As the United States and China began talks Thursday to resolve a huge trade imbalance and avert tariffs that would hurt both countries, the Maine International Trade Center prepared for its annual meeting Friday that will focus on accessing Asian markets.
The two economic superpowers are negotiating to cut the $375 billion trade imbalance — the difference between what the United States exports to China and what it imports — by $200 billion by having China buy more American agriculture, semiconductor and natural gas products.
Despite the discord, Maine companies are growing throughout Asia, with the region being the state’s second-largest export partner after Canada. Asian countries bought almost $800 million of Maine products in 2017, according to the MITC. Asia has become an important market for lobster, blueberries, wood pulp and semiconductors.
Kepware, a Portland-based company that makes software to connect disparate manufacturing and automation equipment, has seen its sales through business partners in Asia grow substantially since it started selling in the region in 2012, said Adam Kennedy, senior director of global sales at Kepware. The company was sold to PTC Inc. of Needham, Massachusetts, in 2016. Kennedy will speak on a panel at MITC’s trade day.
Kepware’s sales of $500,000 in 2012 in the Asia-Pacific rose to $4.5 million in 2017. The company’s total sales top $30 million. Europe to date has been a much stronger market for the company, he said, but Asia has the most growth potential.
“We have 10 offices [partners] in the Asia-Pacific,” Kennedy said. “China has the largest growth potential, and we have a big business in South Korea. We are targeting Japan as well, but we had to localize our products there into Japanese.”
So far, the company has not been impacted by the tariff threats between China and the United States, but Kennedy said he’s keeping an eye on developments.
“Events like [MITC’s] trade day help us understand them and we get a broader view on companies in Maine doing business in Asia and their general tariff concerns,” he said.
The boomerang effect of tariffs
In the first volley of tariffs that took effect in late March, the U.S. slapped 25 percent tariffs on steel imports and 10 percent on aluminum products from China, Japan and other countries. China retaliated with its own tariffs, focusing largely on major U.S. farm exports. Those largely didn’t impact Maine companies.
The two countries have provided lists that still are being revised for the second round of tariffs, which haven’t taken effect yet.
Southworth Products Corp. of Portland, a company that makes equipment for vertically lifting heavy items, hasn’t had a direct hit from the first round of tariffs, but it is expecting a boomerang effect from speculation surrounding the effects of those tariffs and the potential second set of tariffs, said company President and CEO Brian McNamara, who also will speak on a panel at the MITC event.
Southworth has been operating in China since 1988, one of the longest times among Maine companies. Less than 5 percent of its $100 million-plus revenue is from Chinese sales.
McNamara said his company buys steel in the United States to make products here, as well as steel in China for its Chinese factory, where it makes subassembly parts that it sells both in China and exports back to the United States.
“There’s been an insane escalation of steel prices since the tariffs went into place,” he said. The first round of tariffs targeted raw steel imported from China, which did not impact his company. However, in the second round, Southworth could be hit with 25 percent tariffs on steel products, including the subassemblies.
“The real results of the tariffs in the first round and speculation around the second round have created a frenzy in the United States with steel prices increasing up to 50 percent from U.S. steel suppliers,” he said.
“So if the tariffs go into place, we might be tempted to increase purchasing from China because it would only be a 25 percent tariff compared to the 50 percent price rise in the United States,” he added. “We could make an economic argument for that.”
Annie Tselikis, executive director of the Maine Lobster Dealers’ Association in Scarborough, said that while the first list of retaliatory tariffs didn’t include U.S. seafood items, there are some efforts to add seafood to the second list.
“I don’t want to see a trade war on seafood products,” said Tselikis, another panelist.
On Tuesday, the MLDA wrote a letter to the U.S. Trade Representative’s office asking the U.S. government to refrain from targeting seafood products, according to the publication IntraFish. It joined three industry associations that on Monday released statements with similar messages. They are the National Fisheries Institute, the Pacific Seafood Processors Association and the At-sea Processors Association.
In April, U.S. Sen. John Kennedy, R-Louisiana, wrote to President Trump asking him to add Chinese crawfish and shrimp to the second list of proposed tariffs.
“In the case of the U.S. lobster industry, the value of the Chinese market has increased exponentially in the last 10 years and is on track to continue to grow and support producers and exporters in Maine,” IntraFish quoted the MLDA as writing.
Tselikis said China is the largest export destination for lobster in Asia, but Thailand is growing because tourists are demanding lobster, as is Singapore with its advanced economy.
“The way to do business in Asia is as an industry targeting growing economies and the middle class,” she said. Malaysia and Indonesia also are up-and-coming markets.
Luke’s Lobster already has franchise operations in Japan and Taiwan, as does Cousins Maine Lobster in Taiwan.
Tselikis predicted continued growth in secondary and tertiary markets in Asia, as well as in smaller cities outside Beijing and Shanghai.
“Maine has a competitive advantage compared to Canada because we are closer to Boston’s airport and the services there. That’s important when you’re shipping a lobster for 40 or more hours,” she said.
Tariffs could hurt ‘both countries’
Panelist Kristin Vekasi, assistant professor of political science and international affairs at the University of Maine at Orono, who is another panelist, is cautiously optimistic about future trade with China and Japan. She also sees big opportunities in South Korea, the Philippines, Singapore, Vietnam and Thailand for trade.
The United States missed an opportunity when President Trump pulled out of the Trans-Pacific Partnership trade agreement in January 2017. Other countries stayed in it, Vekasi said, and are benefiting improved and more unified standards among trade partners in the Asia-Pacific.
Vekasi said one challenge with this week’s trade talks aimed at cutting the trade imbalance by $200 billion is that the United States doesn’t have that much worth of excess goods for China to buy.
She worries that if a China-U.S. trade war ensues, specific U.S. companies operating in China could be targeted, finding it more difficult to get licenses or sell their products into that market.
A trade war, “would be quite devastating to both countries,” she said. “My optimistic view means there will be tough negotiations and we’ll avoid a trade war and Maine will continue to grow trade in Asia.” she said.
She added that Gov. Paul LePage, who is scheduled to give the keynote address at the MITC meeting, has been very supportive of Maine businesses and their ability to pursue trade, and he has been active in trying to attract investment from China and elsewhere.
The governor led overseas trade missions organized by MITC to Hong Kong and Shanghai in 2012 and to Shanghai and Tokyo in 2015.
The annual meeting, which MITC dubs the largest international business event in northern New England, is expected to attract 200 people to the Samoset Resort in Rockport.
Also at the meeting, MITC will present an award to Maine Coast, a York-based lobster dealer and exporter, for exporter of the year.
The service provider of the year award will go to Planson International, a New Gloucester company that provides IT equipment and services to developing nations.
The innovator of the year is Fiber Materials Inc. of Biddeford, which makes specialty products for the defense industry, but is moving into components for commercial markets, including performance racing cars and prosthetics.
The foreign direct investor of the year is International Grand Investment-St. Croix Tissue, a paper company in Baileyville.
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