Promised tariff cuts could spur Indiana exports to China

Indiana logistics firms and their manufacturing clients could gain new export opportunities to China, as the country flooding American shelves with household products plans to reduce taxes on imported goods.

Earlier this month, a former Chinese deputy minister of commerce told China Daily News the communist government plans at least two rounds of reductions this year in tariffs on a range of goods, particularly consumer items.

Increasingly affluent Chinese citizens have been buying foreign-made goods outside the mainland to avoid the higher cost due to import taxes. Chinese officials want those purchases to be made at home.

“Their middle class is growing tremendously,” said John Rowe, managing director of Cargo Services Inc., an Indianapolis-based freight forwarder that arranges shipments around the world. “There’s a great opportunity for U.S. manufacturers to develop another line of business or to strengthen their position in China going forward.”

It’s difficult to say what kind of Indiana manufacturers could benefit because China has yet to release all the details of what types of goods will be subject to import tariff reductions, said David Holt, vice president of the logistics policy organization Conexus Indiana.

This month’s statement from the former Chinese deputy commerce minister follows an announcement last year by China that it would lower import tariffs on more than 600 goods, including consumer items.

“A lot of [the benefit] depends on what the label ‘consumer goods’ is,” added Holt.

If pharmaceuticals are on the list, it would be good for a company such as Eli Lilly and Co., Holt said.  “Or, is it just luxury goods?”

So far, “it does not look like they’ve pulled the trigger on this.”

Cargo Services’ Rowe sees some promising trends. As wages rise in China it’s becoming more expensive to manufacture products there and, thus, non-domestic products could become more appealing.

A rising Chinese currency and further deteriorating U.S. dollar could also be favorable for Indiana exports down the road, said Rowe, who has been shipping to and visiting China over the last decade.

Among his clients exporting worldwide is Union City-based Frank Miller Lumber, which claims to be one of the world’s largest producers of quartersawn hardwoods.

The lumber company has been frequently in China sizing up prospects, such as use of its products in hotel construction. Home building in China could be another area where Indiana exports could take advantage of the rise in China’s consumer class, Rowe said.

 “What’s interesting also, the Chinese love American products,” he added, saying they have a reputation for quality. 

For example, first-time visitors are often amazed by the omnipresent Buick rolling down China’s highways, despite the flood of other imports and the growth of China’s own domestic auto industry. General Motors sells more Buicks in China than in the United States.

Companies ought to look at China, Rowe said. “It’s going to be a very strong market for U.S. goods in the next 10 to 15 years,” he predicts.

That may take some convincing for some North American manufacturers who’ve grown more accustomed to tapping China’s lower-cost labor to make goods sold in the U.S.

China’s communist government also has proven to be a master at using capitalism to its own advantage. It’s drawn trillions of dollars of investment from Western companies intoxicated with lower labor costs and the prospect of selling to China’s vast consumer class.

Meanwhile, China has used foreign investment and technology to create homegrown companies that compete with the West.

Exports of Indiana-made goods to China are on the upswing, however.

A report issued last year by Indiana University’s Indiana Business Research Center ranked China the No. 7 export destination for Indiana’s $28.7 billion in goods exported worldwide in 2010.

State exports to China of $1.09 billion in 2010 marked a 55-percent increase over 2009.

Categories of goods headed to China included vehicles and parts, industrial machinery, pharmaceuticals, electrical machinery and optical and medical instruments.

Canada remains Indiana’s top export destination, with $10.7 billion of goods headed north of the border in 2010, according to the Indiana Business Research Center.