Topic Category: Economy

On several occasions since World War II, and currently, the U.S. economic locomotive has been instrumental in pulling the rest of the world out of periods of poor economic growth. As this occurs, global markets improve, creating new opportunities for traders and investors. Today, new opportunities are emerging in Europe, Latin America and Asia, as well as risks that may affect your company’s bottom line.

Topic: Economy
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In this extremely competitive global economy, financing is not only a necessary part of the export process, but also a very important tool. Your ability to offer your foreign customers liberal payment terms can provide the necessary edge to sell more goods and services worldwide. But, in doing so, it’s essential to accurately weigh the risks. This could mean the difference between international success and failure.

Topic: Economy
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With amazing, even surprising speed, the economic crisis that impacted many Asia Pacific countries during the late 90’s has begun to fade. To varying degrees, the countries have begun the struggle toward recovery. What does this mean for your business?

The swift improvement in Asian economies is certainly encouraging news for U.S. exporters. And while not all countries are expected to increase demand immediately, the overall growth will surely support the continuing economic expansion in the United States.

Topic: Economy
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Asian growth is projected to increase this year, signaling a departure from negative trends inflicted by the Asian crisis. As regional growth rises, U.S.-Asian trade will move into high gear. But that’s not all.

Japan, which has not yet escaped economic malaise, also should benefit from more economically vibrant neighbors. Furthermore, as the world’s second largest economy and the United States’ third largest export destination, Japan represents a huge market. And although its economy is predicted to remain flat, it continues to offer a variety of export, import, and investment opportunities you may wish to consider.

Japan’s Economy Is Struggling

Among other problems, Japan is trying to recover from high levels of debt and low levels of confidence in the financial sector caused by the bursting of the economic bubble in the late 1980s and early 1990s. Additionally, many Japanese sectors, especially transportation, construction, labor, power, telecommunications and energy, are highly overregulated.

Consequently, competition has been constrained and inbound investment has been limited. In response, the Japanese government has taken strong steps to stimulate the economy and lighten the regulatory burden. According to the office of the U.S. Trade Representative, the Japanese government estimates that if deregulation plans are fully implemented, by 2003 Japan’s gross domestic product (GDP) will grow by an additional 0.9% annually.

Japan Represents a Huge Market

Japan’s GDP per capita exceeds $29,000. This is slightly less than the United States’ $31,000, and 38 times more than China’s. Due to the purchasing strength of Japan’s 126 million consumers, U.S. exports there, although down, are still tremendous as compared to other markets.

For example, U.S. exports to Japan last year reached almost $58 billion. Although this is down from its high of $67.5 billion in 1997, it’s still just 10% less than all U.S. exports to the Newly Industrialized Countries (NICS), and more than a third of the total U.S. exports to the Pacific Rim.

U.S. Technology and Service Firms Are Very Competitive in Japan

U.S. high-tech companies, primarily those producing computers, semiconductors, software, pharmaceuticals, medical devices, and aviation products, are extremely competitive in Japan. And many of these large firms have established a solid presence there.

As a result, these firms have learned what it takes to introduce new products quickly. Smaller, new-to-market U.S. firms with innovative technology are often able to find an agent or joint venture partner and begin exporting to Japan with few regulatory hurdles.

Through foreign direct investment, U.S service companies are gaining a greater foothold in Japan. In fact, U.S. providers of retail, entertainment, internet, franchise, restaurant, hotel, marketing, and design services are finding Japan an accommodating market.

U.S. Exporters of Agricultural and Consumer Goods Remain Optimistic

Japan must continue to increase its imports of processed foods to compensate for declining agricultural labor output, according to the U.S. Department of Commerce. This means U.S. exporters of processed food stand to benefit.

Additionally, U.S. suppliers of consumer goods are making Japanese inroads through new marketing channels, including direct marketing, private label, discount shopping and foreign-owned retail stores.

Export Opportunities to Consider

The U.S. Department of Commerce has identified products in strong demand in Japan. These include:

  • Electronic components & power equipment
  • Software, computers & peripherals
  • Telecommunications equipment
  • Automobiles
  • Medical equipment & devices
  • Auto parts & accessories
  • Building products
  • Cosmetics
  • Dietary supplements
  • Machine tools & metalworking equipment
  • Scientific equipment & services
  • Pollution control equipment & services.

