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News / Business

In Seattle, trade is still all about China. That may be changing

By Camilo Fonseca, The Seattle Times
Published: August 15, 2023, 2:00pm

SEATTLE — At the twin ports of Seattle and Tacoma, there’s a growing belief: China is the present, but Southeast Asia is the future.

That’s the direction many U.S. importers are taking as they shift their manufacturing from Chinese soil to locations farther south — to Vietnam, Cambodia, Malaysia, among others. Simultaneously, U.S. exporters are starting to eye that same region as increasingly attractive markets for U.S. goods.

The ports, acting as a gateway to and exit from North America, are at the forefront of this shift. And it hasn’t gone unnoticed.

By sheer value, the Seattle and Tacoma ports and Seattle-Tacoma International Airport saw more goods imported from Southeast Asia in 2022 than ever, at a total of $13 billion. Exports to Southeast Asia, especially from Washington farmers, are also rising, reaching $5 billion in 2022. Meanwhile, the trade values of Chinese imports and exports are declining.

The transition comes in a period of uncertain trade relations between the United States and China, which has long been America’s largest trading partner. China remains the Port of Seattle’s most valuable trading partner by a significant margin, distantly trailed by Canada and Japan.

Manufacturers have been concerned about the possibility of “decoupling” the U.S. economy from China, though senior U.S. officials have avoided using that language. The Trump administration imposed wide-ranging tariffs in 2018 that were largely maintained by President Joe Biden, whose administration has pursued a “strategic realignment” on trade in the Indo-Pacific region.

“We cannot allow countries like China to use their market position in key raw materials, technologies or products to disrupt our economy and exercise unwanted geopolitical leverage,” Treasury Secretary Janet Yellen said in a speech in South Korea last year.

On Wednesday, the White House announced new restrictions on U.S.-based tech investments in China. The Chinese government said it “reserves the right to take measures” in response.

“With those constraints, businesses usually are more sensitive than the common people,” said Sihong Xie, a professor of economics at Seattle University. “When trouble comes, then they start to move.”

Imports

Compared with other West Coast ports that are more “import-oriented,” the Port of Seattle has managed to carve out a balance of imports and exports — about a 60-40 ratio between incoming and outgoing goods, according to Port Commissioner Sam Cho. That figure doesn’t look to change, he said.

But trade origins and destinations are shifting.

“Traditionally, our No. 1 trading partner has been China, and I don’t think that’s going to change anytime soon,” Cho said. “But other areas of the Asia Pacific are growing.”

China continues to occupy an outsize position among the countries of origin for goods entering the Northwest. In 2022, over $21 billion worth of Chinese goods came through the Seattle and Tacoma ports and Sea-Tac Airport. However, that figure has steadily declined over the past decade — a 36% fall in U.S. dollar value since 2012.

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Meanwhile, the value of imports from Southeast Asia has skyrocketed. Over the same 10-year period, virtually every other Asian trade partner has seen increased trade with Seattle. The value of imports has nearly quadrupled with Vietnam and Cambodia, though they remain a fraction of imports from China.

In terms of market share, Chinese imports, which made up over half of East Asian trade to Washington in 2012, fell to 38.5% last year.

Peter Ku is a Seattle-based executive for OEC Group, an international shipping company that provides container space on third-party vessels. Ku said he has noticed the shift in manufacturing bases firsthand.

“We have our own offices in China, but China’s changing quite rapidly,” he said. “I just came back from Asia myself, and I spent the majority of my time in Southeast Asia this time. We’re seeing more and more of our clientele moving their businesses now, or starting to move their businesses, to places like Vietnam and Cambodia.”

Those countries are prime real estate for companies that want to shift their base of manufacturing outside of China — while being close enough to China to avoid completely disrupting their existing supply chains.

“A lot of the resources that are needed [for manufacturing] are actually still coming from China,” he said. “So, because Vietnam is on the border with China, it makes it easy for them to transfer goods over.”

Seattle-founded REI, for example, sources its products from — 89 of which are in East and Southeast Asia, according to an online factory list. While maintaining a slightly larger footprint in China — 28 partner factories compared with 22 in Vietnam — its expansion there has been eclipsed by that of its neighbors. Since February 2020, the outdoors retailer has added eight new Vietnamese manufacturers — an increase of 57% over three years — compared with just two in China.

Between 2020 and 2023, REI added two locations in Cambodia (where it previously had none), two more in Indonesia and 14 more in Taiwan.

In a statement, REI said Friday it is “constantly adjusting” its overseas supply chain.

“Our goal is to offer high-quality gear at a competitive price,” said Cathy Nielsen, REI’s deputy vice president of product operations. “Over the past few years, the co-op has, like many other brands, sought to diversify supply chains in search of greater resiliency.”

Brooks Running, a Seattle-based footwear and apparel retailer, is another Washington company that has made “a conscious strategy” of shifting production to Southeast Asia, according to Christophe Mahaut, the company’s senior vice president of supply chain operations.

