First of two parts
WASHINGTON — The ominous winds of a trade war between the U.S. and China are raising construction costs for transit agencies and threatening commerce that feeds freight railroads. As President Donald Trump and Chinese president Xi Jinping prepare to meet this week at the G20 summit in Osaka, hopes for progress remain tepid.
Tariffs take the headlines, but U.S.-China relations are more entwined and more multifaceted than politically driven soundbites convey. Thorny issues include cybersecurity, technology transfers, and China’s state-owned enterprises — factors which have helped make a Chinese railcar manufacturer a U.S. legislative target.
Nearly 6,000 products imported from China are currently subject to tariffs, including steel and aluminum: core materials and products used in cars, construction, and consumer products.
The U.S. now covers 15% of all goods with some form of trade protection. In exchange, China has placed tariffs on nearly 3,000 U.S. products, from lobsters to railway components and aircraft.
There’s no question the tariffs are having an effect, but it may not be the one intended. U.S. Department of Commerce data show the total volume of trade in goods between the U.S. and China declined almost 15% through April. Imports are down 13%, but exports took a 21% hit.
Many of those goods are shipped to and from U.S. ports by rail. U.S. intermodal rail traffic is off 2.8% so far this year, according to data from the Association of American Railroads. The AAR blames higher tariffs in part for the decline. [See “US rail traffic down again the week of June 1; AAR says floods and tariffs are taking a toll,” Trains News Wire, June 5, 2019.]
To get ahead of steeply rising U.S. tariffs, large retailers and manufacturers accelerated purchase orders, which led to a record volume of traffic at the Port of Los Angeles in May. That quickly filled up regional warehouses and distribution centers, disrupting logistics.
But that short-term surge doesn’t change the longer trend, and could portend a steeper drop-off in future months.
In a June 17, 2019, letter from Eugene Seroka, executive director of the Port of Los Angeles, to U.S. Trade Representative Robert Lighthizer, Seroka stated that current and proposed import tariffs will impact 64 percent of container volume at the Ports of Los Angeles and Long Beach.
Many of those containers arriving on the West Coast from China continue their journey on Union Pacific and BNSF trains. For the second quarter through June 1, UP saw container traffic off 4% while BNSF reported its consumer products volume down 6%, ascribed to lower intermodal traffic.
Retaliatory tariffs by China will hit 78% of container volume, insists Seroka.
Exports are at risk, too. For the first four months of this year, the two ports saw exports to China sink by more than 27%.
Half of American manufacturing jobs depend on exports. In Wisconsin, $1.4 billion in exports are threatened, as are $2.5 billion in Tennessee and $3.4 billion in Alabama, per U.S. Chamber of Commerce data.
Union Pacific CEO Lance Fritz, who met with Trump this month, told Yahoo Finance that tariffs are impacting trade and that China’s exit from the U.S. soybean market is affecting the agricultural economy.
Farm income could decline 15%, says the Chamber of Commerce. The pro-business group is not happy with Trump’s tariffs, which it says put 455,000 U.S. jobs at risk.
Two Sides to Tariffs
Others argue that the tariffs are having a positive effect. U.S. steel producers are investing $3.4 billion in new and expanded production, with announcements from Nucor, U.S. Steel, and Big River Steel. Tariffs have the support of the Alliance for American Manufacturing, which says that thousands of new jobs have been announced.
But Gary Hufbauer, an economist with the Peterson Institute for International Economics, points out, “The number of jobs in steel-using industries is about eight times the number of jobs making steel.” Higher steel prices jeopardize those jobs. He adds that each job created in steel-making costs $900,000 per year.
The United States is the world’s largest importer of steel, but steel from China amounts to just 2.1% of the total. Three countries account for 56% of total steel imports: Canada, Brazil, and Mexico.
The net effect of protectionist measures has been to skew the market. “The result is that steel in the U.S. is about 10% higher priced than world steel,” Hufbauer explains.
Rising costs have already hit transit agencies. The estimated budget for Sound Transit’s Federal Way extension jumped by $260 million last year, while the Lynwood-Northgate line saw projected costs grow from $2.4 billion to $3.1 billion.
In Los Angeles, the planned 12.3-mile extension of the Foothill Gold Line from Glendora to Montclair, previously estimated at $1.5 billion, has jumped to $2.1 billion. As a result, the project has been scaled back. An 8-mile addition to Pomona will go forward, while Montclair will only be reached when more money becomes available.
Tariffs are among the factors contributing to these increases.
Tuesday: The battle over Chinese rail equipment manufacturer CRRC.
Yes David, and I also realize taxes on American corporations are paid for by THEIR consumers, so that’s neither here nor there.
And we should also realize what we’re dealing with when it comes to the Chinese government. They’re a dictatorship, not a Western-style democracy. Not koo-koo Commies like they were in Mao’s time, but still an authoritarian government. They only respect strength.
Not that I’m advocating a shooting war, not by any means. BUT, a sure-fire way to get someone’s attention is to hit them in the wallet, it always works.
And remember Tienamen Square? Think the Chinese government’s changed much since then? I don’t. Maybe a bit more media-savvy now, but the “mailed fist” is still there.
It’ll be interesting to see how the Hong Kong situation plays out as well.
Spreading the misery
Wayne , you so realise China does not pay the tariffs, American consumers do ? And to some extent exporters using Chinese raw materials or parts.
Pardon me, I should have been more specific and said…
“Are some in this country nervous about a trade war with China? Of course. Money is a coward.”
The Chinese have been allowed to get away with a lot of shenanigans in the past decades, from product dumping to industrial espionage of all sorts to intellectual theft. The plain fact is no-ones had the stones to address it until now. And can anyone say they’re comfortable, REALLY comfortable, with all those products on the market marked “Made in China?” I’m not, and never have been. It’s downright dangerous, and as an old Marine I see it as a possible national security issue.
Are some in this country nervous about it. Of course. Money is a coward.
Stay the course. They need us more than we need them.
The clown occupying the White House is a DISASTER for America!
Well… G20 move, or bust.. Unfortunately we stand to lose alot more than we gain… Australia, Canada, India, Mexico, Russia are all countries who are benefiting from this standoff..