As Chinese slump batters markets, local manufacturers should be wary, not pessimistic

By Curtis Williams | Sep 14, 2015

Most everyone agrees that the recent downward trend in the U.S. stock market was set off by the instability in China's economy. For nearly 50 countries worldwide, China is the top exporting destination, so it's inevitable that a slowdown in China will have a global impact. Although China's economy began cooling off more than four years ago, it was the Shanghai stock market slide, which has lost 40 percent of its value since its high in June, and the devaluation of its currency last month that set off alarms in our own stock markets.

The world's second largest economy has been growing by as much as 14 percent annually, and has now slowed to less than 7 percent (the lowest in over two decades, but still nearly twice the U.S. growth rate). How will this impact the global economy and what should we expect in our own state?

China's economy over the past 30 years has been more about development and investment, as opposed to our own consumer-driven economy. Their primary imports are fuel (oil and coal), industrial minerals (iron ore, aluminum, copper, etc.), followed by electronics, automobiles, and agricultural products.

Many emerging markets rely heavily on exporting their natural resources to China and elsewhere, and some African countries that welcomed a strong Chinese presence have seen their exports to China cut in half in four years. South American and eastern Asian countries are in the same position.

Whether those regions ever had much of a choice between developing as an export- or consumer-driven economy is certainly debatable, but if you depend on other nations to buy your goods, then you are at the mercy of those nations' business cycles. To make matters worse, as demand for those commodities falls, their prices drop, which means even the crude you are still exporting sells for a sharply lower price.

Countries in this position will likely see greater instability reflected by budget shortfalls, unemployment, currency devaluation, and inflation. If you are president of one of the smaller poorer countries, your citizens probably won't like you very much, or the general of your army might decide he can do a better job. In macroeconomics, uncertainty is not your friend and that's why, although no one knows how things will progress, stock exchanges on every continent have been swinging erratically.

For the United States, now is a time that we can actually be happy that our economy does not rely so much on exports. Within our $18 trillion gross domestic product, only about 13 percent of what we make and grow and dig is exported to other countries. Less than 1 percent of our GDP is sold directly to China, so a decrease in exports shouldn't be felt substantially. There will still be ripple effects from a reacting worldwide economy. If a John Deere plant in Iowa sells front end loaders to Brazil, which uses them to excavate tungsten bought by China, then Brazil won't be buying as many loaders.

For Colorado and Utah, the largest exporting destinations are Canada, Mexico, and then China. Colorado exports to China total $655 million, or less than half a percent of its GSP. Exports are split somewhat evenly between manufactured goods and agricultural commodities. Drilling companies within the state have already felt the impact of lower oil prices, and energy related jobs have already been lost.

Like the U.S. as a whole, manufacturing in both states should not see a substantial decline due to China's slowdown. One positive outcome, companies that offshore manufacturing to China are enjoying a stronger dollar, which means their product cost has decreased.

But my wording has been chosen carefully. Just because a downturn in the U.S. economy probably won't be directly caused by China's activities, that doesn't mean there won't still be an economic downturn. There will be; it's just that no one is ever able to accurately predict when or to what degree.

Historically since 1945, the average business cycle lasts about 5.5 years and the Great Recession bottomed out in June 2009. Stocks have nearly tripled in value before they backed off recently. Many analysts believe we're overdue for a slowdown.

I'm not an analyst, but it might not be the right time to undertake an expansion or investment that would require more capital outlay than you can comfortably afford, should a downturn occur in the near future.

Curtis Williams has been in manufacturing management and operations for over 25 years. Contact him at