Business & Real Estate

California exporters worry that 'scuffle' could become costly trade war with China

See which industries will feel the most pain from a China-U.S. trade war

If America and China got tit for tat in a trade war, these are the industries that could be hardest hit.
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If America and China got tit for tat in a trade war, these are the industries that could be hardest hit.

California exports and employment have been flying high, but the Trump administration's ongoing trade dispute with China has experts concerned that Golden State shipments and jobs could take a hit before the dawn of summer.

California businesses, farmers and trade experts are closely watching, and worrying, about the ripple effect set off last month when the Trump administration announced heightened import duties on Chinese steel and aluminum. Beijing responded with a 15 percent duty on products that are staples of California’s nation-leading agriculture industry.

Effective April 2, an additional 15 percent tariff was imposed on shipments that included almonds, walnuts, pistachios, citrus and wine. The two global economic powers subsequently raised the possibility of more sweeping tariffs affecting billions of dollars in products.

Some of the early rhetoric about a global trade war has been toned down to some extent. Still, trade watchers and California firms that ship abroad are concerned about how long the standoff might last, and if it is prolonged, how much damage will be done.

"For now, this is a trade scuffle, not a trade war," said Robert Kleinhenz, an economist and executive director of research at Los Angeles-based Beacon Economics. "Even so, California farmers and manufacturers who export along with those in the import-export segments of the logistics industry, must keep a close eye on developments over the coming weeks and months, and may feel the pinch before too long if the trade restrictions under consideration are fully implemented."

Economists also add that the timing of the scuffle is unfortunate as California has been on a roll. Statewide employment has been hovering below 5 percent, and the value of Golden State merchandise shipped to foreign nations in the first two months of 2018 is running well ahead of the same period in 2017.

That's on top of $171.93 billion in Golden State exports in calendar 2017, the second-best year ever, just short of the all-time record of $173.87 billion set in 2014, according to Beacon Economics' analysis of U.S. trade statistics released by the U.S. Census Bureau.

Jock O'Connell, Beacon's international trade adviser, noted that California export numbers for April won’t be known until the first week of June. Between now and then, he said he expects the impact of the tariff on state exports will most likely be anecdotal. He added that parties receiving California merchandise also will be wondering about the duration of tariff surcharges.

He cited an example of a Chinese importer of California wines: "If I’m a Chinese importer working with a winery or two and suddenly there's a 15 percent surcharge … what's my view of this situation? Is this just skirmishing? How permanent is this going to be? Two or three months? If it’s a short run, I might not want to upset my market.

"These guys don’t want to destroy the market that they’ve worked hard to develop."

In California, some wine producers already have felt the pinch.

Wente Family Estates, which has extensive vineyards in Livermore, reported this month that Chinese importers have stepped back from shipping due to the tariff. And the LangeTwins Family Winery and Vineyards in Acampo reported that it had one shipment to China canceled and another put on hold.

John Aguirre, president of the Sacramento-based California Association of Winegrape Growers, said: “We’re clearly concerned about the impact that this ultimately will have on winegrape prices … While it clearly has the potential to disrupt transactions for individual wineries, the longer-term concern is the (overall) market."

Aguirre said that China and Hong Kong combined represent a nearly $200 million annual market for California wines.

He added that the ripple effect of the trade standoff is not obvious to the casual observer. For example, he said vineyards are reporting increased prices on steel stakes that are used in fields of winegrapes. Steel also is used for end posts and wire, along with steel casing for wells.

Beyond California wine, the implications of a prolonged trade battle are exceedingly ominous.

O’Connell explained that about 53 percent of the nation’s $390 billion maritime trade with China passes through the ports of Los Angeles, Long Beach and Oakland. He said tens of thousands of jobs are dedicated to moving exports to and through the coastal ports.

Also, China currently is the No. 2 market for shipments by California businesses, trailing only Mexico.

Beacon downplayed the impact on California’s agriculture industry, saying Golden State ag exports to China last year totaled $732 million, or about 5.4 percent of the worldwide total of $13.68 billion, "so the new tariffs are not calamitous for the state’s agricultural sector.."

While supporters of the Trump administration’s trade policy with China insist that it is a long-overdue step to correct practices that have been heavily weighted in China’s favor for years, O’Connell said he is dismayed by Washington’s action, which he characterized as an arbitrary decision made by Trump.

"Back in graduate school when we were learning about policymaking, we were led to believe that reasonable people were deliberating very carefully, using the best information available to them," he said. "I think we’ve pretty much lost that model.

"I think the current administration has pretty much destroyed that model … and is now making decisions based on very flawed information."

The U.S.-China trade standoff has produced one result likely welcomed by millions of Californians: stalled gasoline prices.

National gas price tracker reported that the average retail price of gas in California last week was temporarily stuck at around $3.38 a gallon. The U.S. average was similarly locked in at about $2.65.

"As markets have seen concern rise of a possible trade war between the U.S. and China, oil prices have been hit hard, leading gas prices to dramatically slow their recent ascent," said Patrick DeHaan , GasBuddy's head of petroleum analysis, who added: "While the pause button may be hit for the time being on the spring surge, it is still likely we'll see prices advance again soon."