US ports may choke China's success

Experts predict bottlenecks will slow shipments to the West Coast and in the process, shrink the US trade deficit with the Asian nation.

from the May 14, 2007 edition

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Many experts say that China's huge trade surplus with the US is the result of the Chinese government's fixing the price of its currency, the yuan, at an advantageously low rate on foreign exchange markets. This, in effect, subsidizes China's exports by 30 percent or thereabouts.

In July 2005, China abandoned a longstanding peg against the dollar and tied the yuan to a basket of foreign currencies. The result was a 2.1 percent revaluation of its currency. Since then, the yuan has appreciated about 5 percent more.

But inflation has been lower in China than in the US, canceling out some trade effect of that exchange-rate shift, notes Charles McMillion, an economist with MBG Information Services in Washington. He sees a risk that China could use some of its accumulated dollars to buy more American companies. Lenovo Group in China bought IBM's personal computer operations in 2004 for $1.75 billion.

Last Wednesday, members of the House Ways and Means Committee held a hearing on "currency manipulation" by both China and Japan. "Currency manipulation places American workers, farmers, and businesses at a competitive disadvantage," charged subcommittee chairman Sander Levin (D) of Michigan.

But that problem could solve itself to some degree if American West Coast port bottlenecks retard the growth in Chinese imports.

At the moment, "things are running smoothly" at the ports of Los Angeles and Long Beach, says port spokesman Arley Baker. "There are no problems at all," he says. Nonetheless, with various studies predicting a "staggering" increase in cargo volume, "there will come a time when there could be some hiccups," Mr. Baker says.

Some 43 percent of all seaborne imports enter the US through those two Southern California ports. Last year, they handled 15.8 million TEUs (twenty-foot equivalent units – a measure of the volume of containers moved), up 13.1 percent from 2005. Forecasters see container volume reaching 35 million TEUs at these ports by 2020.

Port expansion on the West Coast is not easy. At Los Angeles and Long Beach, environmental concerns are holding up various projects to lift capacity. Ships, which burn dirty bunker fuel, are a source of pollution, as are trains and trucks. And no new land for off-loaded containers is available.

One repercussion could be the rise of Port Rupert in northern British Columbia. It has extraordinarily deep water and is closer to China than Los Angeles is. The port is about 92 hours by train to Chicago – perhaps a shorter ride than from Los Angeles, if delays are considered.

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