U.S.-China Trade: An Indiana Perspective Mark Miles Central Indiana Corporate Partnership 1

Public Attitudes on Free Trade – U.S. & Indiana CNN/Opinion Research poll conducted 6/26-29/08 shows 51% percent of Americans viewing foreign trade as a “threat to the economy” – the first time a CNN poll registered a majority against free trade. “The New York senator can count on a major base of support among farmers in the southern part of the state, and autoworkers and steelworkers in the central and north who resent free-trade agreements that have led to job loss in cities like Muncie.” – Los Angeles Times coverage of Indiana presidential primary, 4/5/08 The Indiana State Senate on Feb. 22 passed a resolution calling for a moratorium on any new free trade agreements. Indiana Senate Concurrent Resolution No. 16 urges Congress "to investigate and review" all free trade agreements signed so far by the United States. - Manufacturing & Technology News, 3/9/05 2

The Facts Tell a Different Story Indiana ranked #1 in production jobs created through international investment in 2006 – IBM Global Locations Report, 2007 Since 2005, international companies have committed more than $5.7 billion to grow their Indiana operations; international investment commitments in 2007 total $1.01B More than 90,000 Hoosier manufacturing workers are employed by international firms More than 29 foreign companies have manufacturing operations in Indiana 3

Asian Direct Investment in Indiana Asian /Pacific countries account for 25% of Indiana’s majority-owned foreign operations Total Asian investment in Indiana currently approaches $10B 4

But What About Job “Offshoring?” In Indiana, only around ½ of jobs lost since 2004 moved to other locations – the rest were eliminated as a result of productivity gains or other circumstances For 2004 through 2006, 74 percent of the jobs that did move went offshore; however, in 2007 nearly 60 percent of jobs moved went to other states What does this tell us? – Rapid productivity increases are changing the way we work, in both Indiana and China – As the weak dollar makes “offshoring” less attractive, Hoosiers are just as likely to compete against other Americans than nations like China to retain its manufacturing jobs 5

Indiana’s Export Outlook Indiana exported more than $26B in goods in 2007, and ranks 11th among states in ratio of export value to total Gross State Product China is an increasingly important trade destination for Indiana: – Indeed, China is the fastest‐growing destination for Indiana goods, and is now Indiana’s 5th‐largest export market – While the state’s overall exports grew around 10% from 2006 to 2007, exports to China grew 35% (Indiana Business Research Center) – From 2000 to 2005, Indiana exports to China grew 151% while total exports grew 40% (US‐China Business Council). – Indiana exported more than $758M in goods to China in 2007, and nearly $485M in goods through June 2008, for a projected annualized increase of more than 50%. 6

Indiana’s Exports to China Indiana’s top exports to China include (with export value from 2007): Industrial Machinery (including computers) $227M Electrical Machinery (including sound/TV equipment) $90M Plastics $62M (dropping dramatically in 2008) Nickel $43M Organic Chemicals $41M Medical/Surgical Instruments $32M Aircraft/Spacecraft & Associated Parts $28M 7 Indiana equipment is helping fuel China’s manufacturing growth, perhaps even here in Liaoning Province - China doubled its purchase of Indiana industrial machinery from 2001‐2006.

A Hoosier Perspective Other panelists will discuss the economics of the U.S.-China trade imbalance Certainly, monetary policy and reforms in areas like intellectual property and technology transfer are key to improving the relationship But the big picture remains: – Free trade has strengthened Indiana’s economy, as it has China’s – China is a valuable trade partner with Indiana – We expect these trends to continue The ideal model for dual investment is a company like Cummins, represented today by Steven Chapman: – Headquartered in Indiana, great corporate citizen, continues to grow its manufacturing/R&D operations – Also invests in China (20+ factories), to support its $1.7B in annual sales here 8

Thoughts on the Future Indiana will continue to aggressively seek foreign investment and expansion of exports As more Hoosier firms enter the Chinese market, can expect continued growth in investment, along with a proliferation of strategic alliances and joint ventures How can we encourage more bilateral investment by Indiana and Chinese companies? 9