Trade Barriers Can Be Complex

Reportedly, many U.S. firms have found it difficult to obtain information on Japanese duties and taxes, as well as standards, regulations and other barriers. And the process often can be cumbersome, slow and discouraging.

However, steps have been taken by Japanese authorities to simplify the process. Nevertheless, it is recommended that U.S. firms work closely with a Japanese partner to obtain guidance and an understanding of the culture and business environment.

Asia Appears Back on Track

Asian output no longer is falling. Improvements in the region’s trade surplus, combined with an easing of local monetary and fiscal policies, have resulted in growth. Thus, all regional economies, except Japan’s, are predicted to achieve annual GDP growth in the 0% - 3% range in the year 2000.

Korea is recovering well, and in some cases, leading the pack. China, which partially has been insulated from the Asian crisis, has taken steps to stimulate its economy. The result: an increase in domestic demand that has somewhat offset a deteriorating trade balance. By mid-1999, however, China’s currency may be allowed to gradually depreciate — which may make your exports less price competitive.

This article appeared in April 1999. (CB)
Topic: Economy
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In response to the global crisis, many countries are implementing reforms to bolster their economies. For several nations, this will lead to sustainable growth. However, in the short-term, some economies will continue to experience difficulties.

To help you reassess export markets, source goods or seek investment opportunities, you should factor in country growth projections. This is because healthy or increasing growth often results in robust demand, while decreasing growth frequently leads to lower priced products and attractive investment opportunities.

Growth Differs Markedly

In 1999, world growth is anticipated to meet last year’s expectations of 2.2% GDP, and rise 3.5% in 2000, according to the International Monetary Fund (IMF). But not all economies will move in the same direction.

Growth of advanced economies is expected to decline slightly to 1.6%, while increasing to 3.5% in developing countries. Imports, on the other hand, are expected to remain the same in advanced economies, but jump significantly in developing markets.

European Union Growth Sound

The Organization for Economic Co-operation and Development (OECD), projects the European Union to achieve solid growth of 2.2% and 2.5% GDP in 1999 and 2000, respectively.

Although slightly lower than last year, the IMF estimates 1999 growth to reach 2.6% in France, 2% in Germany, and 1.9% in Italy. The UK’s GDP is projected to achieve .9%, the lowest in the EU, but begin improving in the second half of the year.

Eastern European Direction Mixed

Central and Eastern European GDP growth is expected to hit 2.2% this year, slightly lower than 2.5% estimated last year, according to the IMF. Hungary and Poland have fared well, and both economies are anticipated to grow approximately 5% this year. However, Russian GDP, which is expected to fall again, this year by 8.3%, has dragged down the regional forecast.

In addition to concerns over reversing the reform process, Russia continues to lack the economic, financial and political policies that will restore investor confidence.

Western Hemisphere GDP to Dip

Canada primarily has been impacted by the decline in commodity prices, especially forest products, coal and base metals. Nevertheless, the IMF projects Canada’s GDP growth to reach 2.2 % in 1999.

Brazil’s devaluation of the real is creating instability that will result in lower growth projections for the region. Prior to this, the IMF projected Argentine GDP growth to reach 3%. And Chile’s economy, which has suffered a deterioration in its external accounts, mostly due to lower world commodity prices, was estimated to reach 2% GDP growth.

According to the IMF, the Mexican economy, which is stinging from lower oil revenues, is anticipated to hover around 3.5% growth this year. However, by 2000, its GDP growth is projected to exceed 4%.

Asia on the Mend

Asian growth is expected to jump from 2.6% in 1998 to 4.3% this year. Indonesia, Malaysia, the Philippines and Thailand, all negatively affected by the crisis, are expected to rise from the ashes, reducing double-digit negative growth to -1% this year. India and China are expected to top 4.8% and 6.6% growth, respectively.

Japan’s ability to strengthen its financial infrastructure is uncertain. Thus, its growth projections hover around 0%, showing minimal improvement in the year 2000.

