For many SMEs, exports are the fastest way to achieve financial stability and growth – especially in a competitive economy still strained by the ongoing COVID-19 pandemic. To consider entering new markets, or expanding your company’s existing global footprint, China and the other Asia-Pacific nations offer opportunities to be critically examined and assessed.
Why Southeast Asia and China? Demographics and economic data are clear. The Brookings Institution predicts that Asia will double its middle-class population in 20 years to represent two-thirds of that global class by 2030. Today, there are 2 billion middle-class consumers in Asia (compared to 647 million in the Americas). By 2030, that number will be closer to 3.5 billion. Their demand for consumer goods and services will be immeasurable.
Consider the economic figures: In 2019, China was the world’s second-largest economy (after the U.S.), with a GDP of $14 trillion according to the U.S. Department of Commerce International Trade Administration (ITA). The following ITA comparison provides a prospective on the sheer size of China’s economic engine:
China’s economy is larger than those of Japan, Germany and India combined. China’s largest province, Guangdong, has a nominal GDP larger than Spain’s; the Yangtze River Delta, centered around Shanghai, has a GDP roughly the size of Germany’s.
Let’s look at the export opportunities and challenges if your company considers trading with China and other nations in the Asia-Pacific region:
The ongoing U.S.-China trade dispute, started in 2018, has led some companies to revise their global export strategies. U.S.-imposed tariffs on Chinese imports, and retaliatory tariffs on U.S. goods exported to China, remain high. The Biden Administration has not indicated whether it will change course, although U.S. Trade Representative, Katherine Tai, has “signaled openness to trade negotiations with China.”
While the dispute has complicated export calculations, the economics of China’s consumer and B2B marketplaces mean that significant opportunities remain – for the right products. In addition, a 2020 trade agreement between the U.S. and China to expand purchases of certain U.S. goods by a combined $200 billion over a two-year period should boost exports.
From automotive parts and aviation equipment to cosmetics and healthcare products, exports to China remain robust. The ITA’s Country Commercial Guide can help your business learn more about key industry sectors, regulatory challenges and trade restrictions that may apply.
The cosmetics and toiletries segment offers vast opportunities for U.S. exporters, thanks to the expanding role of e-commerce. Online, even small companies can cross borders to sell their goods directly to consumers. According to the ITA and Statista, the cosmetics and personal care industry in China is forecasted to become the world’s largest market within the next five years. Moreover, “in 2019 the U.S. exported personal care and cosmetic products to China valued at $820 million, up 28% from the previous year and 66% from 2017.” An expanding middle class and rising disposable income means that the Chinese demand for U.S. consumer products is growing and will continue for years. Other key industry sectors that are primed for exports to China and Asia-Pacific include agriculture, design and construction, education, energy, environmental technology, and travel and tourism.
In addition to increased tariffs, U.S. businesses face complex regulatory challenges and deep competition from Chinese concerns. To navigate changing Customs requirements and local regulations that may vary by country, companies should work closely with logistics experts who offer deep knowledge of the region’s marketplace.
Spurred on by the trade dispute, many U.S. companies that relied on China for manufacturing in the past now look towards other nations in Southeast Asia for alternative production locations. These markets offer significant opportunities for U.S. exporters. The Center for Strategic and International Studies notes that “collectively, Southeast Asia is expected to become the fourth-largest economy in the world by 2050 and is already the fourth-largest export market for the United States.” Many nations have joined a regional organization known as the Association of Southeast Asian Nations (ASEAN) including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. According to the Office of the U.S. Trade Representative, U.S. goods and services exported to ASEAN countries in 2017 totaled $111 billion.
Depending on your company’s product or service, several markets in Southeast Asia offer expansion opportunities. As previously discussed here, Singapore is particularly important to the export market due to a strong trade agreement currently in place. According to the ITA, Vietnam also offers significant potential: U.S. exports to Vietnam have increased by 330% over the last ten years making it one of the top-performing markets for U.S. companies. Trade agreements with Vietnam, including the 2007 Trade and Investment Framework Agreement have helped to streamline trade; 2019 U.S. exports to Vietnam reached nearly $11 billion.
Overall, top exports to Southeast Asia countries include electric machinery, aircraft, mineral fuels, and medical instruments. Trade barriers such as complex regulations, corruption and political instability differ from nation to nation. Your business would be well-advised to carefully research the contours of each market. The ITA’s trade.gov is an important place to start. Many trade experts will be watching closely to see if the Biden Administration initiates new regional free-trade talks with the ASEAN nations and revisits some of the tenets of the former Trans-Pacific Partnership Agreement.
Is your company exporting to China or other Southeast Asia nations? Let us know on Twitter @DHLUS.