U.S.-China Trade:An Indiana Perspective

Mark MilesCentral Indiana Corporate Partnership

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Public Attitudes on Free Trade – U.S. & Indiana

CNN/Opinion Research poll conducted 6/26-29/08 shows 51% percent of Americans viewing foreign trade as a “threat to the economy” – the first time a CNN poll registered a majority against free trade.

“The New York senator can count on a major base of support among farmers in the southern part of the state, and autoworkers and steelworkers in the central and north who resent free-trade agreements that have led to job loss in cities like Muncie.” – Los Angeles Times coverage of Indiana presidential primary, 4/5/08

The Indiana State Senate on Feb. 22 passed a resolution calling for a moratorium on any new free trade agreements. Indiana Senate Concurrent Resolution No. 16 urges Congress "to investigate and review" all free trade agreements signed so far by the United States. - Manufacturing & Technology News, 3/9/05

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The Facts Tell a Different Story

• Indiana ranked #1 in production jobs created through international investment in 2006 – IBM Global Locations Report, 2007

• Since 2005, international companies have committed more than $5.7 billion to grow their Indiana operations; international investment commitments in 2007 total $1.01B

• More than 90,000 Hoosier manufacturing workers are employed by international firms

• More than 29 foreign companies have manufacturing operations in Indiana

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Asian Direct Investment in Indiana• Asian /Pacific countries account for 25% of Indiana’s majority-owned foreign

operations• Total Asian investment in Indiana currently approaches $10B

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But What About Job “Offshoring?”• In Indiana, only around ½ of jobs lost since 2004 moved to other locations – the

rest were eliminated as a result of productivity gains or other circumstances

• For 2004 through 2006, 74 percent of the jobs that did move went offshore; however, in 2007 nearly 60 percent of jobs moved went to other states

• What does this tell us?

– Rapid productivity increases are changing the way we work, in both Indiana and China

– As the weak dollar makes “offshoring” less attractive, Hoosiers are just as likely to compete against other Americans than nations like China to retain its manufacturing jobs

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Indiana’s Export Outlook

• Indiana exported more than $26B in goods in 2007, and ranks 11th among states in ratio of export value to total Gross State Product

• China is an increasingly important trade destination for Indiana:

– Indeed, China is the fastest growing destination for Indiana goods, and is now ‐Indiana’s 5th largest export market‐

– While the state’s overall exports grew around 10% from 2006 to 2007, exports to China grew 35% (Indiana Business Research Center)

– From 2000 to 2005, Indiana exports to China grew 151% while total exports grew 40% (US China Business Council). ‐

– Indiana exported more than $758M in goods to China in 2007, and nearly $485M in goods through June 2008, for a projected annualized increase of more than 50%.

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Indiana’s Exports to China

Indiana’s top exports to China include (with export value from 2007): • Industrial Machinery (including computers) $227M • Electrical Machinery (including sound/TV equipment) $90M • Plastics $62M (dropping dramatically in 2008) • Nickel $43M • Organic Chemicals $41M • Medical/Surgical Instruments $32M • Aircraft/Spacecraft & Associated Parts $28M

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Indiana equipment is helping fuel China’s manufacturing growth, perhaps even here in Liaoning Province - China doubled its purchase of Indiana industrial machinery from 2001 2006. ‐

A Hoosier Perspective• Other panelists will discuss the economics of the U.S.-China trade imbalance• Certainly, monetary policy and reforms in areas like intellectual property and

technology transfer are key to improving the relationship• But the big picture remains:

– Free trade has strengthened Indiana’s economy, as it has China’s– China is a valuable trade partner with Indiana– We expect these trends to continue

• The ideal model for dual investment is a company like Cummins, represented today by Steven Chapman:– Headquartered in Indiana, great corporate citizen, continues to grow its

manufacturing/R&D operations– Also invests in China (20+ factories), to support its $1.7B in annual sales here

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Thoughts on the Future

• Indiana will continue to aggressively seek foreign investment and expansion of exports

• As more Hoosier firms enter the Chinese market, can expect continued growth in investment, along with a proliferation of strategic alliances and joint ventures

• How can we encourage more bilateral investment by Indiana and Chinese companies?

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