Global trade uncertainties will hit home in Washington
Major trends that could affect the state’s internationalized economy.
Special to The Seattle Times
As costly and divisive as the 777X affair was, it helps ensure Washington will remain a trade powerhouse in the long term.
Nearly half the state’s merchandise and commodity exports in 2012 were aircraft and parts for a total of $36.7 billion.
Nothing else comes close. Soybeans were No. 2, representing 7.2 percent of the total. And no disrespect to soybeans or any of the other agricultural products that are also an important part of the state’s export engine.
With the 777X victory, the Washington Council on International Trade has announced its priorities for 2014. This ”will be a major year for trade policy-progress,” according to Eric Schinfeld, the group’s president
The organization plans to lobby for such issues as fast-track trade-negotiation authority for the president; reauthorization of the Import-Export Bank, a critical helper for Boeing; reforming the Harbor Maintenance Tax to stop its discrimination against the Puget Sound ports, and completion of the Trans-Pacific Partnership.
But, trade being a two-way transaction, the world has a vote, too. What happens outside the boundaries of Washington, or even the other Washington, will be critical to success.
And not only for exports: Every major private-sector employer and corporate headquarters here depends heavily on revenue and growth outside the United States.
So let’s take a walk through some of the major trends that could affect the state’s internationalized economy.
Last week, the World Bank released a fairly optimistic outlook, saying the global economy “is showing signs of bouncing back this year, pulled along by a recovery in high-income economies.”
Even so, it expressed concern about the tapering of the Federal Reserve’s bond-buying program and China’s attempt to rebalance to more consumer spending and less dependence on exports. Also, the eurozone remains fragile, and many countries are plagued by high unemployment and low demand.
The International Monetary Fund predicts global growth at 3.6 percent, slightly above the World Bank’s 3.2 percent. While these are “decent,” as IMF Director Christine Lagarde put it, they are below potential growth of at least 4 percent.
So even the establishment is hedging its bets four-and-a-half years after the official end of the Great Recession.
Even with slower global performance after the recession, Washington exports grew nearly 17 percent from 2011 to 2012. Data for 2013 won’t be available until later this year.
Still, several areas are cause for concern.
For example, Brazil, once a darling of the BRICs, is in trouble. Gross domestic product actually shrank in the third quarter. Brazil’s currency is at risk from Federal Reserve tapering, and the country is facing turmoil over alleged corruption tied to its hosting of the World Cup this year.
Why should we care? Brazil is Washington’s 13th-largest export destination. In the fall, Bellevue-based Paccar began production from a new DAF factory in Brazil. The world’s troubles land on our doorstep.
Another concern is what might be an early indicator of slowing commodities trade in the new year. As of last Tuesday, the Baltic Dry Index, which tracks global shipping, had fallen 39 percent in nine trading days.
Canada, the state’s No. 3 export destination, saw an unexpected rise in unemployment in December. Household debt is twice where it stood 20 years ago and is even higher than in our nation. The biggest unknown: Whether our neighbor to the north can avoid a housing crash.
By far the largest questions for Washington come from East Asia.
Japan is experimenting with heavy stimulus nicknamed Abenomics after Prime Minister Shinzo Abe. Japan is the state’s second-largest export destination and, if it could lift itself out of decades of stagnation, this would be a game-changer.
Otherwise, much of the region is underperforming. India, Washington’s 15th-biggest export partner, saw its growth sink to 5 percent last year, the worst in a decade. Inflation is a worry and infrastructure problems persist.
Our largest trading partner, China, raises the biggest unknowns.
Beijing’s attempts at economic reform are running up against the need to keep growth going, as well as resistance from state-owned companies. The banking sector is jumpy and Chinese shadow banking is unregulated and dangerous. High local debt is another risky element. Pollution is a destabilizing risk for the Communist Party.
At the same time, Chinese leaders have become aggressive about the country’s unrecognized claims to large areas of the South China Sea and East China Sea, as well as islands that are claimed by other nations, including American allies.
Beijing announced a large air defense identification zone (ADIZ) over the East China Sea last fall. This is part of a larger, and escalating, challenge Beijing is making to control the Diaoyu/Senkaku Islands, which Japan also claims.
What happens if Japanese and Chinese fighter jets encounter one another and a junior officer miscalculates?
It is easy to dismiss yet another crazy threat from North Korea. But the rising tensions between China and Japan, as well as between China and the Philippines and Vietnam, could spiral into armed conflict at the heart of the world economy.
So 2014 might be a better year for the world economy and Washington’s international prosperity may well continue.
But there are plenty of black swans, as scholar Nassim Nicholas Taleb termed surprise events that carry major consequences. Perhaps as big a flock as we have seen in some time.
You may reach Jon Talton at email@example.com
About Jon Talton
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest