Are Trade Stats the Best Measure of Success?

Tuesday, January 16, 2007 2:14

In the December edition of Insight magazine Laurie Underwood (author of China CEO: Voices of Experience from 20 International Business Leaders) has written a summary of U.S. Commerce Secretary Gutierrez’s comments during an AmCham luncheon on November 15, 2006.

As an official of the U.S. government, it should come as no surprise that his intent and object during his visit was to protect and promote American business interests. It is his job to do so, and he sums up his objective when he states

“We must show our trading partners that we will hold our trading partners accountable on their commitments to open the markets. Promises to open markets must be kept. And that is central to making people across the world feel good about the trend towards globalization.”

Nothing shocking, except for the fact that I thought globalization was well past “trend towards” and had already occurred.

With China completing its 5th year of W.T.O. ascension, the Secretary’s comments came just following the U.S.T.R. report reviewing China’s progress to date on W.T.O. Commitments

(See related All Roads Posts: Intro, Trading & Distribution Rights, IM/EX Regulations, Internal Issues Affecting Trade, Services,& Legal Framework).

It is when the Commerce Secretary states “The best way to fight protectionism is to make sure that American companies and products have fair access…” that I asked myself

Are trade statistics really the best measure of a country’s success?

It seems like such an easy question to answer, and newspapers from around the U.S. are quoting the statements of politicians, economists, and others everyday that the RMB, cheap labor, and regulatory barriers are preventing American companies from competing on an even playing field.

But are those really the reasons? And more to the point, are American companies really not able to compete fairly in China as the Commerce Secretary suggests?

As luck would have it, while grabbing my copy of Insight, I had also set aside the AmCham 2006 China Business Report where AmCham reported its findings from a survey of 274 member companies.

“This report features data from the largest and most comprehensive survey of AMCHAM member companies in China. In releasing this report, the goal of AmCham Shanghai is to provide insight into the current business environment for U.S. Companies in China.”

In this 40 page report there are a number of topics covered, and the statistics that I found most interesting are very relevant to the above:

1) 51% of respondents are manufacturing in China for sales in the China market (24% are manufacturing for U.S. market)

2) 71.5% of respondents are either Very Profitable or Profitable, 23% are breaking even or have small loss, and 5.6% recorded a large loss

3) Nearly half of respondents have revenue over 10 million USD (13.7% recorded 100 million USD or more)

4) 80% of respondents said that China’s implementation of WTO commitments was either adequate, good, or superior (19% said poor)

5) 94% of respondents say that 2006 was going to be better that or the same as revenues from 2005

So, a gain I ask are trade statistics the best measure of the ability for a country;s companies to succeed in international markets? After all, the stats from the AmCham survey look pretty good overall as AmCham companies are recording larger revenues than ever, they are profitable, and most believe the trend will continue.

The above statistics in my mind are not enough, and actually, the stats above could be just as selective as the those the secretary is using, and the next question that comes to mind is:

How are American products manufactured in China, and sold in China, being fully considered by politicians, economists, and writers? After all, Motorola, Dell, Nike, GE, Corning, GM, McDonalds and several thousand other manufacturers are successfully selling billions of dollars worth of mobile phones, chemicals, computers, food products, etc manufactured in China to Chinese buyers…

At the core of my inquiry is that according to traditional statistics, American branded products produced by American companies in China are NOT being considered American… and thus in my mind, this is where the disconnect lies.
Taking this a step further out on the limb, the more success American companies have manufacturing and selling in China, the wider the trade gap gets as they open further facilities in China to meet demand and good that use to be counted as “American” are now considered “Chinese” by traditional statistics.

I have yet to be able to find something that takes the above into accounted, and there is little doubt that the importation from China of American branded goods into America is something that needs to be considered when one is analyzing the success of products manufactured and sold abroad.

American companies are, as many know in China and as is reported in the AmCham report, doing very well in China and are able to compete. Starbucks buys coffee beans from around the world, McDonalds their potatoes from Simplot facilities in China, GM parts from Mexico/ China/ Japan, etc, and as such, these importations of American products are not counted as “American” products … yet, they are successful… EXTREMELY SUCCESSFUL (See: GM Sees 2007 Sales Gains or The New Superpower: China’s Emergin Middle Class)

Which brings me back to my original question:Are trade statistics really the best measure of a country’s success?

At this point, I would say that the answer is no.

America as a global center for manufacturing of Americna products is no longer as strong as it once was, and the “trend towards globalization” has resulted in a situation whereby traditional measurements have outdated and actually do not accurately reflect the situation on the ground.

What Sectretary Gutierrez (or anyone else for that matter) should be stating is that exports of U.S. based manufactured goods have seen a significant falloff in the last 5 years, part of which can be tied to regulatory hurdles.

However, through globalization we have come to realized while that not all American products are made in America anymore, American products are on the whole still enjoying successful sales around the world no matter what country they are manufactured in.

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One Response to “Are Trade Stats the Best Measure of Success?”

  1. All Roads Lead To China » Are Trade Stats the Best Measure of Success? - Part 2 says:

    February 14th, 2007 at 8:09 pm

    […] a few weeks ago, I posted a theory that the current trade statistics are not well suited for the current global economy in Are Trade Stats the Best Measure of Success?. […]