This article appeared in January 1999. (BA)
Topic: Economy
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What began last year as a financial crisis in one country has led to global financial turmoil today. In order to successfully navigate these uncharted waters, U.S. exporters need to develop finance strategies to retain existing customers, and explore new markets here and abroad.

The Dominoes Fall Harder

A decade ago, the currency collapse in a developing country barely would have been felt in the United States or elsewhere. Today, however, the impact has profound consequences.

In 1995, Federal Reserve Chairman Alan Greenspan said that the highly efficient and increasingly sophisticated international financial system “has the capability to rapidly transmit the consequences of errors of judgement in private investment and public policies to all corners of the world at historically unprecedented speed.”

This was exemplified by the Mexican peso crisis, which was ignited on December 20, 1994. What began as a short-term liquidity problem quickly sparked panic and resulted in the fall of investor confidence, followed by a precipitous drop in the Mexican stock market.

Perceiving that the crisis would erupt in other developing countries sharing similar economic and political characteristics, investor fear spread to Brazil and Argentina. As a result, their stock markets also fell, along with those of other developing countries worldwide.

Asian Crisis Fallout Continues

Having surveyed the tornado-like path produced by the Mexican peso crisis, it appears that the Asian crisis, although more severe, is following a similar course.

The financial problems that began in Thailand in 1997 quickly have spread throughout East Asia. They have added to the severe economic difficulties experienced by Japan in recent years, and have put pressure on China to devalue its currency in order to remain globally competitive.

The Indian subcontinent has not been spared. Poor East Asian economic performance has closed export doors for Pakistan, a country experiencing debt problems. India, too, is facing economic difficulties.

The Impact on Russia

Believing that too many eggs in the emerging market basket is risky, many global investors have pulled their money from Russia.

This has resulted in a downturn of the Russian stock market, the devaluation of the ruble, and increased fears of default on foreign debt by the Russian government and domestic banks. These events have compounded the country’s economic troubles caused by the failures of central planning and the dissolution of the Soviet Union.

In an attempt to stabilize the economy, retain existing investment and attract new funds, newly appointed Russian Prime Minister Yevgeny Primakov recently said Russia intends to meet its domestic and foreign debt obligations, and continue with free market reforms, with some modifications.

Although Russia’s economy is relatively small and has minimal impact on capital and trade flows, it has exposed economic vulnerabilities not only in Eastern Europe, but in other corners of the globe, as well.

Latin America and Canada Feel the Pain

The fallout of the Russian crisis is now being felt in Latin America. Venezuela and Brazil’s currencies are under pressure and stock markets throughout that region significantly have decreased in value.

As prices for commodities fall, resulting from lower world growth forecasts, countries rich in natural resources are feeling the pinch. Depressed oil prices are impacting Venezuela and Mexico, which rely heavily on oil export revenue, while Chile and Peru are hurting from the drop in copper prices. And, Argentina is marred from the fall in agricultural prices.

Even the Canadian economy is affected, primarily due to its exposure of forest products, coal and base metals. Other developed countries sharing these difficulties include Australia and New Zealand.

Creative Finance Is Required

Due to the Asian financial crisis, many companies located in impacted countries are finding it difficult to obtain financing for their purchases. In an attempt to continue exporting to these customers or to attract new buyers, U.S. exporters need to offer longer and more flexible terms. In order to limit your risks, consider utilizing export credit insurance or government guarantees.

Explore New Markets

To compensate for declining exports resulting from the financial turmoil, consider tailoring your product to satisfy the needs of new foreign markets.

Sound economic structures in Canada and the European Union should keep the crisis from doing real damage there. Durability derived from newly enacted reforms in Latin America will likely deter severe fallout. Consequently, these export destinations should remain relatively vibrant.

Also, consider domestic markets in which you’re currently not selling. For instance, from 1996 through 2020, the world’s elderly population consisting of those age 65 and over, will rise almost twice as fast as school or working age groups. You may wish to cater to the tastes of this fast-growing U.S. and world market segment.

