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.”