- change ups
Plastics Deficit Popped Up Quickly
Like, to any day in the year 2000, when the nation’s plastics industry showed a trade surplus of $894 million for the year.
But in just two short years, that healthy surplus turned into a sickly deficit of nearly $1.4 billion — a dramatic swing of almost $2.3 billion in only 24 months. And the deficit swung even wider with China. By the end of 2002, the industry had a trade deficit of $3.7 billion with that nation.
Most of the products imported from China that year were consumer goods, like curtains and kitchenware sold at big retailers like Wal-Mart.
But Chinese factories also successfully exported building supplies here in the form of doors, blinds and shutters that Home Depot and other large, do-it-yourself retail outlets offer. Then there are the parts that are exported for automobiles and electronic gizmos, which often are not counted in the trade data.
But it isn’t completely a one-way trade street, even if it seems like it is. China is the third most important trade partner for the U.S. plastics industry, behind Canada and Mexico. It’s just that China sends a lot more here than it imports from the U.S.
Why is that? The Society of the Plastics Industry (SPI) offers three reasons as to why trade for the domestic plastics industry has deteriorated so quickly. The high value of the American dollar, the high cost of natural gas and the movement of manufacturing activity overseas, especially to China, make up the trio of villains.
The dollar has fallen somewhat since SPI gathered its most recent trade numbers last year, which has made U.S. products cheaper overseas. But at the same time, that drop in the dollar’s value has helped to raise the price of energy for plastics makers by making imported oil more expensive.
The average industrial price nationwide for a thousand cubic feet of natural gas in 2002 was $4.02. At the beginning of this month it stood at $5.87, virtually the same price it was in April of last year.
But the price difference between 2002, the year of SPI’s latest trade data, and that of today represents an increase of 46 percent.
And even though the dollar has fallen in relation to the euro, the fall hasn’t been felt in China, which pegs its currency to the dollar.
“We were saying that the Chinese currency, the yuan, was undervalued by as much as 40 to 50 percent. I don’t think it has changed by a large factor,” said Tommy Southall, director of Industry Information Services for SPI.
“If it has changed a few points, that’s all for the good,” he added. “But if it goes from being undervalued from 40 percent to 37 percent, does that really change the picture? Not so much.”
Just a few weeks ago China Finance Minister Jin Renqing pledged to uphold his “stable currency” policy. That monetary policy and the county’s low wages are being blamed for the loss of manufacturing jobs to China and to similar economies in Mexico.
Last fall, roughly 100 domestic plastics industry leaders and SPI members converged on the U.S. Capitol in Washington, D.C., to deliver to Congress a petition signed by over 11,000 industry employees. The document spelled out the crisis the industry faces and it offered these six remedies to the dilemma:
- Promote free trade worldwide and ensure that the nation’s trading partners, such as China, live up to their obligations under the World Trade Organization.
- Create initiatives that provide reliable sources of, and reasonable costs for, energy for plastics manufacturing.
- Create tax policies that encourage capital investment and manufacturing growth.
- End frivolous lawsuits that impede job-creating investments.
- Reform insurance to allow employers to provide medical and other coverage to workers in a cost-effective manner.
- Use scientific evidence to implement a regulatory regime that will protect workers and the environment.
“We were pleased to see that everything we put on our wish list did show up in the president’s manufacturing report that came out of the Department of Commerce.
“We’ve been asked to give testimony recently on the energy issue, which is very important to us,” said Bonnie Limbach, SPI chief communications officer, of the results from the petition.
“We know our visibility has been raised because we hear parroted back to us our concerns when we are talking to members of Congress. We feel we did have a definite impact. We don’t walk in cold now,” she added.
In Washington, SPI President Donald Duncan explained that while the 2002 trade deficit was a startling eye opener, he said it didn’t tell the whole shocking story.
“New SPI data shows that when all the diverse applications not counted under the government’s definition as ‘plastic’ — such as those used in autos, electronics, housewares and a myriad of other products — are added to the equation, the U.S. plastics industry amassed a $14-billion trade deficit in contained plastics products in 2002,” he said.
“More than half the shortfall,” added Duncan, “is attributable to China.”