Carefully Analyze the Opportunities and Risks

With change comes opportunities—and risks. Whichever strategy you choose to pursue, be sure to analyze the short- and long-term ramifications, and balance the potential rewards with the risks.

This article appeared in October 1998. (NB)
Topic: Economy
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There’s no doubt that exports are very important to the growth and prosperity of the United States — and to companies like yours. However, succeeding internationally in today’s rapidly changing global environment is not easy.

Economic conditions, government policies and the level of confidence in a given currency can change rapidly. Successfully adapting to these changes is not only important — it’s vital.

Topic: Economy
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The Mexican economy is making solid gains as it recovers from the financial crisis that struck it in December 1994. The country’s gross domestic product grew by 5.1% in 1996, and climbed at an impressive annual rate of 7% during the first six months of 1997— well above expectations and quite an achievement from its 6.2% decline in 1995.

As the economy continues to expand, Mexican trade and investment opportunities will grow.

U.S. Exports to Mexico Are Rising

U.S. merchandise exports to Mexico have risen significantly. In 1996, they reached almost $57 billion, a 23% increase since 1995, with 44 out of 50 U.S. states experiencing export growth.

And as the demand for U.S. products has grown, the Mexican share of U.S. world exports has become quite impressive. For example, Mexico now accounts for 10% of U.S. worldwide exports of agricultural crops; 23% of U.S. apparel and other textile products; 21% of rubber and plastic products; 17% of fabricated metal products; and 13% of electronic and electric equipment.

Despite the recession, increases in sectorial bilateral trade have also become significant. From 1993 through 1996, U.S.-Mexican automotive bilateral trade jumped 185.6%; textile and apparel trade increased by 119%; and agricultural exports plus imports rose by 44%, benefitting both U.S. and Mexican businesses.

The prospects this year are even better. In the first four months of 1997, U.S. exports to Mexico virtually equalled U.S. exports to Japan — the second largest American export market — even though Japan’s economy is 12 times larger than Mexico’s.

Best Export Prospects

The 10 top U.S. exports to Mexico are:

  • Automotive parts and equipment
  • Franchising services
  • Building products
  • Pollution control equipment
  • Chemical production machinery
  • Telecommunications equipment
  • Apparel
  • Management consulting services
  • Aircraft and parts
  • Electronic components.

Florida Exports to Mexico Are Also Up Significantly

Exports from Florida also performed well. During the second quarter of 1997, Florida’s exports to Mexico jumped 27%, compared with the same period in 1996, and reached $225 million. By industry, Florida exports that performed exceptionally well included: apparel and other textile products, which increased 130.1%; industrial machinery and computer equipment, 100%; transportation equipment, 97.3%; food and kindred products, 89.5%; textile mill products, 57%; and electronics and equipment, which expanded by 42%.

NAFTA Three Years Later

The task of isolating the economic effects of NAFTA after a little more than three years of operation is challenging. While Mexico’s tariff cuts have been substantial, its market-opening rules are not fully phased in.

The challenge is compounded by several significant events that have directly affected trade flows. These were: the strong performance of the U.S. economy, Mexico’s financial crisis since the 1930s, and the implementation of tariff cuts by the United States agreed to in the Uruguay Round and implemented in the World Trade Organization (WTO).

Nevertheless, according to a recent study released by the Clinton administration, “NAFTA had a modest positive effect on U.S. net exports, income, investment and jobs supported by exports.” This conclusion is shared by several other studies.

NAFTA’s Effect on Mexican Trade Barriers

Under NAFTA, Mexico has reduced its trade barriers on U.S. exports significantly and dismantled a variety of protectionist regulations. Before NAFTA was signed, Mexican tariffs on U.S. goods averaged 10%. Since then, Mexico has reduced this by 7.1 percentage points. This has increased the attractiveness of U.S. goods over European, Japanese, and other foreign country products.

In comparison, U.S. tariffs on Mexican goods averaged only 2.07% and more than half of Mexican imports entered the United States duty-free. Since then, U.S. duties have come down 1.4 percentage points.

