The junk we send to China.

Commentary about business and finance.
Sept. 8 2007 7:59 AM

The Tao of Junk

Pundits bemoan our trade deficit with China. But those container ships aren't heading home empty.

Economists make a big deal out of all the junk we import from China: tainted pet food, lead-laced toys, and enough cheap plastic tchotchkes to load up a landfill the size of Montana. And American industries are clearly being drenched by the rising tide of Chinese imports, which totaled $288 billion in 2006. But as imports from China loudly rise, American exports to China are quietly rising at an even more rapid pace. Would it surprise you to learn that a lot of those exports are ... junk?

In an act of macroeconomic karma, materials thrown out by Americans—broken-down auto bodies, old screws and nails, paper—accounted for $6.7 billion in exports to China in 2006, second only to aerospace products. Junkyards may conjure up images of Fred Sanford's ratty collection of castoffs. But these days, scrap dealers are part of a $65 billion industry that employs 50,000 people, who together constitute a significant arc of a virtuous circle. The demand of China's factory bosses for junk—which they recycle to make all the junk Americans buy from China—creates jobs, tamps down the growth of the trade deficit, and might help save the planet.

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Scrap materials are the alpha and the omega of the industrial process. Consumers create scrap when they use goods; factories consume it to create new goods. As China has industrialized, its demand for such materials has soared. According to Stan Lancey, chief economist at the American Forest & Paper Association, U.S. exports of recovered paper to China—where paper was invented around 100 B.C.—soared from 348,000 metric tons in 1994 to nearly 9.1 million metric tons in 2006, worth $1.07 billion. This year, China has bought 58 percent of U.S. scrap-paper exports. Meanwhile, exports of ferrous scrap (it sounds like a Scottish breakfast but means waste iron and steel) rose from 166,000 metric tons in 1998 to 2 million metric tons last year. Junk dealers reaped $1.5 billion selling scrap copper to China in 2006. All told, China's ravenous factories hoovered up 42 percent of U.S. scrap exports in 2006.

China's rise has been great news for the scrap dealers. "It's a seller's market right now," says Kurt Rexius, CEO of P&T Metals Inc., in South El Monte, Calif., which sends about 80 percent of the materials it processes to Asian metal brokers. At Metal Management, a Chicago-based firm with operations in 16 states, sales to China have risen from less than $170 million in fiscal 2005 to approximately $379 million in fiscal 2007.

The booming China trade isn't simply good news for shareholders of Metal Management, whose stock is up 67 percent in the past year. It's good news for tree-huggers. Every scrap of scrap put on a slow boat to China is one less scrap that winds up in a landfill or an incinerator. Asia's insatiable demand for scrap has boosted prices, thus encouraging companies to suck more reusable junk out of garbage piles. "The additional revenue that's now available has allowed us to dig further in the waste stream and get more material," says Lee Cornell, recycling-market manager at Firstar Fiber in Omaha, Neb., which today sends about 40 percent of its shipments to China. Higher prices—Firstar gets up to $130 per ton for corrugated paper and $122 per ton for newspapers from Chinese buyers—have spurred Firstar to invest in more-sophisticated sorting equipment, which allows it to accept more batches of mixed material. Recently Firstar told one client, a large office building in Omaha, that it would gladly collect a mishmash of office detritus: paper, aluminum, plastic water bottles, candy-bar wrappers. With much of the hassle associated with workplace recycling thus removed, the building has doubled the recovery rate of such waste, to about 80 percent. Across the United States, thanks in part to the pull of higher scrap prices, the percentage of paper recovered rose from 32 percent in 1990 to a record 53.4 percent last year.

There are downsides of the China-inspired scrap boom, to be sure. Prices have been so high, notes David Tene, owner of Dallas-based AmericanScrapMetal.com, that thieves are finding it worthwhile to steal metal tools and machinery to sell them for scrap. But on balance, it's a good thing. The rise of scrap exports alone won't combat global warming or make much of a dent in the U.S. trade deficit with China. But it will make a dent in the mountains of trash that pile up. And it will ensure that at least some of the containers that arrive at West Coast ports laden with Chinese goods return home full with a commodity that America produces in abundance.

With Eleazar David Melendez

A version of this article appears in the Sept. 17, 2007, issue of Newsweek.

Daniel Gross is a longtime Slate contributor. His most recent book is Better, Stronger, Faster. Follow him on Twitter.