[W486]What Is Global Market

Asia in recent years has experienced a major surge in the demand for its manufactured goods from the world's largest markets in the United States and Japan. One sector which has benefited from this increase in demand is furniture. For example, in 1990 the United States, the largest market for imported furniture, purchased about 1.7 billion dollars worth of furniture from Asian nations. In the year 2000 this number had grown to over 7 billion and by 2004 had nearly doubled over these four years.

Breaking this trend down by nation, China and the Association of South East Asian Nations, "ASEAN", (of which Indonesia, Malaysia, the Philippines are major members) were responsible for the most gains, while demand held steady for imports from Korea and Japan, and Taiwan actually experiencing a decline in demand for its furniture exports. It is here to that we can clearly begin to see the reasons for this disparity.

More developed nations like Japan, Korea, and Taiwan experienced appreciation in their currencies which have brought with them attendant rises in labor costs. China remains an exception to this; while it is also a highly developed nation it has been careful to control the appreciation of its currency.

Japan, Taiwan, and Korea also lack large domestic supplies of the raw materials necessary for the manufacture of furniture, while China and ASEAN are again the exceptions. These resources include such materials as timber, metal (steel and aluminum), and organic fibers and fabrics. With China and ASEAN already accounting for 92% of all Asian furniture imports in the United States by 2004, it is easy to see that the dual advantage of inexpensive labor and plentiful local supply of raw materials are keys to their success as compared with other exporters in the region.

In fact, the difference in cost of production between China and the ASEAN and its other regional competitors is so pronounced that Japan has actually become a major importer of Asian manufactured furniture. Moreover, Taiwan has had to entertain the idea of leaving the market of manufactured wooden furniture and is begining to produce furniture containing more metal. China however also possesses large local supplies of inexpensive steel which should provide a challenge to potential future Taiwanese competitors.

It may be that the only risks to Chinese and ASEAN dominance as suppliers for the demand for Asian furniture in the United States may be the United States itself. In recent years the domestic producers of many manufactured goods in both Europe and the United States have reacted hostilely to competition from Asia in general and China in particular. Unable to compete, the domestic industries in these major import markets have formed powerful political lobbies with the aim of increasing import duties on a wide variety of Asian and Chinese goods. As recently as November of 2005, the powerful American textile lobby managed to win more protections though the Committee for the Implementation of Textile Agreements, "CITA", an organization with unilateral authority to pass such tariffs.

In the context of global furniture trade, Asia also shows healthy signs of growth with respect to its other international competitors. Of all furniture imported into the United States in 2004, more than 50% was from Asia. This number was up from just under 40% four years earlier resulting from a roughly 90% increase in Asian furniture imports into the United States. Compare this to an increase in 34% from Mexico, 3% from Canada, and an increase of just 0.7% from the EU over the same period. Taken as a function of both volume and rate of increase, Asia is clearly the fastest growing exporter of furniture to the United States.

This all is good news, not just for China, but for the Asian region as a whole, as there has been recent speculation that China's monetary policy, one of its most effective trade tools, might be imitated by other countries in the region. China's monetary policy works to preserve the relative differences in cost between its own producers and those located within its target market, the United States.

China, until recently, pegged the value of its currency to that of the American dollar. This meant that China's Central Bank adjusted the appreciation or depreciation of its currency to match that of the dollar, thus preserving the relative exchange rate within a certain percentage band (in this case +/- 3% per day) determined beforehand.

In response to pressure from the United States, China recently changed its monetary policy to peg its currency to a "basket" of currency to include Euro, the Yen, and the South Korean Won in addition to the dollar. It is widely predicted, however, that this will have little overall effect on the relative value of the Chinese currency to the US dollar, since not only is a majority of the basket likely "weighted" by the dollar, but there is also little reason to believe that China has changed the composition of its reserves to contain less dollars. Neither is it necessary or likely that the Chinese Central Bank will stop performing the majority of its interventions in dollars.

As China's neighbors look to the success of its monetary policy some are exploring the idea of imitating it. The most likely candidates would be the larger and longer standing ASEAN member nations such as Indonesia, Malaysia, the Philippines, and Singapore who have the most to gain. These countries in particular share some of the advantages of China, such as low-cost domestic labor which they may seek to maximize by shifting their monetary policies. This may also influence Korea and Japan to make a similar shift in policy in order to remain competitive in the region.
With China signaling its willingness to adjust its monetary policy, and with its regional trade partners looking to do the same, there is an array of possibilities in which this change might be implemented. Perhaps the most reasonable and advantageous for all parties would be for the nations to peg their currency to a common regional "basket". Doing so would not only strengthen these countries' economic ties to one another, but on the whole would have the effect of further reducing any instability in the exchange rate of China, this being a key factor in the attractiveness of China's exports. Such a move would also make it easy if at some future date these countries decided to enter a monetary union along the lines of the European Union, helping to create a strong regional partnership which would help the Asian nations to accentuate their advantages in the global marketplace. Furthermore it is worth noting China's recent moves to strengthen intra-regional trade relations in Asia in a larger context. This is important because aside from the United States and Europe, trade between the Asian nations accounts for a large portion of their exports.

Even in its current state, however, the nations of Asia show the potential to remain strong competitors in the global furniture export market. They already supply more than half of the imported furniture to the single largest market in the world, the United States, and showing no signs of abating. Asia has shown that it has the formula for success.

By combining low labor costs and large local supplies of timber, leather, metal and the other raw materials used to manufacture furniture, strong infrastructure investments, and a stable monetary policy, Asia as a whole has demonstrated that it will be an efficient supplier for the world's large demand markets well into the future.