Washington industries could be hit by trade war

About 40 percent of jobs in state are tied to international trade – with China as our largest partner

United Grain Freight
Last year, United Grain Corporation moved more than 5 million metric tons of wheat, grain and soybeans through the Port of Vancouver, and all of that could be affected if a trade war starts. Courtesy of Port of Vancouver

As Trump and China square off, exchanging lists of items that could become part of a massive trade war, Washington state has a lot to lose.

About 40 percent of jobs in Washington are tied to international trade, and China is the state’s biggest international trading partner. Each year, tons of agriculture, lumber and other local products make their way to the Port of Vancouver for shipping overseas. But with China potentially targeting a wide array of Washington products, those businesses could suffer, and industries could see layoffs as a result.

“There’s a lot in Washington that could potentially be hit, including aircraft, agriculture, wood and paper,” said Lori Otto Punke, president of the Washington Council on International Trade (WCIT). “I’m hopeful that given the public comments the administration is seeking, that it could be a forum for back-room negotiations before we end up in a serious trade war.”

As China and Washington, D.C., continue to trade insults and lists of products that could be tariffed as part of the trade war, though, the possibility of that conflict is growing more likely.

“It seems that the U.S. side has misread the situation and taken an extremely wrong move,” Chinese Foreign Ministry spokesman Lu Kang said of the issue during a press conference that was quoted in Politico. “China is well prepared, and we would immediately fight back with force and without hesitation, should the U.S. publish a list of products for the $100 billion tariff increase. We warned the U.S. before that it should not leave anything to chances.”

Unlike the threatened lists of tariffs, the Trump Administration’s steel tariffs have already gone into effect. That change happened on March 23, and has already caused some shifting of the steel supply around the United States.

“The market is definitely responding to the threat of this,” Punke said. “You’re seeing players move things around and businesses estimating potential impact.”

Effects of tariffs on Port of Vancouver AND Clark County

At the Port of Vancouver, there was a short-term spike in steel as companies redirected product from China to the U.S. before the tariffs went into effect. Some steel was redirected from Houston, for instance, because ships from China couldn’t reach that city before the deadline.

“We had 7,000 metric tons in temporary storage – which is about 10 percent of our yearly tonnage,” said Abbi Russell, communications manager for the port.

The port and Clark County are designated as a Foreign Trade Zone (FTZ), which means Chinese steel can be put in bonded storage locally, and it won’t be considered part of U.S. commerce until it’s taken out. Bonded storage is a way for companies importing the steel to defer costs until they can figure out how to transport it to where it’s needed, Russell said.

“When a product enters a Foreign Trade Zone, say a Subaru or other car, they usually come in without any accessories, because that makes them lighter and easier to ship,” she said. “After they come in, accessories are installed in the Foreign Trade Zone and then products are shipped out. In theory, then, if the steel stored here was changed in the FTZ and then shipped into the U.S., it could be taxed or tariffed at a different rate.”

If the steel can be worked by local companies, there may be some tax advantages and contract opportunities because of the county’s FTZ status, although details on how that would work aren’t yet available, Russell added.

The story could be very different for agriculture and other products, though. Washington has a long history of trading with China, beginning in the late 1970s. And there are a huge number of Washington products that ship overseas each year. Adding costs to that network could lead to layoffs or other major local business impacts.

“I think Washington actually has a trade surplus with China,” Punke said. “So, if you look at it from a local perspective, Washington really is on the forefront of trade here, and we’re on the front line of this.”
Numerous local Washington products could be affected

Some of the local Washington products that could be hit with retaliatory Chinese tariffs include apples, cherries, seafood, wheat, soybeans, other grains, lumber, lumber products, aircraft, and computer and electronic components. WCIT plans to do a more detailed analysis of what counties will be affected and how in the coming weeks, Punke said.

Until that comes out, it’s hard to tell what the local impacts on Clark County will be, Russell added.

“We really don’t know and we really won’t know,” Russell said. “Right now we have a list of things that may be tariffed on a bunch of products. That causes uncertainty, and that’s problematic.”

Last year, United Grain Corporation moved more than 5 million metric tons of wheat, grain and soybeans through the port, and all of that could be affected if a trade war starts, she said.

“Most of that goes to Asia,” Russell said. “Grain comes from as far away as the Great Plains, Montana and eastern Washington and Oregon. And more than 50 percent of the nation’s wheat goes through the Columbia-Snake River system. So, as far as potential impacts for our region, it even goes beyond the Pacific Northwest.”

If it becomes harder for companies to sell their grain and other products, the United States could see layoffs in several industries, including farming, trucking, rail operators, barge operators, port staff and most other transportation-related industries that ship grains nationally and internationally.

“The whole supply chain could potentially be impacted,” Russell said.

In the past, both the Obama and Bush administrations engaged in some targeted tariffs on steel and tires to fight back against what is viewed as the unfair practice by China of dumping steel or other products on the American market to try to artificially skew prices. But in the end, both of those times, Americans simply ended up paying more for products on the domestic market, Punke said.

“The net impact of those was not positive,” Punke said. “Obviously China has a ton of room for improvement, but I think if the U.S. could partner with countries with large economies to force dialogue with China on the issue, that would be more effective. There’s a long list of protectionist actions we’ve tried that have not gone well.”

When will we see the impacts of the potential trade war?

It’s hard to tell when we’ll see the impacts of the potential trade war, since markets often respond before change is enacted. And there’s still back-room dialogue that could stop it from happening, although the rhetoric between the Trump Administration and China is heating up.

“If tariffs come on line and are activated, you’ll see more cost burdens on consumers,” Punke said. “You’ll see businesses trying to address their supply chains to make sure they can get what they need. But there’s a lot that we just won’t know until it happens.”

Markets also tend to adjust over time. So, it’s also possible the U.S. can find other countries to buy the products that China wants to slap tariffs on. But figuring out how that will actually work out in practice is still a long way off, Russell said.

“There’s a possibility that demands exist elsewhere and it could be shifted to those markets,” Russell said. “There’s a certain amount of absorption the market can take.”

Comments

comments