Tariffs on Chinese Goods Threaten Southern California Ports and Could Ripple Through To Consumers
For months, as the Trump administration ratcheted up trade threats — announcing tariffs on allies and adversaries alike — business at the nation’s largest port complex in San Pedro Bay has hummed along, seemingly oblivious.
Smartphones, clothes and toys flowed in from China. Ceramics and beverages arrived from the European Union. Fruit arrived from Mexico.
About 40% of U.S. imports shipped in containers moves through the ports of Los Angeles and Long Beach, supporting hundreds of thousands of jobs throughout Southern California. Shipments in and out have been rising this year, especially those from China.
But on Monday evening President Trump announced tariffs on an additional $200 billion in Chinese goods, his largest action yet. The move drew immediate threats of retaliation from the world’s second-largest economy — and predictions from trade experts that an escalating trade war could soon hit Southern California warehouse workers and truck drivers, while raising prices for consumers.
“If there is one location that is going to be affected more in the United States, it is going to be the greater Los Angeles region,” said Stephen Cheung, president of the nonprofit World Trade Center Los Angeles.
The Trump administration has blamed trade imbalances for hollowing out America’s factories. (Many economists disagree; a brief from the Federal Reserve Bank of St. Louis laid 85% of the blame for lost factory jobs since the 1970s on rapidly rising factory efficiency, not the U.S. trade deficit.) But globalization has proved a boon to Southern California’s ports and vast stretches of warehouses in the Inland Empire.
Last year, $173 billion in Chinese imports flowed through the ports, said Jock O’Connell, an economist with Beacon Economics. The largest categories of goods include electronics, furniture, toys and clothing. Exports to China are smaller, totaling $18 billion worth of auto parts, cotton, scrap material and more.
All told, China accounts for about 50% of all the goods moving through the complex, O’Connell said.
Tariffs are a tax on goods; when most of the Trump administration’s $50-billion first round of punitive tariffs kicks in July 6, for instance, it will add 25% to the price of those Chinese goods at the border.
The resulting price increase probably will force companies to purchase fewer Chinese products, said Paul Bingham, a trade expert with Economic Development Research Group. He predicted that will lead to a slowdown in trade and fewer hours for port-related workers.
Longshore workers, with strong union protections, will fare better than most workers. But many truck drivers and warehouse workers are independent contractors or employed by third-party temporary help agencies and are especially vulnerable to a drop-off in trade.
“You could see layoffs taking place very quickly,” O’Connell, with Beacon Economics, said.
Cheung said he fears the tariffs will lift consumer prices just as companies already face pressure to pass along higher transportation costs forced by a national shortage of truckers.
“It becomes a cycle that depresses the entire economy,” he said.
Jonathan Gold, a vice president at the National Retail Federation, said retailers are already spending time and money to examine their supply chain to see if they should source items from other countries. But those decisions are further complicated by tariffs Trump has announced on other countries, as well as the renegotiation of the North American Free Trade Agreement with Canada and Mexico.
“You can’t shift on a dime,” Gold said. “Not knowing where this administration is going to go or how they are going to get there is very concerning for folks.”
For now, business is good. The number of container units that flowed through the two ports is up 3.7% through the first five months of this year compared with the same period last year. And the dollar value of Chinese imports surged 10.6% compared with the first four months of 2017, according to Beacon Economics.
Mario Cordero, executive director of the Port of Long Beach, noted the port has benefited from a boost in consumer demand from an improving global and U.S. economy.
“The cargo continues to flow,” he said.
Gold worries that the tariffs will kill any benefits from the personal and corporate tax cuts Trump signed into law last year. That concern was echoed last week by Gary Cohn, Trump’s former director of the National Economic Council.
Come July 6, about $34 billion in Chinese goods are set to face a 25% tariff, and the U.S. Trade Representative’s office is compiling a list of an additional $16 billion worth of products that will later face the same duties.
Those tariffs are focused on tech-related products, with the hope of slowing China’s advancement in cutting-edge industries and combating intellectual property theft — something various administrations have long complained about.
Counter-tariffs from China, also scheduled to start July 6, will hit American farm products, cars and other merchandise.
But Trump’s Monday announcement carries the potential to more significantly affect American pocketbooks, experts said. The president directed the U.S. Trade Representative to identify $200 billion worth of Chinese goods for a 10% tariff. Those taxes would go into effect if China does not change its “practices” and follows through on retaliatory tariffs it previously announced, Trump said.
The president also threatened to impose tariffs on an additional $200 billion in goods if China retaliates yet again, which the country quickly promised to do.
Add it all up and the potential U.S. tariffs on $450 billion of goods would hit about 90% of all Chinese imports to the country.
A top Trump administration trade advisor said Tuesday that no one should be surprised. “President Trump has given China every chance to change its aggressive behavior,” Peter Navarro said in a conference call with reporters.
Navarro downplayed talk of a trade war. He argued that the amount of goods facing tariffs or tariff threats from the two countries would have “relatively small effects” given the nations’ combined annual economic output of more than $30 trillion. And he said that the administration would carefully select the new $200 billion in Chinese imports subject to a 10% tariff to minimize the effect on consumers.
Navarro said U.S. and China officials do not have any talks scheduled to resolve the dispute, but added “our phone lines are open.”
“The president is willing to talk to anybody any time about these matters as is our trade team, but the fundamental reality is … talk is cheap.”
Gold of the National Retail Federation said it’s not possible to select tariffs on $200 billion worth of goods without raising the prices on everyday consumer items. He urged the two countries to sit down and hash things out.
“Tariffs are a tax that is ultimately paid by the U.S. consumer,” he said.