NAFTA’s Effect on Key Sectors

Since NAFTA went into effect, U.S. suppliers have seen their share of Mexican imports grow from 69.3% to 75.5%. The greatest gains are in textiles, where the U.S. share has increased 17.2 percentage points to 86.4%; the transport equipment sector, which gained 19.2 percentage points to 83.1%; and the electronic goods and appliances sector, up 7.5 percentage points to 74.3%.

Weigh All the Factors and Know the Risks

Before entering or expanding into any country, it’s important to ask the right questions — and understand the risks. For example, should you adapt your product to better suit Mexican needs? What are the currency risks? How will you get paid?

It’s important to know the answers to these and other questions, and to understand the factors that could mean the difference between a business success or failure.

This article appeared in October 1997. (BB)
Topic: Economy
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The Mexican economy is continuing to grow, recovering from the peso crisis that struck the country in December 1994. As a result, growth projections for 1997 are positive. The government of Mexico anticipates a gross domestic product (GDP) growth rate of 4 percent this year. According to the Mexico Consensus Economic Forecast of Arizona State University, private growth estimates range from 3.7 percent to 4.8 percent, averaging 4.3%.

Mexican Sectors Are Registering Sound Growth

Many Mexican sectors registered sound growth through 1996 and are continuing to expand. The Mexican manufacturing industry, for example, registered strong growth last year, led by the automotive sector, textiles, and the basic metals sector.

The transport and telecommunications sector also demonstrated upward trends, especially during the second quarter of last year. Financial services began to come alive during the April - June period, although banks and debtors continue to incur problems that drag the sector down. And commerce and construction both picked up in the second quarter, a sign that domestic demand is recuperating.

U.S. State's Export Growth Is Positive and Diverse

The growing Mexican economy, combined with tariff reductions and other benefits derived from NAFTA, have resulted in a healthy increase in U.S. exports there. Thus, U.S. exports to Mexico increased 22 percent in the first nine months of 1996, compared to the same period in 1995. This follows increases of 12.1 percent and 18.6 percent in the first and second quarters of 1996, respectively.

According to the Massachusetts Institute for Social and Economic Research (MISER), forty out of fifty U.S. states experienced growth in exports to Mexico in the third quarter of 1996, compared to the same period in 1995. This is good for U.S. exporters and workers.

The border states experienced very strong growth in exports to Mexico. In the third quarter of 1996, Texas exports reached almost $7 billion, a 25.1 percent increase compared to the same period in 1995. And California followed with a jump of 24 percent, reaching $2.3 billion.

In the South, Alabama's exports grew by 115.2 percent, South Carolina's exports rose by 37.5 percent, and Louisiana incurred an increase of 63.1 percent. In the Pacific and Rocky Mountain region, Oregon's exports to Mexico rose by 13.4 percent, Colorado's jumped by an impressive 102.3 percent, and Washington state's increased by 11 percent. In the Northeast, Pennsylvania's exports to Mexico shot up by a whopping 152.1 percent, New York's rose by 21.3 percent, and Massachusetts incurred an export growth rate of 54.9 percent.

26 of 31 U.S. Sectors Experienced Export Growth

Of the 31 industrial sectors classified by MISER, 26 experienced growth in exports to Mexico in the third quarter of 1996, compared to the same period in 1995.

The U.S. electronics sector, for example, incurred a 19.2 percent rise in exports to Mexico. Industrial machinery exports increased by 12.4 percent, transportation equipment expanded by 8.1 percent, textile products and apparel rose by 24.1 percent, and chemical exports jumped by 22.8 percent.

U.S. agricultural exports to Mexico also experienced sound growth, with some sectors performing exceptionally well. Third-quarter exports of crops rose 95.3 percent — rising from $1.27 billion in the third quarter of 1995 to $2.48 billion in the third quarter of last year. And livestock sales rose 134.6 percent, reaching $56.5 million. Overall, agricultural exports increased by just short of 19 percent.

The North-South Relationship Remains Strong

Trade between the United States and Mexico continues to remain healthy. It is estimated that total U.S. exports of goods and services to Mexico last year reached approximately $60 billion. Mexican exports to the United States are estimated at about $72 billion. As trade increase and U.S. and Mexican firm continue to establish partnerships, companies on both sides of the border will continue to benefit, and will become increasingly competitive compared to European and East Asian competitors.

