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Trump’s proposed tariffs, especially on China and Mexico, could hit California hard

By www.capradio.org
Published On :: Wed, 13 Nov 2024 16:14:00 GMT

A range of experts, from Nobel Prize-winning economists to an internet-famous menswear writer, have a message for Americans who voted for Donald Trump based on his promises to bring down prices: This likely won’t go how you want.

Some voters cited the cost of living as a factor in their decision to elect Trump to a second term as president. But with inflation actually starting to ease, his proposed tariffs, which the president-elect has called the “most beautiful word in the dictionary,” could actually raise prices again.

While some experts don’t think more tariffs are a bad idea, the majority of economists and other experts who spoke with CalMatters echoed 23 Nobel laureates who warned that Trump’s policies would be worse for the economy than the ones proposed by Vice President Kamala Harris. Those economists wrote a letter last month calling Harris’ economic agenda “vastly superior” to Trump’s, and mentioned tariffs as one reason.

“His policies, including high tariffs even on goods from our friends and allies and regressive tax cuts for corporations and individuals, will lead to higher prices, larger deficits, and greater inequality,” the economists wrote.

Businesses that import goods into the country must pay the tariffs. They tend to pass on their increased costs to consumers, with some executives recently promising to do just that during their earnings calls. So economists largely view tariffs as a tax, especially on the lowest- and middle-income families in the nation.

While tariffs could raise prices for all U.S. consumers, California could feel the brunt of the impact in part because of the countries Trump singled out during his campaign: China and Mexico. Those two countries accounted for 40% of the state’s imports in 2023.

“The port and logistics complex in Southern California is a very important part of the economy, and directly tied to the countries he threatened,” said Stephen Levy, an economist and director of the Center for Continuing Study of the California Economy, an independent, private research organization in Silicon Valley.

Trump imposed tariffs during his first presidential term, and President Joe Biden maintained some of them. During his campaign this time around, Trump said he intends to impose tariffs of 10% to 20% on all imports, and has mentioned even higher tariffs on goods from China (60%) and Mexico (100% to 200% on cars).

Such tariffs could exacerbate California’s already high cost of living and raise the prices of cars, technology and electronic products, medical devices, groceries and more. Also, as the state saw during Trump’s first term — which included a trade war, with countries retaliating with their own tariffs on U.S. exports — California’s agricultural industry is likely to feel the effects. Trump’s proposed tariffs could also have an adverse effect on the state’s ports, which are among the nation’s busiest.

And all of those outcomes could have a ripple effect on jobs in the state, including those in agriculture, trade and manufacturing.

What the state’s ports expect

Trade experts say it’s too early to tell how the state’s ports could be affected, though some of them also said they expect a near-term surge in activity as businesses brace themselves for tariffs by importing more goods now.

“Long Beach and Los Angeles are two of the largest ports in the U.S.,” said Jonathan Aronson, a professor of communication and international relations at the University of Southern California, who studies trade and the international political economy. “Their traffic would presumably slow in both directions” if Trump imposes tariffs, Aronson said. Like other experts, though, he wondered if the president-elect is using the threat of tariffs as a negotiating tactic — say, to pressure Mexico into doing more to limit immigration into the United States.

The most recent available data for the Port of Los Angeles, which is the busiest in North America and handles nearly 10% of all U.S. imports, shows that trade activity rose nearly 19% at the port in September from the same month a year ago. September imports totaled $27.9 billion, a 20% increase year over year. There’s a chance those numbers could head the opposite direction as a result of tariffs.

“Significant increases in tariffs, and the possibility of retaliatory tariffs, could have a significant impact on traffic — and jobs — at the port,” said Phillip Sanfield, a spokesperson. “We’re monitoring developments closely.”

The Port of Los Angeles says nearly 1 million California jobs are related to trade at that port.

The Port of Long Beach handles about 3% of all U.S. imports and has about 575,000 Southern California jobs tied to trade. Chief Executive Mario Cordero said, through a spokesperson, that he is waiting to see what trade policies Trump actually will adopt: “At this point we expect that strong consumer demand will continue to drive cargo shipments upward in the near term.”

The Port of Oakland, whose trade-related jobs at both the airport and seaport number about 98,000, also expects a traffic boost at first. Spokesperson Robert Bernardo: “As a West Coast seaport, our primary trading partner is Asia, and what’s happening right now is that retailers are expecting a short-term shipping surge in advance of new tariffs.”

Mike Jacob is the president of the Pacific Merchant Shipping Association, a not-for-profit maritime trade association whose members facilitate trade. They include ocean carriers, marine terminal operators and more.

Jacob, too, said he is expecting trade activity to pick up ahead of whatever tariffs Trump imposes: “Given the lack of understanding of the timing, scope and scale (of the tariffs), you’re more likely than not to move cargo earlier.”

As a result of tariffs during Trump’s first term, Jacob said there was “a small bump in cargo back in 2019 that resulted in additional impacts on our logistics chain.” He said after that experience, which was then followed by pandemic-related chaos, the industry might be a little more prepared to deal with possible supply-chain disruptions.

