State by State: ASEAN and Arizona Trade

By Chris Devonshire-Ellis, Dezan Shira & Associates

Arizona has a near US$2 billion export trade business with the ASEAN nations, representing about 6 percent of the state’s total exports. These support some 11,896 American jobs in Arizona. Amongst these, the following products are key to the relationship:

1) Computers & electronic products

2) Machinery

3) Transportation Equipment

4) Miscellaneous Manufacturing

5) Agricultural Products

We can break down the primary ASEAN nations’ relations with Arizona as follows:

Indonesia

Arizona exported US$51.6 million of products to Indonesia in 2014, up 6.7 percent. In return trade, Arizona imported US$96 million from Indonesia in 2014, up 37.3 percent from 2013 – close to double that of goods sold by Arizona. The smaller trade volume Arizona has with Indonesia when compared with Malaysia, a much smaller country, indicates that there is an untapped market for Arizona companies to reach out to in Indonesia.  

 RELATED: Pre-Investment Services from Dezan Shira & Associates

Malaysia

Arizona exported US$351 million to Malaysia in 2014, making Malaysia the 12th largest market for Arizona exports. However, exports in 2014 were down 12.4 percent from 2013. This drop appears to be caused in part by retrenchment in Arizona’s semiconductor and electronics exports. Malaysia was the #2 export market for Arizona, and many Arizona companies would send computer chips to Malaysia for assembly. As the semiconductor industry globalized, Arizona’s trade with Malaysia dropped, indicating that a rethink in the state’s semiconductor industry is required.

Arizona imported US$898 million in goods from Malaysia in 2014, ranking fifth overall. The new TPP agreement will affect US trade with Malaysia. Significant tariff reductions can be expected for Arizona exports of plastic sheets and films, which have faced a Malaysian import duty of 20 percent to date. Opportunities exist within this market sector for Arizona companies.

In Malaysian exports to the United States, tariffs of 32 percent for men’s and women’s man-made fiber shirts faced a 32 percent rate in 2013. This will be reduced, making competition in this field from Malaysian exporters more intense.

The Philippines

Arizona exported US$50.5 million in goods to the Philippines in 2014, dropping 29.4 percent from 2013. Again, this drop appears to have arisen from a similar situation as affected the Malaysian market. When assessing export numbers, computer and electronic product exports from Arizona to the Philippines reached a high of US$210 million in 2006, the biggest year for Arizona exports to the Philippines in the past decade, but these declined to US$28.2 million in 2014.

The Philippines exported US$81 million in goods to Arizona in 2014, ranking as the 25th largest country for imports.

Singapore

Arizona exported US$488 million in goods to Singapore in 2014, up 12.9 percent from 2013 and making it the 8th largest export market overall. However, total exports to Singapore were down from US$727.1 million in 2005. Singapore’s high figures as a total for Arizona exports compared with other ASEAN nations are due to its position as a transshipment destination for products destined not only for the Singaporean domestic market, but also for other Asian destinations, including India and China.

These products included:  

1) Computer and electronic products

2) Machinery, except electrical

3) Transportation Equipment

4) Primary metal manufacturing

5) Special classification provisions

Singapore exported US$218 million to Arizona in 2014, making Singapore the largest market in ASEAN with which Arizona has a trade surplus. However, there are concerns about the overall trend of Arizona exports falling right across the ASEAN region. 

State by State: China and Arizona Trade

Thailand

Arizona exported US$511.6 million to Thailand in 2014, ranking it the 7th largest export market overall and up 10.2 percent from 2013. Interestingly, in 2014 computer and electronic products made up 85.5 percent of exports to Thailand. However as has been noted earlier, this trend of exporting such equipment to Asia is now coming to an end and the computing and electronics industry in Arizona needs to reinvest to get around this problem.

Thailand exported US$194 million to Arizona in 2014, meaning Arizona has a trade surplus with Thailand.

Summary

Arizona is in danger of losing a major customer in the computing and electronics sectors when it comes to ASEAN. This industry has been a stronghold for Arizona companies exporting to ASEAN for the past decade, but this is rapidly changing. Local companies in this area must adapt in order to survive, and this will require the development of lower cost supply chains for component parts, or even the repositioning of manufacturing and assembly parts to maintain competitiveness.

When a decade-long export market begins to dry up, as is occurring in Arizona, alternatives must be found. Export markets will not last forever, and it is far better to remain a tax paying contributor to Arizona state, even if it means downsizing labor, than to go out of business entirely. Arizona’s future trade with ASEAN depends upon its semiconductor, computing and electronics industries finding solutions either from within Mexico and South America, or indeed from within Asia itself, where countries such as the Philippines have now become major exporters of the same products. It is time for Arizona to diversify its export industry base when it looks at Asia as a market.

Further Support from Dezan Shira & Associates

Dezan Shira & Associates can service Arizona-based companies that are looking to further develop their operation in ASEAN. The firm can help companies establish a direct office in the country and can guide them through the affiliated tax, legal and HR issues that come with doing so. To arrange a free consultation, please contact our U.S. office at usa@dezshira.com.

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