VIEWPOINTS : The Pacific Rim May Be Little but a Bill of Goods

Gertrude Stein once referred to her hometown as a place where “there’s no there there.” Perhaps it’s time to entertain the same thought about the Pacific Rim as a market for American goods and services.

Before raising some critical questions about the prospects for further growth in U.S. exports to the Far East, let’s first examine the more optimistic phenomenon of Pacific Mania.

We’ve all seen its manifestations. Newspapers and business magazines now devote entire sections to the Pacific Rim; public officials routinely invoke the commercial bonanzas supposedly at hand in the region, and scarcely a week passes without yet another conference celebrating the advent of the Century of the Pacific.

Nowhere is this enthusiasm more unbridled than here in California, where we seem positively absorbed in congratulating ourselves on being the nation’s principal gateway to the Pacific, a region evidently regarded by many as the promised land (or at least that part of it zoned for commercial use).

Unfortunately, much of the allure of the Pacific is based on an odd faith in ambiguous historical trends and a selective reading of trade statistics. For example, Pacific Rimmers, anxious to demonstrate the latest, inevitable stage of the world’s westward progression, are wont to emphasize that more U.S. trade now crosses the Pacific than the Atlantic.

But given the continued preponderance of imports over exports, that bit of news is nothing to applaud. The somewhat annoying fact that more U.S. exports are still shipped across the Atlantic typically goes unacknowledged.

Why then do we remain so enthralled with the Pacific Rim? And why do we in California seem particularly susceptible to the Orient’s lure?

Part of the blame can be attributed to a widespread misuse of U.S. trade statistics.

Mistaken Impression

As a recent study I co-authored for the state World Trade Commission pointed out, there are no export data tracing the movement of goods from the state in which they were produced to their final destination abroad.

Federal officials do, however, publish statistics on exports leaving the U.S. through each of the nation’s 42 Customs Districts, three of which are based in California. Regrettably, the crucial distinction between exports leaving via California’s customs districts and exports by California firms often is blurred, with the former being incorrectly passed off as the latter.

Since geography and the logistics of transportation make California the nation’s chief gateway to the Pacific, it is hardly surprising that most of the merchandise shipped through California’s air and sea ports are bound for the Far East.

Unfortunately, the casual observer is frequently left with the impression that the Far East is the biggest export market for California industry.

For example, it’s been widely reported that 64.4% of California’s $32.8 billion in merchandise exports in 1986 went to the Far East. In fact, these figures describe all U.S. exports shipped through California, not just merchandise originating here.

By contrast, the World Trade Commission study found that the state’s growers and manufacturers exported goods valued at some $24 billion during that year. (California’s total merchandise exports in 1987 increased to about $28 billion.)

More to the point, the study found that no more than 46% of shipments handled by California’s exporters in 1986 crossed the Pacific.

Such misuse of export data is not the only reason for being skeptical about glowing forecasts for expanded exports to the Pacific Rim.

First of all, the Pacific is hardly a hunting preserve for American firms; it’s clearly the most competitive marketplace in the world.

Yet the Pacific is still popularly seen as America’s mare nostrum ( our sea ) , with California as the front-line state. For reasons normally left unclear, it is widely assumed that American businesses will automatically reap enormous benefits in the markets of the Far East.

Optimism Not Supported

That’s why most Pacific Rim conferences tend to resemble nothing so much as the reading of a rich uncle’s will, with all the heirs righteously expecting to be rewarded with a pile of loot, not for reasons of merit but merely out of some claim of kinship.

Reality is less encouraging. If, as Gov. Deukmejian said in his State of the State speech last January, “the sun is now rising in the West,” then the day is dawning over a region not generally praised for its hospitality to American goods and services.

Perhaps more important, though, near-term economic and political trends do not support optimistic forecasts for U.S. exports to the region.

The principal nations of the Far East have export-driven economies that have relied heavily on strong U.S. demand. In their efforts to moderate this dependency, Japan and the region’s newly industrialized countries are busily diversifying their export markets and stimulating their domestic economies to absorb more of their industrial output.

Whether more U.S. firms will benefit from such shifts is uncertain. Nations undergoing the economic adjustments involved in such massive economic restructuring have ample incentives to discourage imports, something the nations of the Far East already do quite skillfully.

Moreover, the emergence of democratic institutions in Taiwan and South Korea, by giving greater voice to domestic interests, will certainly make it more difficult for their governments to accede readily to American demands for greater access to domestic markets.

To a large extent, growing domestic demand is likely to be met by redeploying the industrial capacity formerly devoted to exports. There is also apt to be a substantial increase in the volume of trade within Asia.

There are other, more generic constraints on our potential for exploiting emerging markets in the Far East as well as elsewhere, constraints that counteract the benefits of a cheaper dollar.

For example, many U.S. exporters are producing at or near capacity and therefore are in no position to expand their export business. This is especially true in the areas of paper products and chemicals that have been among our export leaders lately.

Somewhat less evident is that our ability to unleash the hitherto untapped export capabilities of small and medium-sized American firms is being stymied by an overall decline in support services.

Federal budget cuts have replaced experienced personnel with buoyant slogans, and, despite innovative programs instituted by the Export-Import Bank and the State of California, there is a dreadful lack of export financing for small and medium-sized businesses.

In any case, those who anticipate vastly increased export opportunities may be dismayed. Given generally cheaper manufacturing costs and generally less restrictive regulatory environments abroad, large U.S. companies are likely to serve new Asian markets from Asian manufacturing bases.

I do not want to suggest that the Pacific Rim does not offer profitable possibilities for American companies. My point is that we should approach Pacific Rim trade with a more reasonable set of expectations.

Rhetoric notwithstanding, this is not manifest destiny with water wings.

The danger of fostering inordinately optimistic hopes on the part of U.S. businesses is that the inevitable disappointments may well spur a backlash resulting in a new and more virulent wave of protectionism. The movement also does a disservice to many potential exporters by implying there are no important markets beyond the Pacific Rim.

By moderating our hopes and adopting more realistic sets of expectations, we may avoid such an undesirable outcome.