Possible effects on manufacturing

The San Diego Regional Chamber of Commerce is worried about potential tariffs on goods from Mexico. Kenia Zamarripa, a spokesperson for the group, said the CaliBaja region — which includes San Diego and Imperial counties and the Mexican state of Baja California — is interconnected, with a multibillion-dollar supply chain. The region’s logistics facilitate 80% of the trade between California and Mexico, she said.

The nation’s top imports from Mexico in September — worth at least $2 billion for each category — were petroleum and coal products, computer equipment and motor vehicle parts, according to the most recent statistics from the U.S. Census Bureau’s Bureau of Economic Analysis.

Some specific products that are imported into the U.S. from Mexico through California include the Toyota Tacoma. The truck and its components are made in Baja California and elsewhere in Mexico. “Imagine taxing each component before it goes to Mexico and back,” Zamarripa said.

She added that the region also leads in producing medical devices, and that the importance of that became apparent during the beginning of the pandemic when “a bunch of companies shut down, not knowing that a little metal piece they were producing was a vital part of a heart monitor, for example.”

Mexico’s economy minister, Marcelo Ebrard, said this week that he would hit the U.S. with tariffs if Trump imposes tariffs, though President Claudia Sheinbaum has seemed more open to negotiations.

Lance Hastings, chief executive of the California Manufacturers & Technology Association, said he’s well aware of the disruption tariffs can cause. When Trump put tariffs on aluminum and steel imports, aluminum prices rose at least 25%, Hastings said. “I was in the beer industry when it was put in, and we felt it,” he added.

Hastings also said the anxiety around Trump’s proposed tariffs stem in part from the fact that “we’re still trying to get the supply chain back to normal” after the pandemic. Because “California is the gateway to Asia, the state would feel the impact of more tariffs first and more than everybody else,” he said.

Made in the USA

Yet there is a bit of optimism among those who think some tariffs could actually help California manufacturers.

Sanjiv Malhotra, founder and CEO of Sparkz, a maker of lithium batteries, said tariffs could benefit his company and the rest of the domestic battery industry amid the increasing popularity of electric vehicles.

Sparkz, which will get its materials from West Virginia and make batteries at a plant in Sacramento, “is all U.S.-sourced. Nothing is coming in from China,” Malhotra said.

During his campaign, Trump indicated he would try to roll back emission-reduction rules and said he would oppose banning gas-powered vehicles. But Malhotra, who served in the U.S. Energy Department under the first Trump administration, said that as demand for lithium batteries grows, he believes Trump’s incoming administration will understand that they “need to be made here in the U.S. so we are not dependent on China for batteries.”

Kate Gordon, CEO of California Forward, a nonprofit organization that focuses on the state’s economy, said that while it’s important to get back some of “what we’ve lost over the past couple of decades” — the nation once led in solar panels — it “needs to happen deliberately and with attention to where we’re really competitive.”

“What would be terrible would be tariffs on things where we’re no longer competitive, like parts of the solar supply chain, which have been held by China for a long time,” she said. All that would do is drive up prices, Gordon said.

Americans may say they want things to be made in the USA, but they also don’t want to pay higher prices for them, said Derek Guy, a menswear writer based in San Francisco who has covered the clothing industry for more than a decade. A few years ago, Guy wrote about American Apparel, under new ownership, offering U.S. consumers the option of paying a little bit more for clothing made here vs. similar pieces made overseas.

“Even based on a few dollars, when someone wasn’t looking over (their) shoulder, people chose the foreign version,” Guy said.

“A lot of manufacturing in the U.S. has long shifted toward the higher-end,” Guy said. “The kind of cheaper clothes we’re talking about (what most Americans buy) are made elsewhere.” Tariffs would raise those prices.

The price of almonds

California’s top agricultural exports include almonds, wine, dairy products, pistachios and other nuts.

During Trump’s first term as China imposed retaliatory tariffs on the U.S., California exports of wine, walnuts, oranges and table grapes to China fell, according to the University of California Giannini Foundation of Agricultural Economics.

In addition, almond prices sank, with the foundation’s researchers saying prices fell from $2.50 a pound to $1.40 a pound in 2018. That had a negative impact on an industry that generates $4 billion to $5 billion a year and employs about 110,000 people, according to the website of lobbying group Almond Alliance.

Amanda Russell, a spokesperson for the Almond Alliance, said in an emailed statement: “In previous trade negotiations, President Trump demonstrated a commitment to supporting agriculture, and we are optimistic about continuing this partnership to address the challenges and opportunities facing our growers and stakeholders.”

Besides tariffs, another likely action by Trump that could affect the state’s agriculture industry is mass deportations — a threat that has immigrants and advocates on edge.

“I can’t see any benefit to California if he goes through with mass deportation,” said Levy, the economist in Silicon Valley. “Even the threat of deportation will affect the labor pool.”

Trump’s proposed tariffs, especially on China and Mexico, could hit California hard

What the state’s ports expect

Possible effects on manufacturing

Made in the USA

The price of almonds

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