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September 25, 2002

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International Molding Report: International trade: Ways to boost exports

This report is prepared for IMM by Agostino von Hassell of The Repton Group, who provides IMM’s monthly Molders Economic Index.

Are molders to your right and left sending product overseas while you struggle to enter global markets? Online tools can help balance the scale.

For molders in the United States, Mexico, and Canada, the opportunities to export goods to major markets such as Asia, Europe, and Latin America have enormous attraction. At the same time molders are faced with increasing competitive pressures from imports from the same regions.

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To find a profitable market niche can be exceptionally difficult as North American molders have an increasingly hard time competing with low-labor-cost countries. Exports of commodity injection molded products have been declining for the past 20 years—products such as low-grade housewares, packaging, caps and closures, or relatively simple automotive parts. Yet at the same time exports of high-value-added, highly engineered, low-tolerance parts have been booming. Sophisticated medical devices are one such market; others are “nano” parts and complex automotive subassemblies.

How can molders benefit? The reality is that few molders are direct exporters these days. They sell their components to major medical device makers or other product integrators who have the marketing muscle to export. Yet exports constitute a significant portion of the overall output of North American molding operations.

Import and Export Data
The Society of the Plastics Industry reported that in 2000, overall the U.S. had a trade surplus with the rest of the world. Much of the surplus was due to resin exports. With Mexico alone, the U.S. had a trade surplus of $3.8 billion in 2000 and $3.3 billion in 2001.

For 2001, the SPI reported that the trade surplus in all plastic products fell sharply from $1.6 billion in 2000 to just $560 million. Based on the first six months of this year, 2002 may very well see another major drop. With China alone, the SPI reported, the trade deficit in all plastic products grew from $2.7 billion in 2000 to just more than $2.9 billion in 2001.

We believe that for molders the reality is somewhat different—and starker. Accurate data are hard to obtain. For example, the U.S. has a giant trade deficit in automotive parts and electronics products. But there are no detailed data available that break out the percentage of injection molded items in products such as automotive parts. SPI data also include products that are not molded, such as sheets or plastics bags.

Over the past years we have conducted several detailed analyses of export and import data. By counting all product categories that included injection molded parts—and not limiting ourselves to the somewhat inadequate customs categories for plastics parts—we believe that the U.S. is running a sizable trade deficit in injection molded parts with the rest of the world.

After deducting the internal NAFTA trade, true exports from the U.S., Canada, and Mexico account for about 5.8 percent of total molded parts. That figure is for 2001 and is based on a detailed review of trade statistics and other data. Exports have grown about 4.5 percent in each of the last 10 years.

The import picture is quite different. Of all injection molded parts sold in the NAFTA territory, more than 24 percent are imported. That figure has doubled since 1990, according to U.S. Dept. of Commerce statistics. Such imports grow far more rapidly than exports—on average about 8 percent per year. We believe that in 2001 the U.S. had a trade deficit in molded parts of about $9 billion, and that deficit is growing.

Trade Can Be a Success
Success stories in foreign trade can be found across various product categories served by the injection molding industry. For almost every domestic molder who lost market share due to low-cost imports, you can find another that has been able to boost output due to exports.

How do you succeed in exports? How do you benefit from global markets? Molders who have had concrete success are reluctant to share their secrets. But several interesting common elements emerge:

  • Molders have found growth through exports of highly engineered and often very low-tolerance parts. These are components with very high value added and where, in the overall production and developments costs, labor expenses are only a small fraction. 

  • Injection molded products with expanding foreign markets include subassemblies for medical devices, ultralow-tolerance parts used in applications such as electronics, small appliances, complete subassemblies like rearview mirrors for cars and trucks, telecommunications items, and components for keyboards. 

  • Several molders told us that their research showed a very limited market for molded parts as such. These molders did, however, boost their exports by finding major assemblers of “black boxes” for all types of industries and are exporting to countries such as China, Singapore, South Korea, and Japan. The trick was hard work: endless research, competitive analysis, and frequent, often exhausting sales presentations in Asia.

    Trade Politics
    The Bush administration is making massive efforts to open up trade opportunities, break down trade barriers, and create growth for manufacturing through exports. At the same time, while pushing the concept of “free trade,” the Bush administration is taking a protectionist stance, as can be seen with the antisteel import action. Yet this position seesawed again in late August, when more than 178 imported steel products were excluded from steep tariffs imposed earlier this year.

    This summer President Bush signed into law a trade bill giving him the power to negotiate free trade agreements. It has been eight years since a U.S. president has held the power to make trade deals, which Congress can either approve or reject, but not change.

    The bottom line here for molders is simple. Will the new trade law benefit molding shops? Perhaps. Will the U.S. administration help protect domestic molding operations from low-cost imports? Not likely.

    For example, Taiwan and the U.S. may now develop a free trade agreement, after Taiwan’s President Chen Shui-bian proposed a free trade zone to counter China’s growing influence. (Data collected by the U.S. government show that the mainland Chinese injection molding output is growing on average 18 percent/year, and accelerating.) The ultimate goal is a U.S.-Japan-Taiwan free trade zone that might counter China’s “magnet effect” on trade and investment, one Taiwanese official said.

