This has been a tough week in China. Might that mean a tougher year in Missouri?
The Chinese, beset by a struggling economy, lowered the value of the yuan. A massive explosion at a coastal warehouse — some compared it to an atomic bomb — killed more than 40 and put more than 400 in the hospital. The roar of China’s neighbors is growing louder this week over shipping lanes in the South China Sea.
Certainly, China’s president, Xi Jinping, will have much to discuss with President Obama when they meet next month in Washington, D.C. Aside from the pageantry and speeches, the impact of China’s financial issues will have already hit home.
Here’s how it’s happening. First, America has a strong dollar and China’s yuan is in sharp decline. That means Chinese products are less expensive on the world market and America’s are more expensive. The American stock market took a hard fall this week because Chinese consumers will be able to afford fewer US products.
Don’t just think about the impact on corn and other agriculture exports. Think education, too, and other knowledge-based economies.
Second, China’s devaluation of its money is something you can touch. We’re going to continue to see this at the gas pump, and economists say prices may drop to below $2 a gallon after the traditional Labor Day ramp-up.
So let’s get to Missouri. According to the US Global Leadership Coalition, Missouri exports $850 million in goods to China annually. China is the third leading receiver of exports — the leaders are Canada and Mexico, respectively.
How important is trade in general? More than one-fifth of the state’s jobs — 815,000 — are supported by exports, and about 90,000 people work for foreign-owned companies, according to the Coalition.
Missouri is exporting lots of agricultural products — from soybeans to live animals — to China. According to the Missouri Department of Agriculture, every $125,000 in exports equals one Missouri job.
China and Missouri have long worked toward a trade hub in St. Louis with regular flights. Governor Jay Nixon led trade missions to China and signed a $4.4 billion trade deal in 2011.
But all of these things are brought into question if our exports are too expensive or must be sold at a discount.
Missouri’s corn industry has already faced difficulty in China, which is America’s third-largest market.
The Chinese have been rejecting a variety of genetically modified corn sold to the American corn industry by Swedish giant Syngenta AG. A class action lawsuit is gathering steam in Missouri, claiming the seed was sold to American farmers while knowing it would affect Chinese crop buying. Lawyers say corn growers in America may have lost $3.4 billion already, and corn prices are now at a five-year low — partially as a result.
Compounding this, say experts, the fall corn harvest could be a disaster in Missouri because of the devaluation of the Chinese currency.
On the South China Sea question, Japan and China have been fighting over the waterway for more than 100 years. China has recently constructed an island there, and it’s capable of servicing large navy and air operations.
Two reasons we should care: About $5.3 trillion in trade passes through the area each year, according to the Council on Foreign Relations. Some of that, as you might imagine, is coming from Missouri. Second, and far more important, America could get dragged into a conflict if the escalation continues.
Finally, the fire in Tianjin is of epic proportions. The death toll continues to climb, and hundreds are injured – many of them critically. I’m particularly tied to the tragedy because I have a number of friends and former students from China, and they are filling my email account with countless images.
According to the Missouri Department of Higher Education, Chinese students are clearly the largest percentage of foreign students on Missouri university campuses. They often pay full freight, and the state once estimated the annual value to the state’s economy at north of $270 million. It is surely higher now.
Might we expect fewer Chinese students with the rise in tuition caused by the devaluation?
I’ll always remember the story I heard once from former Vice President Walter Mondale.
When he was our ambassador to Japan in the Clinton administration, he said he visited China. During his trip, he said he went into a thatch-roofed home in a small Chinese city.
Inside the house, an elderly man took him to a map of America on the wall. There, he pointed to three pins, which symbolized the places that his children were studying. The man had never been to America, but he knew the geography.
Mondale wondered aloud: How many Americans could do the same with a map of China?
Randall D. Smith is the Donald W. Reynolds Chair in Business Journalism at the Missouri School of Journalism and is the founder of Missouri Business Alert. He can be reached at email@example.com.