Trade War Rattles Southern California Industry Leaders
Tuesday, May 14, 2019
Southern California economists and industry leaders sounded the alarm as the nation’s mounting trade war with China was poised to upend production costs for scores of local companies and boost consumer prices.
“It’s getting deep enough into the trade war that it’s starting to get a little bit scary — it’s starting to have a serious impact,” Inland Empire economist John Husing said. “And China has retaliated. That makes it more difficult to sell things to China, so it hurts our employee base here.”
The latest volley landed when the Trump administration said it was increasing import tariffs on $200 billion of Chinese goods to 25 percent from 10 percent. China fired back, saying it would increase tariffs on $60 billion of U.S. imports.
Wall Street indices plummeted, prompting the ubiquitous question: Is a recession ahead?
“There is no reason for us to have a recession,” Husing said. “We can only hope that cooler heads prevail.”
Husing said he has yet to see a single economic strategy under the Trump administration that has “worked the way it needed to go.”
The official tariff list for imported Chinese goods is lengthy, sweeping in everything from seafood products, onions, celery, and cherries to handbags, textiles, alloy steel, and refrigerators.
Shoppers will be paying more for all of those products. But it also works the other way around with increased tariffs on U.S. products going to China, according to Gene Dunford, senior managing director of Los Angeles corporate banking for Umpqua Bank.
“Our produce market is huge in downtown L.A.,” Dunford said. “A lot of that produce comes from all over the U.S., so this will probably hurt our farmers more on the export side. You also have hog farmers in places in places like Iowa. So much of our pork gets shipped over to China.”
Feeling the impact
UltraGlas, a Chatsworth company that creates specialty glass for everything from hotels and casinos to museums and hospitals, is already feeling a potential impact from the boosted tariffs.
Company founder and CEO Jane Skeeter met a potential client at a recent China/U.S. summit in Los Angeles who seemed excited at the prospect of buying UltraGlas products.
But there it ended.
“She was very excited … but I haven’t heard back from her,” Skeeter said. “I suspect it’s because of the tariffs.”
A proactive stance
Ilse Metchek, president of the California Fashion Association, said many businesses were expecting increased tariffs, so they incorporated those costs into their business operations.
“It’s already built in,” she said. “Everyone has expected this since October of last year, and our industry runs six months to a year ahead of time anyway. If someone was smart, those numbers would be in there already.”
Consumers will feel the increases, Metchek said, but they shouldn’t be dramatic.
“It’s not a significant increase,” she said. “If you’re talking about a dress that costs $100 this will increase that to $110. The one thing it will do is force companies to be more circumspect about what they make. They will have to ask, ‘Will the consumer buy this?’ “
Tension at the ports
At the ports of Los Angeles and Long Beach where record volumes of imported goods enter the U.S., news of the trade dispute is being watched closely.
The increased tariffs, said Port of Los Angeles spokesman Phillip Sanfield, “could lead to reductions in cargo, economic activity and ultimately jobs in Southern California.”
Tariffs, he added, create uncertainty “and today we’re seeing more uncertainty than any time in the last 18 months.”
Mario Cordero, executive director for the Port of Long Beach, said there is anxiety there as well.
“What we’ve seen in this past year is trade uncertainty, and uncertainty in the market is not good for any industry,” he said.
Both ports are seeing record volumes in trade, with about 70 percent of imports now coming from China in the Port of Long Beach, Cordero said.
The potential good news going forward, according to Cordero, is that China has agreed to send a delegation to Washington D.C.
“No one wins in this trade war,” he said.
“It’s important that both parties remain at the negotiating table and come to a swift resolution of differences with a rules-based international trade system,” Sanfield said. “We fully support a fair and level playing field for U.S. businesses competing in the global economy.”
The stakes are potentially high in the job sector as well, he said.
“More than 50 percent of the nation’s imports go to U.S. manufacturers,” he said. “We need to be careful not to put those manufacturers and associated U.S. jobs at risk.”
Dunford said some businesses are at risk of staying afloat.
“Businesses will have to start passing these increased costs along to consumers,” he said. “They will have to have a contingency in place and know they will take some losses in the short run. And some companies will go out of business.”
Category: International Trade, Economic News