Dave Proffer [CC BY 2.0 (https://creativecommons.org/licenses/by/2.0)]
We have been long-term critics of the implementation of tariffs on China as a strategy to address what the US considers to be an imbalance in bilateral trade. Whilst we do not want to cover old ground it is worth pointing out that Trump fails to appreciate that the principal reason the US runs a trade deficit with other nations is precisely because of the exorbitant privilege that the US dollar has afforded them for decades.
However with the spectre of yet more tariffs on $300bn of Chinese goods looming large, even if it is just another act of brinkmanship, it is worth noting the following which highlights precisely why Trump’s obsessive belief in tariffs is detrimental to the US economy itself.
Whilst the focus is often on the goods themselves, the impact on the ports handling those goods is equally a cause for concern. The impact on the Californian ports of Los Angeles and Long Beach, America’s gateway to Trans-Pacific trade, are two such examples. These ports handle about 40% of US container imports and 30% of US container exports. This cargos generates over $300bn annually, supporting approximately 3 million jobs across the country and hundreds of congressional districts.
These two ports also account for nearly 50% of seaborne trade between the United States and China. The already imposed and further proposed tariffs against China have and will impact their operations directly. The latest cargo data illustrates that the two ports overall volume in May was down 6.6% year on year, with exports down significantly for the seventh month in a row.
Long Beach Port’s imports container volume fell 19.5% from a record high in the corresponding month in 2018. At the Port of Los Angeles container exports to China dropped by 27.5% in January to April compared with the same period last year. Tellingly, whilst trade volumes with the rest of the world increased 15.1% during this period, these gains were eclipsed by the loss of exports to China.
The ports themselves continue to warn additional tariffs would further damage the local and nation economies. The Port of Long Beach is a major economic driver, not only for the city but also region and country. Furthermore over half a million jobs in Southern California are connected to the Port of Long Beach and a prolonged trade dispute is likely to impact those jobs.
Current and proposed tariffs directed at China will impact roughly 65% of all imports by value and 64% by both tonnage and container volume at the Port of Los Angeles, which equates to $130bn worth of U.S. imports from China exposed to higher costs. In terms of exports, 50% of US exports by value, 81% by tonnage and 78% by container volume will be subjected to retaliatory tariffs by China.
The Port of Los Angeles has highlighted concerns about higher consumer prices, lower profitability for American companies, uncertainty in the maritime supply chain and the potential shifting of trade routes to the detriment of the Port and the Los Angeles trade gateway.
What is also often overlooked is the supply chain which is threatening US manufacturing firms that rely upon Chinese parts to produce their goods, which applies to 50% of Chinese goods imported. This article merely highlights one example of why Trump’s tariff war on China is ultimately self-defeating. It has and is going to continue to impact the US economy and ultimately his voter base, unless a resolution is found which is prepared to meet China halfway.