Global economic trouble has ripple effect on American companies
By Thomas Olson
Published: Saturday, Nov. 24, 2012, 8:57 p.m.
Foreign demand for American products creates demand for workers to produce them, industry experts say.
When overseas economies founder — as is happening in much of Europe — it flows back to American shores in the form of reduced orders for exports from manufacturers in Western Pennsylvania and elsewhere, those experts say.
Take Vista Metals Inc. in McKeesport, for example. The company, which manufactures tungsten carbide preforms for industrial and consumer products, derives about 25 percent of its sales from exports.
“The economies of Germany and the U.K. and Italy are slowing down, and those are all countries we export to,” said Mark Shelleby, Vista's treasurer. He cited “softness” in other European economies as well as China.
“Our exports are down about 5 percent so far this year over last,” said Shelleby, vice chairman of SMC Business Councils in Churchill, a trade group composed of about 1,500 Pennsylvania-based manufacturers. The sales hit, along with other factors, means hiring and capital investments get put “on hold,” he said.
In 2011, exports from Pittsburgh-area factories to foreign markets jumped almost 25 percent, government data show.
Too bad 2012 won't bring a repeat performance, say the experts.
“When there's foreign demand for U.S. products, there's increased demand for the workers. So higher exports bode well for more jobs and higher wages here,” said Douglas Heuck, director of regional indicators for Pittsburgh Today, a research arm of the University of Pittsburgh. “And profits for companies from exports help our region's economy and the nation's economy.”
Manufacturing matters in Western Pennsylvania because the sector directly employs about 89,000 people, or about 9 percent of the 1 million private-sector workers in the seven-county region, according to the state Department of Labor & Industry.
According to Department of Commerce figures, plants in the Pittsburgh region churned out and exported almost $15.2 billion of goods last year, a 24.7 percent jump from less than $12.2 billion in 2010. The percentage increase was much higher than 14 comparable cities benchmarked by Pittsburgh Today.
Pittsburgh-area plants export mostly coal, steel and chemicals, said Heuck, who expects area exports to grow between 15 percent and 19 percent this year.
“European nations will continue to be a major export market for the U.S., but we cannot look to them as a major source of export growth in the future,” said Antony Davies, associate professor of economics at Duquesne University's A.J. Palumbo School of Business.
Economists see sluggish, if any, growth in economies of European Union nations in 2013 — mostly because of debt crises in Greece, Spain, Italy and Portugal.
“Their debt will cause the economies to stagnate,” Davies said. “Their governments will either cut spending or raise taxes, which will drag down the rest of the European economies.”
Taken as a whole, the European Union represents the second-largest market for American exports, with a 14 percent share worth about $155 billion last year, according to the International Trade Commission. Exports to Canada accounted for about 19 percent and were valued at more than $205 billion.
In addition, China's feverish growth rates have cooled, said Davies. He said many exports to China come from heavy manufacturers in Pennsylvania.
Manufactured goods accounted for 47 percent of American exports last year (down from 58 percent in 2000), according to the Census Bureau. Services accounted for 29 percent last year; the rest came mostly from agriculture/commodities and fuels.
The largest markets for Pennsylvania exporters are Canada, followed by China, Mexico, Germany and the United Kingdom, according to the National Association of Manufacturers.
“We have concerns about persistent weakness in the global economy, (including) slower growth in the European Union,” said Linda Dempsey, vice president of international economic affairs for the manufacturing trade group. “And we see contraction in some of those export markets.”
Dempsey also is concerned that lower demand for exported goods to sluggish economies is beginning to yield price fights, trade wars and tariffs — which would further cut into exports.
For example, Brazil in September imposed higher tariffs on about 100 items, including steel products. “That created a lot of concern from American manufacturers,” she said.
Davies said he worries about “the rhetoric about trade wars and tariffs” between U.S. and Chinese officials. Trade wars can last for years, he said, and one side's tariffs lead the other side to retaliate.
Thomas Olson is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or email@example.com.
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