeping with China’s growth of last year at 6.9%, the slowest in 25 years, said the Wall Street Journal. 2015 also saw China’s exports and imports fall, by 2.8% and 14.2% respectively, reported Bloomberg News. What does that mean for Washington state, with China as its largest trading partner? In 2014, the state’s exports to China totaled $20.7 billion. Last year, it was $19.5 billion. Is there a connection between China’s slowing and the dip in state’s exports to China? What does the $19.5 billion actually mean? Helping us understand it all is Robert Hamilton, Governor Inslee’s Advisor for Trade Policy, who has advised governors on trade issues, agreements and legislation for over seventeen years.

WCWD: As you pointed out, according to the official US government trade figures, China is Washington state's leading export MERCHANDISE market with exports totaling $19.5 billion last year. What was in the $19.5 billion?

Robert Hamilton: First, the US Census state of origin data series do not purely represent the export of products produced in particular states. Products that are produced in other states but are consolidated in port states are often credited to the port state, even though they are really "pass-through" exports. This is particularly true for commodities. In the case of China, official USG figures indicate that we exported $3.7 billion worth of oil seeds to China in 2015. Oil seeds are almost exclusively made up of soybeans. However, soybeans are grown primarily in the Midwest. Washington produces few, if any, soybean.

Similarly, in 2015, official USG trade figures indicate that we exported $1.5 billion worth of cars to China. Only problem - Washington does not produce any cars. They are just shipped out through the port of Grays Harbor/Aberdeen. Yes, these pass-through exports support some economic activity and employment, but the impact is relatively small.

WCWD: So what was the “real” figure of the state’s exports, of Washington's own products, to China last year? Would China’s slowing affect that part?

Robert Hamilton: If you subtract the $1.5 billion in vehicles and $3.7 billion in soybean exports, it is more accurate to say that Washington state exports to China were closer to $14.2 billion in 2015.

Of that remainder, aerospace (primarily Boeing) accounted for $11.4 billion. These figures represent the delivery of aircraft from sales made years ago. I do not think China's slowing economy will lead to major cancellations of existing orders for Boeing planes given the needs of the market. We could see some contracts or options dropped in the future, but I am not convinced that these will be huge numbers.

So $14.2 billion minus $11.4 billion leaves just $2.8 billion in non-Boeing, non-pass through exports to China.

WCWD: Compared with the 2014 total of $20.7 billion, the $19.5 billion of 2015 was more than $1 billion smaller. What accounts for the dip? Did it have to do with China?

Washington State Department of Commerce FB pageRobert Hamilton: I am looking at the data for the past three years, of state's exports to all countries, that does not include those pesky pass-through exports (soybeans, cars, tobacco, etc.).

In 2013, aerospace accounted for 57.4% of Washington exports. In 2014 and 2015, the figures were 60.1% and 65%, respectively. Now the bulk of those exports represent Boeing deliveries that were contracted for quite a while ago. As a result, I argue that you have to remove these figures to get a better feel for trends in Washington exports. So the figures for non-Boeing and non-pass through exports, from Washington state to all countries, for the last three years are as follows:

2013 2014 2015
$32 billion $31.4 billion $27.3 billion

As you can see, there was significant drop of these exports in 2015 of $4.1 billion. That said, of that $4.1 billion drop off, exports of Washington mineral fuel declined by over $1.8 billion. This might be due to a drop in oil prices, not a drop in volume. Exports of wood products declined by another $500 million but I am not sure of the reason. It could be the impact of the strong dollar which is particularly harmful to exports of commodities. (This could also be a factor in the drop in oil exports.) Aluminum exports are also down by $100 million which is probably due to Chinese exports to third countries as well as the dollar. Other categories are down to but none jump out except for possibly wheat exports which could be due to a number of factors including the size of the crop as well as the high dollar.

I think the biggest causes are the value of the dollar and the general slowing of economies around the world. Yes, China is a factor, but as I indicated earlier, it is by no means the only factor. In fact, we are seeing declines in exports to some of the state’s other top foreign markets, including Canada, Indonesia and the UK.

WCWD: With 2015 lower, 2014 at $20.7 billion proved to be the biggest year for the state in merchandise exports to China, doubled from 2010, and ten times from 2000. What was so special about 2014?

Robert Hamilton: If you look at the non-pass through exports to China for last three Years, you can see the big factor here is Boeing.

Total Aerospace Non-Aerospace
2013 $11.6 billion $8.1 Billion $3.5 billion
2014 $13.2 billion $10.0 billion $3.2 billion
2015 $14.16 billion $11.5 billion $2.66 billion

Certainly overall exports to China have increased over the last decade but this is mainly due to China’s entry into the WTO, demand for planes and overall economic growth.

WCWD: Even with the dip in 2015, Washington state has kept up a trade surplus with China. Imports from China last year, for instance, were about $10 billion, half the exports. That’s very good, right, compared with the U.S. as a whole, with a huge and persistent trade deficit with China?

Robert Hamilton: Contrary to statements about a state trade balance, there is no accurate way to determine the size of a state’s trade balance overall or within any given country. That is because Customs does not track the ultimate state destination of imports even though the name of one of its data series implies this. US Customs has confirmed to me that this data is wildly inaccurate in terms of making claims about a state’s trade balance. So statements in the press about state trade balance are not supportable by facts.

WCWD: You emphasized earlier that these figures were MERCHANDISE exports. So what about services exported from Washington to China? Who counts those? And what were they like in recent years?

Robert Hamilton: National trade balances are based on statistics on trade in services as well as merchandise trade. While there are some non-government estimates of state level services trade, the US government does not collect this information at the state-level. So there is no way to include services trade data in overall state trade balances.

I do not trust any non-government state level services trade figures because they are ultimately based on data collected by the US federal government and the federal government does not believe that the information is good enough to report state level services trade figures.

(For more information on Washington state-China trade, visit Washington State Department of Commerce. For more information on major events in Washington state-China relations, go to WA China Chronicle.)