“We do consider the political climate and current issues in regions like Taiwan and China when determining manufacturing partners,” Mahaut said in a statement. “Those factors are something we don’t need to consider to the same degree in Vietnam and Indonesia, where they are less prevalent and where we currently have a larger presence.”

Brooks now has 16 factories in Vietnam, compared with eight in March 2020. The company’s Taiwanese contractors increased from one to four over that period, and it partnered with a company in Indonesia for the first time. Brooks maintains nine contractors in China.

The two retailers offer similar assessments of the economic landscape on both sides of the Indo-Pacific: Businesses are slowly and surely making the shift to elsewhere in Asia. But the question of why is more complicated.

Ku said that a tense political mood in China has not helped matters, adding that Chinese President Xi Jinping’s steps to address the COVID-19 pandemic, which many criticized as overly authoritarian, alienated many businesses.

“It made a lot of international businesses reconsider their exposure in China, because the [Chinese Communist Party] government could essentially change the rules overnight,” Ku said. “For a lot of people, for a lot of businesses, stability is the key. And they’re starting to realize that in China, that could be taken away very easily.”

Somewhat more pressing, though, are the rising costs associated with manufacturing in China. Labor-intensive sectors such as textiles — traditionally one of China’s main exports — have been affected by rising wages.

Lower wages in nearby countries like Vietnam and Cambodia make them significantly more attractive for manufacturers.

“At the end of the day, it comes down to cost,” said Cho, the Port commissioner. “China as a labor market is no longer the cheapest in the world. You’re seeing Apple move [manufacturing] to India, [and] Samsung [move] to Vietnam.”

“China will continue to produce goods that are consumed [in] China,” he added. “But goods that are being consumed by the rest of the world will likely shift to Vietnam or India.”

Exports

The shift to Southeast Asia is not exclusively in the import market. U.S. businesses also see the region as an attractive emerging market for their goods. For Washington, that means agricultural products such as apples and potatoes.

Washington’s food exports are popular among the growing demographic of young, middle-class earners in Southeast Asia, according to Alexis Taylor, the U.S. Department of Agriculture’s undersecretary for foreign trade.

“What we see all over the world when people start having more disposable income, one of the first things they do is they invest in food,” Taylor said.

Washington is a net exporter of agricultural products. The state exports 30% of its apples to overseas markets including Japan, Taiwan and the Philippines; for wheat and potatoes, those figures are at 60% and 90%. And hay is the state’s single largest containerized export, a $650 million business for East Asian farmers.

Thanks to its sizable export market, Washington maintains state trade representatives in several Asian countries — a practice that is relatively rare below the federal level. Olympia has representatives in Vietnam, Japan and South Korea, among other countries.

“That is a lot for a state,” Taylor said. “Washington really leans into this area more than most — into these markets to support their businesses exporting.”

Those representatives have been at the forefront of the state’s East Asia trade strategy. Washington maintained a trade representative in China for two decades, before exiting the country in 2020. That same year, Olympia expanded to Singapore — an office that also works with the Malaysian, Indonesian, Philippine and Thai markets.

“We’ve looked at everything,” said Rianne Perry, head of international marketing with the state Department of Agriculture. “[With] China, we pulled back, and we put the money into Southeast Asia. We’re always looking at: What are exporters looking for, what do they need, what markets are they wanting us to invest in?”

Taylor noted that U.S. exporters also have an opening for consumer-packaged specialty goods, such as Washington wines and craft beers.

“When you go to these markets, there is so much interest and appeal in U.S. products that it really runs the gamut,” she said. “Part of that is because we are known for quality. We are known for safety. No one questions if a product coming from the United States is safe, and in much of the world, people are willing to pay a premium for that.”

The ports

As far as the Port goes, Cho said, it’s only natural to be looking beyond its traditional trading partners.

“It’s like the Wayne Gretzky quote,” he said. ” ‘Skate to where the puck is going.’ ”

The puck, of course, is the shipping carriers that ultimately decide where their vessels onload and offload their goods.

The job for the ports of Seattle and Tacoma, then, is to make their own goal posts as attractive as possible.

“We don’t have direct control over who sends what, we can’t dictate where goods end up,” he said. “But we can be the evangelists for our gateway, right? If convince people that Seattle or Tacoma is the destination through which they should be sending their bulk cargo, we increase volume that way.”

The Northwest Seaport Alliance, a partnership between Seattle and Tacoma, holds that those two ports are positioned for shippers seeking to increase their footprints in Southeast Asian markets. Unlike other major West Coast ports such as Los Angeles and Long Beach, Washington ports can expand shipping capacity by opening new terminal space — including the ongoing redevelopment of Seattle’s Terminal 5.

“This is where we can actually grab the majority of business,” said Deanna Keller, commission president at the Port of Tacoma. “That’s how you capture the market. … You increase their margins by having less dwell times [for offloaded containers] and things like that.”

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