Both the Port of Long Beach and the Port of Los Angeles broke their all-time cargo volume records in 2018, as each of their executive directors detailed at their respective State of the Port events in late January. In 2018, the Port of Long Beach’s cargo volumes increased by 7%, and the Port of Los Angeles’s grew by 1.2%. Just how much of that growth is attributable to fervor among beneficial cargo owners who rushed to ship goods ahead of threatened tariffs remains uncertain, as does the outlook for cargo growth in 2019 given the ongoing trade conflict between the United States and China.
Mario Cordero, executive director of the Port of Long Beach, told the Business Journal that beneficial cargo owners began expediting shipments last September, when a 10% tariff on $200 billion worth of Chinese imports to America was announced. The Trump administration had implemented the tariffs to pressure the Chinese government into addressing a number of policies it deemed unfair. The Chinese government responded in kind, enacting tariffs on American exports to the country.
The White House then threatened an increase to 25% tariffs by January 1, which also contributed to larger shipments by firms hoping to avoid increased costs, according to Cordero. The 25% tariff rate was delayed to March 1 after the two countries began negotiating in late 2018.
“Right now, we don’t know what percentile of the growth we had in 2018 is attributed to that, because if you go back a year ago, our forecast for 2018 was a very positive one,” Cordero said. However, he postulated that a percentage of cargo growth in the last two quarters of 2018 was a result of shippers trying to get ahead of impending tariffs.
At issue for the United States government is an imbalance in trade between the two countries – China exports more goods to the U.S. than vice versa – as well as alleged practices of intellectual property theft and forced technology transfer by Chinese companies and the government in their dealings with American companies.
From January through October 2018, the trade deficit with China was about $344 billion, according to data from the U.S. Census Bureau. The data has not been updated since the government shutdown began due to a lapse in federal funding.
Jock O’Connell, international trade advisor for Los Angeles-based Beacon Economics, told the Business Journal that the deficit figure is an overblown estimate. The full value of any product labeled “Made in China” is counted towards that deficit, even if only 5% of its value was actually manufactured in China, he explained. In this case of the iPhone, for example, China imports parts from several other countries before assembling the final product and shipping it to America. “In that respect, the size of the trade deficit with the Chinese is dramatically overstated by the archaic ways that the trade numbers are collected,” he said.
“Having said that, the president is obviously obsessed with the trade deficit, and the Chinese recognize this,” O’Connell continued. He speculated that if the Chinese government agrees to buy more goods from the United States to correct the trade imbalance, that the Trump administration would find that satisfactory enough to revoke its tariffs. “That should have the effect of reducing the trade deficit without having much material impact on trade around the world,” he said.
However, a slowing Chinese economy could make it difficult for the government to commit to buy more American goods, O’Connell pointed out. China’s official gross domestic product projections are often questioned by analysts and thought to be suspect, he noted. “The conservative consensus is that the actual growth rate is probably 1% to 2% below what the Chinese are publicly claiming officially,” he said.
Cordero told the Business Journal that tariffs are not the way to address issues of trade imbalances or intellectual property theft and suggested that taking up such matters through talks within the World Trade Organization would be a more appropriate course of action. He also argued that the issue of trade imbalance is not, as the White House has characterized, detrimental to either country.
“Let me just say this: 70% of our cargo through the Port of Long Beach comes from China,” Cordero said, adding that around 35% of the port’s export traffic is destined for China. He referred to the Port of Long Beach as “ground zero” as the United States’ most important trade route.
If the two countries cannot come to an agreement and additional tariffs are implemented, jobs supported by port operations could be affected. Within Long Beach and the immediate local area, 35,000 jobs are directly attributed to port activity, according to Cordero. Regionally, the total is more than 300,000 jobs.
“If you take that a step further in terms of the supply chain, we’re talking about an impact of anywhere from 1.4 to 1.5 million jobs as a result of the operations here at the Port of Long Beach,” Cordero said. “Anytime the supply chain is disrupted and business has uncertainties, particularly when it comes to the cost of moving that commerce, then of course one of the consequences of that is job loss.”
In summation, Cordero said, “When we start having these types of events, it does ultimately impact our economy, it impacts business and it impacts the flow of commerce. The conclusion here is, going forward, we want to make sure none of this is impacted in a way that’s going to be harmful not only to American business, but to the American economy.”