U.S. Exporters Feel Favorable Trade Winds
Companies Lifted by Rising Tide of Foreign Sales, Particularly in China

By Peter S. Goodman and Nell Henderson
Washington Post Staff Writers
Tuesday, January 30, 2007

EDEN PRAIRIE, Minn. -- Inside the factory, engineers tinkered with machines that test how well tires hug slick roads while others trained customers on running additional gear.

Only a few years ago, MTS Systems sold its testing equipment mainly to American automakers. No longer. The tire-testing machine was bound for South Korea. A road simulator was headed to a Formula One auto-racing team in Europe. The customers were visiting from Shanghai.

"We have been growing by exporting things to China," said Chip Emery, chief executive of MTS, headquartered here in the suburbs of Minneapolis. "It would be wonderful if all I had to do to survive was sell to Americans, but the earth is round. We survive as a worldwide business."

On Capitol Hill, some lawmakers portray Chinese imports as a threat to national prosperity, and Democratic leaders argue that free-trade pacts have sold out American workers; a hearing is scheduled in the House for today. Last year's election reflected anxiety about the strength of American companies in a global economy. But the nation's shop floors present an alternate view: The United States is in the midst of an export boom, with foreign sales chipping away at the country's enormous trade deficit while providing a modest cushion against the declining housing market.

In the first 11 months of 2006, U.S. exports reached $1.31 trillion, a jump of 13.1 percent over the corresponding period in 2005, the Commerce Department said. That was an improvement over the 10.7 percent gain of the year before.

Exports to China -- whose dominance on American store shelves stokes worry -- increased by 33 percent in the first 11 months of 2006. Combined with Hong Kong, China now stands as the United States' third-largest export market, behind only Canada and Mexico.

President Bush is scheduled to travel today to Peoria, Ill., to visit Caterpillar, the giant maker of construction equipment, as he presses Congress to approve new trade agreements. Caterpillar is one of the companies having notable success selling American-made gear abroad.

To be sure, the export surge is nowhere close to balancing the nation's trade. For the first 11 months of 2006, Americans imported $2 trillion worth of goods and services, or about 50 percent more than they exported, resulting in a trade deficit of about $700 billion. Once statistics for all of 2006 are released next month, they're expected to show that the nation shattered the all-time-record trade deficit of $717 billion, set in 2005. The high price of American oil imports accounts for part of the imbalance.

Still, recent monthly figures show exports growing nearly three times as fast as imports. Economists say exports are being propelled by a falling dollar, which has lost nearly 10 percent of its value compared with other currencies since 2002, making U.S. goods cheaper on world markets. Sales have also been fueled by renewed growth in once-stagnant economies in Japan, Europe and parts of Latin America, increasing demand for U.S. products such as engines, heavy equipment and telecommunications gear.

For the Bush administration, fending off Democratic accusations that it has harmed American workers by allowing jobs to shift overseas, the strong export data have become a prime talking point in its campaign to persuade Congress to approve trade pacts with Peru and Colombia. Commerce Secretary Carlos M. Gutierrez noted that the countries with which the United States has struck trade agreements make up only seven percent of the global economy outside the United States, yet they absorb 42 percent of American exports.

"We are opening up more markets," Gutierrez said. "Our businesses are taking advantage."

John Frisbie, president of the U.S.-China Business Council, said the success of American firms in selling to China is the result of that country's entry to the World Trade Organization six years ago. "It totally changed U.S. companies' ability to reach that market," he said.

China's industrialization has been so swift and its demand for products so intense that it has sparked sales of American-made goods all over the world. Caterpillar racked up exports of $9 billion in 2005, with particularly strong sales to China. American factories churn out oil-drilling gear bound for the Middle East, with much of the resulting crude landing in China. Mining equipment is shipped to India and Australia to extract iron ore bound for smelters in Japan and Korea, with the resulting steel headed to China to be turned into automobiles and skyscrapers.

But even as exports have improved profits for American companies, they have not meant more jobs for American factory workers. In 2006, the United States had 14.2 million manufacturing jobs, according to the Labor Department, roughly the same number as in 2004. American firms have managed to squeeze more goods out of their plants with the same number of workers.

"Growth in output has not been fast enough to require manufacturers to expand the workforce," said David Huether, chief economist at the National Association of Manufacturers in Washington.

Still, some areas of manufacturing have seen sharp job growth, among them computer and electronic products, whose factories added 128,000 production jobs from 2004 to 2006, according to the Labor Department. Fabricated metal products -- which includes everything from sheet metal to silverware -- added 72,000 production jobs over that period, and machinery added 69,000. The automobile industry shed more than 57,000 production jobs, and apparel lost 39,000.

