It’s a good time for business in Utah. The population is growing. Employment is on the rise. Consumer confidence is high. Across multiple studies, Utah consistently ranks as home to one of the strongest economies in the country.
But no state is an island. As economists and business leaders try to predict what to expect for Utah in 2016, they’re looking beyond the borders of the Beehive State. Not only are they keeping a close eye on the national economy, but they’re also looking globally for the greatest opportunities and risks.
Consumerism in China
It’s impossible to talk about the world economy without starting with China. With more than 1.3 billion people living in the country, China’s population is roughly the size of North America, South America, Australia, New Zealand and all of Western Europe combined. That means big opportunities for U.S. companies—and Utah is looking to be at the forefront.
A trade mission led by World Trade Center Utah, the Governor’s Office of Economic Development, and Zions Bank recently returned from China. The delegation included nearly 60 participants representing 30 different Utah organizations, including private business, nonprofits and universities.
Derek Miller, president and CEO of World Trade Center Utah, was part of that trade mission. He says China’s size and rapid growth—averaging six to seven percent annually— are not the only reason why Utah companies are looking to make inroads into China.
“China is transitioning from a stimulus-based economy—meaning the government was pumping money into economic development, primarily in real estate and construction—into a consumer-based economy,” Miller says. “That is very good news for Utah because now you’re transitioning those 1.3 billion people into 1.3 billion consumers. That will bode well for our exports.”
Utah companies are already taking advantage of the new consumer-based economy. For example, Salt Lake City-based PMI Foods is exporting meat and seafood to China. Another Utah company, Cicero Group, is exporting services, helping Chinese companies with data analytics and strategic consulting. The Cicero Group recently opened an office in Beijing as well.
“Over the next year, I think we will see increased opportunities for exports to China,” Miller says. “In the ‘90s, when Chinese markets were just opening up, the joke was if you could just sell one toothbrush to each of the 1.3 billion Chinese, what a great market that would be. We have some great Utah companies that are already doing that.”
Turning Chinese Yuan into American Dollars
Utah’s business leaders are not only focused on helping Utah companies send products and services to China, they are also working to bring more Chinese investment dollars into the state. Those investments come in different forms, whether it’s through real estate, capital investment or the purchase of facilities like the Miller Motorsports Park in Tooele.
Utah’s tourism industry is another benefactor of Chinese spending. The state’s “Mighty Five” campaign has been paying major dividends by drawing visitors to the five national parks located within Utah’s borders. “Tourism is an often overlooked service export,” Miller says, “but anyone who has been to our state capitol or one of our national parks recently has seen a lot of Chinese visiting our state and spending money.”
Though it has taken a lot of work for the state to coordinate relationship-building efforts and marketing campaigns, Miller says it hasn’t been a hard sale. “Luckily for us, we just tell them the truth. Utah is the fastest-growing economy in the United States. We have the second-lowest unemployment rate. We’re home to businesses from 29 different countries and we’ve got a very stable business environment with low taxes and reasonable regulations. We’re also a very friendly place for international business because we speak many different languages.”
That doesn’t mean that relationship with China doesn’t come with challenges. The Chinese government recently devalued its currency by 2 percent, sending shockwaves throughout global markets. Though the devaluation was purposeful, the market reacted by dropping currency values even further.
“It’s not that the currency devaluation, in and of itself, was a bad thing,” Miller explains. “In fact, overall it’s probably a good thing because their currency was probably artificially overvalued.”
The biggest problem with the devaluation was its timing. “The Chinese government had not indicated it was going to do this so it was a surprise for other countries and the global market,” Miller says. “You saw stock markets around the world take a hit because of the uncertainty injected into the market.”
Despite that uncertainty, Miller feels confident that there is plenty of upside to stronger ties between Utah and China.
“China is the second-largest economy in the world, after the U.S. What happens in China has reverberations around the world—and that includes Utah,” he says. “We keep our eye on them and try to take advantage of the opportunities and manage the risk. This transition to a consumer-based economy is a huge thing.”
Unrest in Europe
China is not the only area of the world that could have a big impact on Utah’s economy. “One of the other risks is what is happening in the European Union,” Miller says. There is ongoing turmoil surrounding whether or not member countries, including the United Kingdom, will remain part of the EU. There is also continued disagreement around Greece and its third round of bailouts, worth roughly $98 billion, according to the New York Times.
There are people in Greece who aren’t happy the bailout or the austerity measures. The New York Times estimates the Greek economy has shrunk by a quarter in five years and is suffering from a 25 percent unemployment rate, making financial stabilization difficult, to say the least. There are also leaders in European countries who not only think it’s time to end EU support of Greece but that Greece should leave the European Union entirely, Miller says. “The EU could survive if Greece left, but it would represent a chink in the armor of the EU and its efforts to keep the union together.”
An equally polarizing issue is the Syrian refugee crisis engulfing the EU, and member countries are struggling to agree on how to absorb the massive stream of refugees—the UN High Commissioner for Refugees estimates some 3 million refugees have entered Syria’s immediate neighboring states, with hundreds of thousands now spilling into the EU.
“It’s a challenge they’re going to have to address,” Miller says. “The primary driver of the EU is its open borders policy, and now that’s being called into question as countries threaten to close their borders because of the challenges of managing the refugee crisis. Whether the EU will come out of this stronger or weaker is yet to be seen.”
The political unrest in Europe is problematic for Utah because the EU is the state’s largest trading partner. “We benefit from the fact that we can trade with the EU under unified policies and regulations,” Miller explains. “It’s much easier to deal with one governing entity than two dozen separate bodies.”
The United States is looking to strengthen trading opportunities with the EU via a new agreement called the Transatlantic Trade and Investment Partnership. “It’s an important trade agreement, but these things happening in the EU could throw that off track. That would be not good for the U.S. economy and not good for Utah’s economy,” Miller says.
There are also trade agreements in the works on the other side of the world, including the Trans-Pacific Partnership. The proposed alliance comprises 16 countries—including strong economies like Australia, Malaysia and Singapore and emerging economies such as Vietnam and Thailand.
The Trans-Pacific Partnership is not without controversy, with many local manufacturers worried about what such an agreement would mean for their businesses. But Miller believes the trade agreement would be beneficial for the state.
“The agreement would provide more opportunities for Utah companies to get involved in international business and start exporting their goods and services,” Miller says. “One area that would really benefit is our high-tech sector, which is the state’s second-largest export, behind precious metals. That part of the world represents great opportunities for this sector.”
Stability in North and South America
While future trade agreements in the Pacific Rim are still uncertain, there is plenty of stability close to home. “You look to the west and there are challenges in Europe. You look to the east and there are challenges in China and other parts of Asia,” Miller says. “But the good news for us is that we have these great neighbors to the north and the south that are longstanding, stable and strong markets.”
Canada remains one of the United State’s largest trading partners, and although the Canadian economy is technically in a recession after two consecutive quarters of declining GDP, Canadian and international economists are unconcerned by the trend. According to the Bank of Canada, current data actually shows growth in Canada’s future.
Mexico, with its growing middle class and vibrant IT sector, is also becoming more attractive to Utah companies. According to Miller, “This is not the Mexico of a previous generation, driven by low-tech manufacturing. There is a lot of hi-tech manufacturing going on there now that Utah companies can take advantage of.”