    It will take several years to negotiate such a trade deal. And the likelihood of including Japan in a free trade zone is somewhat remote, as Japan is unlikely to list historically and culturally based restrictions on agricultural trade.

    Once an agreement is in place with Taiwan, it means initially only the removal of import barriers such as duties. It does not open the doors to “easy marketing.” The hard job—to sell molded products—will follow.

    The same applies to the stated U.S. goal of creating a North and South American free trade zone by 2005. That zone will help reduce trade barriers but it will not take care of marketing efforts for molders.

    Voting With Their Feet
    Many molders and major users of molded parts have abandoned goals to grow U.S.-based operations through exports. Rather, they moved such operations abroad. For instance, Flextronics International Ltd., one of the world’s largest contract manufacturers, is closing its last two major operations in the U.S., in Elk Grove Village, IL and New Braunsfels, TX. The manufacturer of electronics enclosures is being moved to Mexico and China.

    Many smaller molders are taking similar steps, retaining tiny manufacturing operations in North America while benefiting from low labor costs in China, Poland, and India.

    Fighting Back
    Does it make sense for molders to fight back against low-cost imports? Should molders take actions similar to those of the domestic steel industry and look for help from the federal government for import relief?

    The most obvious and logical target is imports from China. Chinese firms are aiming to grab as much of the U.S. market for manufactured goods as possible, and are doing the same in Europe.

    Molders serving markets such as toys, plastic cutlery, and housewares have seen much of their market evaporate in past years. Increasingly you also see Chinese imports grab market share in more sophisticated areas such as automotive parts, electronics, low-grade medical disposables, or electrical parts.

    Are we dealing with unfair trade here? Are Chinese firms dumping goods into U.S. markets? The probability is high, but proving so is difficult and time consuming.

    Getting the Office of the U.S. Trade Representative to support molders here is another challenge. The various markets served by molders do not have the same political pull as industries such as steel and automotive. Thus it is very hard to get molded products high up on the agenda in trade talks.

    This writer has worked on such trade actions for 15 years. Molders have numerous tools available to them to fight against unfair imports. The problem with such actions is that they are expensive and complicated. However, if successful, they could provide measurable relief for some time.

    The most effective but most costly measure would be to file an antidumping petition with the International Trade Commission. This has been done for numerous products in past years and has been effective in most cases.

    Another option is to use the so-called “safeguard” exception in the WTO rules. While the WTO is meant to break down trade barriers (including those in China), some exceptions allow a country to take quick and aggressive measures to head off a sudden wave of imports. This was used by the Bush administration against steel imports this year.

    U.S. Government Help
    The most immediate help would be from the Trade Adjustment Assistance for Firms (TAA, www.taacenters.org), a federal program that provides financial assistance to manufacturers affected by import competition. Sponsored by the U.S. Dept. of Commerce, this cost-sharing federal assistance program pays for half the cost of consultants or industry-specific experts for projects that improve a manufacturer’s competitiveness. Such cost supports are capped at $75,000.

    Online U.S. government resources for growing an export business:

    A number of molders told us that they have not made use of the government’s resources. The reason: They are concerned with the possible complexity of such help and often believe that their businesses are too small or “unimportant” to deserve Washington’s attention. This is a major mistake. Molders—often small shops with sales of less than $5 million—who succeeded in foreign trade have told us repeatedly that using the U.S. government’s help works.

    Several agencies in Washington employ highly dedicated people whose only job is to help you increase exports. Assistance is available in all key areas such as finding leads, negotiating contracts, opening doors, and even financing exports. Some of these experts express amazement at just how few U.S. manufacturers seek out their help.

    So what’s available?

  • www.export.gov. This is the U.S. government’s online entry for U.S. exporters. The site has export-related programs, services, and market research information from 19 federal agencies; it might be the best place to start.       

  • While visiting www.export.gov, also look for information on the International Trade Administration (a unit of the U.S. Commerce Dept.). Within the ITA, the government has organized numerous offices dedicated to specific end markets and boosting exports in those areas. One such office is the Office of Automotive Affairs. OAA’s job is to help facilitate and expand global business opportunities for U.S. automotive vehicle and parts manufacturers. OAA achieves its objective through a variety of programs, ranging from market access and other trade policy initiatives, market analysis, and business counseling to selected export promotion initiatives. Another such unit is the Office of Consumer Goods.       

  • www.buyusa.com. This e-marketplace sponsored by the Commerce Dept. brings together suppliers of U.S. products and services with international companies, and gives both groups the advocacy and services they need to conduct successful business worldwide.       

  • Another critical resource for molders is the little-known U.S. Trade & Development Agency. Its only mission is to help boost U.S. exports and the development of emerging markets.       

  • www.sba.gov/financing/. Concrete help can be found for export financing from the Small Business Administration. The SBA can guarantee up to $1.25 million for a combination of fixed-asset (facilities and equipment) financing and Export Working Capital Program assistance. The fixed-asset portion of the loan guaranty cannot exceed $1 million and the nonfixed-asset portion cannot exceed $750,000.

    Contact information
    The Repton Group, New York, NY
    Augustino von Hassell
    (212)750-0824; [email protected]

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