After numerous challenges have faced the U.S. car industry in recent years, it looks like the industry may have more struggles ahead, at least, for the manufacturers that export to China. In a recent article by the New York Times, China unexpectedly announced increased tariffs for imported vehicles from the United States, a counterattack after the U.S. announced an investigation into China’s solar panel exports.

Zepol’s TradeView™ data shows that China is the third largest importer of U.S. vehicles for 2011, after Canada and Germany. Furthermore, U.S. export values of vehicles to China increased over 50% so far in 2011 compared to 2010. The graph below illustrates the rapid rise for China’s vehicle imports, with Q3 of 2011 marking the fourth consecutive quarter of rising imports.

As trade relations between the U.S. and China become more brittle, the continued protectionism from both sides could have harsh effects for the two countries.

The latest buzz in the international trade world has been around China’s recent quarterly trade deficit, the first in seven years. The country, an important player in the global export market, posted a $1.02 billion deficit for Q1 of this year. China’s increased demand for international products coupled with the lower demand from important markets for Chinese products were major contributing factors to the deficit. U.S. imports from China took a dive in Q1 of this year (see graph below), a typical trend after the holiday bustle. In fact, Q1 was actually up this year, in terms of TEU volume, 5% from quarter one of 2010 and up nearly 20% from quarter one of 2009. China will likely not continue this deficit in Q2, especially as Japan is expected to increase demand for Chinese made products during the recovery and reconstruction process.

Zepol has illustrated the trend of U.S. exports to China for the last three years in the chart below. The end of 2010 saw a large jump in exports to China, the top products being oil seeds and fruits, electrical machinery, and nuclear reactors. China still remains an export driven economy despite the deficit. That being said, China’s imports are certainly growing, along with the number of middle-class consumers, making future deficits possible.

 

With so much talk about the United States outsourcing production to foreign countries like China and Mexico, there is little coverage on China’s move to the U.S. A recent article in Bloomberg Businessweek suggests Chinese companies are expanding manufacturing facilities in the U.S. and experiencing a plethora of benefits.

China’s Suntech Power Holdings has been manufacturing solar panels in an 117,000 square foot factory- not based in China, rather located on domestic turf in Goodyear, Arizona. According to the article in Bloomberg Businessweek, “Chinese companies increasingly are setting up shop in the U.S. to escape trade barriers, capitalize on the U.S. government’s alternative energy push, and learn lessons that would help them in their home market.” In addition, the high unemployment in the U.S. is a favorable factor to Chinese companies looking for U.S. workers.

Does this mean U.S. imports from China are decreasing? Not likely in the near future. In 2010, U.S. imports originating in China rose 16% over 2009 and decreased 2% over 2008. The graph below illustrates this three year trend of imports from China. Many factors, including the economic state as well as trade negotiations, will contribute to the presence of Chinese owned companies in the U.S.

 

U.S. pipe makers were pleased with the recent strict penalties that were imposed upon Chinese made drill pipes for oil drilling. The Commerce Department will raise penalties and impose a nearly 20 percent tariff on imports. The ruling concluded that China was unfairly subsidizing the steel industry and therefore selling the products below market value, causing U.S. companies a painful price disadvantage.

Executive director of the Alliance for American Manufacturing, Scott Paul, stated, “Our manufacturing sector alone has lost 5.5 million jobs in just the last decade – with 2.4 million lost or displaced as a direct result of our massive trade deficit with China. We risk losing our competitive edge as a nation unless strong enforcement of our trade laws occurs when cheating exists.” The ruling will slow down imports from China and help domestic producers become more competitive.

The graph below shows a two year trend of imports for drill and line pipe used for gas and oil drilling. Imports from China have dropped significantly in the last year and will likely remain low in the future with the increased tariffs. Even though imports from China have decreased, imports from other countries like Argentina and Czech Republic have shown increases over last year. On the downside, a decrease in imports of the lower priced products will drive the price tags up for the domestically produced pipes. Many in the pipe manufacturing business, however, seem to think the benefits outweigh the costs.