The U.S.-Mexican relationship is further strengthened by Mexican President Ernesto Zedillo's recent announcement that his government will be paying off the remainder of the U.S. financial rescue loan — three years ahead of schedule. This not only enhances our political relationship, but also improves the level of confidence in Mexico's economy.

This article appeared in The Exporter, February 1997.
Topic: Economy
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On September 1, Mexican President Ernesto Zedillo Ponce de Leon delivered his first State of the Nation address to the Mexican Congress. After the presentation, investors signaled their applause by pumping up Mexican stocks to a nine-month high.

As stated by Zedillo, if Mexico had taken a less resolute path in order to prevent the breakdown of the national economy, the outcome could have been considerably different. In fact, he said "The process of recovery would have taken several years and perhaps decades."

Mexico's stiff austerity measures have indeed paid off. The Mexican economy is showing increasingly strong signs of rebounding from the financial crisis which began last December 20th. As a result of President Zedillo's economic recovery plan implemented some months ago, the peso, which surpassed 7.5% last March, has stabilized at an averaged of 6.19% per dollar from June through August; inflation is estimated to have declined to about 2% for the month of August; and the interbank interest rate, which reached almost 110% in March, dropped to less than 40% in August.

New trade figures also show a strong correction in Mexico’s previously large trade imbalance. A 32.1% surge in exports and more moderate 7.5% decline in imports has resulted in a trade surplus of $3.7 billion for the first seven months of 1995. Almost 90% of Mexico’s troublesome “Tesobono” short-term debt has been retired, and very importantly, both the government and private sector have been able to reenter the capital markets sooner than expected.

As recently reported in The Exporter, a survey conducted by the American Chamber of Commerce indicated that capital investment in Mexico by member firms is projected to actually increase by 5.1% this year -- in spite of the crisis. Some of the investment is anticipated to flow into new privatizations and openings in areas such as telecommunications, satellite operations, power generation, rail transport, secondary petrochemicals and ports.

The economic path chosen by the Zedillo administration is a courageous course, but also a difficult one, entailing significant short-term hardships. It should not be taken for granted.

In response to Mexico's earlier debt crisis in 1982, then President Jose Lopez Portillo chose a very different path -- one which nationalized banks, imposed exchange controls, and raised import restrictions and other protectionist barriers. The results were years of protracted economic stagnation.

When the December crisis erupted, Mexican authorities never wavered from their determined adherence to free markets and increased modernization. While some tariffs have increased against some non-NAFTA countries, Mexican authorities have maintained their commitment to continued trade liberalization with NAFTA members and other trade agreement partners.

Mexico has learned its lesson well. Unfortunately, the alternative of protectionism is still seen as an option by some in the region.

During the early 1990s, Venezuela was hit hard by a severe economic downturn. High interest rates and political turmoil precipitated a crisis that caused foreign investment to flee. Unfortunately, Venezuela’s protectionist response only made the situation worse.

Like Mexico in the 1980s, Venezuela nationalized its banks, imposed capital controls, and increased trade barriers. Predictably, the consequences have been dismal. Investment continues to slump and inflation and interest rates remain high.

Other countries in Latin America, feeling the pressure from the Mexican financial crisis and other factors, have also flirted with the temptation of protectionist policies. In March, for example, Brazil raised import tariffs on 109 items. In an action which negatively affected it closest trading partners, Brazil increased duties on automobile imports from 32% to 70%. Argentina recently raised tariffs by 3%. By and large, however, most countries in the region have remained committed to open markets.

Over the last decade Mexico has been an important test case for the free market model of development. Today, its steadfast commitment to free markets and trade liberalization -- while also pressing ahead with important legal, judicial and political reforms -- continues to make Mexico a role model for other developing countries.

This commitment, with assistance of the U.S. led financial package, has laid the foundation for a remarkably quick economic rebound. It is also ensuring a speedy resumption of the strong, two-way trade expansion that has characterized the growing, mutually beneficial, U.S.-Mexican trade alliance. This is a model that should continue to be encouraged.

This article appeared in The Exporter, October 1995.
Topic: Economy
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