Many economists say the export boom can be sustained because of the vibrancy of the world economy. The World Bank estimates that global output grew at a rapid 5.1 percent last year and that it will grow 4.5 percent this year. Several developing economies, including China's, are expected to grow twice as fast.

But these economists add that exports are not likely to dent the trade deficit significantly, because much of the gear being sold by U.S. firms is used to make products that are then shipped into the United States.

An MTS factory in Oak Ridge, Tenn., makes testing gear for tiny components used by U.S. semiconductor factories that sell products to Asia. In China, workers slot these U.S.-made chips into computers and cellphones that are exported to the United States. China buys about one-third of the U.S. cotton crop, folding it into the production of clothing that lands on shelves from Wal-Mart to Saks Fifth Avenue.

"The only way the trade deficit is going to go away is if Americans become penny-pinching savers," said Catherine L. Mann, a Brandeis University economist and a senior fellow at the Peterson Institute for International Economics in Washington. "How likely do you think that is?"

Given that exports make up a much smaller portion of the U.S. economy than consumption of goods and services -- about 11 percent vs. about 70 percent -- foreign sales will not be big enough to take up the slack if Americans seriously curtail spending because of the housing downturn, said Brad Setser, an economist at Roubini Global Economics in New York.

Still, the slight improvement in the U.S. balance of trade helped the economy grow faster than 3 percent annually over the last three months of the year, up from a 2 percent pace in the previous quarter, according to many estimates.

"Foreigners buying our goods are keeping our factories humming," said Diane Swonk, chief economist at Mesirow Financial Holdings.

Eden Prairie, a grid of glass-fronted office parks spread across former cornfields west of Minneapolis, typifies the ways many American communities have been remade by the advent of a globalized economy. A quarter of a century ago, blue-collar laborers wielded wrenches and welding torches, fabricating pumps, hoses, and pipes. In the late 1980s, they still made computers and electronic parts here, along with the metal nameplates that adorned cars.

Nearly all of that is gone now, the lower-skilled, labor-intensive work having shifted mostly to Asia. The past two decades have seen the arrival of retail shops and chain restaurants to serve the residents of new condominium developments. Surviving manufacturers have gone high-tech, supplemented by dozens of new entrants: firms specializing in medical technology, electronic commerce, software and telecommunications equipment. The town of 60,000 people -- nearly 10 times its population in 1970 -- boasts 50,000 full-time jobs.

"There's an international wage rate for turning a screwdriver, and we're never going to be able to compete in that market," said Scott H. Neal, the city manager. "But the high-technology, high-intellectual-capital, design-and-testing work is going to be done here."

Over the past two years, MTS, one of the world's largest makers of testing equipment, has added about 100 workers in Eden Prairie, bringing its local workforce to 900 and its worldwide force to 1,600. About half the new hires are engineers focused on researching and developing new products, work done entirely in Minnesota. Last year, MTS recorded sales of almost $400 million, up from $248 million a decade ago. Exports have climbed from 44 percent of all sales in 2000 to about 60 percent today. Without that jump, the company would have spiraled down with the U.S. auto industry: Twenty years ago, sales to the Big Three automakers made up 40 percent of MTS's revenue, and as recently as 2000, those accounts were worth $30 million a year, said Emery, the chief executive. By 2002, U.S. automakers' purchases of MTS gear had fallen to about $3 million.

"They have just disappeared as customers," Emery said.

Which explains why MTS is beefing up its sales force in China and why Jeffrey P. Nelson, who heads an MTS design team focused on automotive products, goes there about every six weeks.

As MTS increases its sales, it is expanding business for local firms that supply materials, such as Micro Dynamics, which makes circuit boards. It is leaning more heavily on freight companies, including the logistics firm C.H. Robinson Worldwide, whose global headquarters is less than a mile away.

It arranges shipping for exporters and importers from Beijing to Buenos Aires to Boston, employing 1,200 people in Eden Prairie and more than 6,700 worldwide -- better than double its workforce of five years ago.

The company has set up more than 70 offices overseas, and it envisions further expansion. But the 300 technicians who oversee the system that tracks its shipments are here.

"Minnesota is now part of a global economy like everybody else," said the company's chief executive, John P. Wiehoff. "As long as Robinson is headquartered in Minnesota, growth in other parts of the world will generate jobs here."

Henderson reported from Washington.

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