US ports from coast to coast brace for possible impact from China trade war

Key Points
  • If there's a reduction in trade activity at U.S. ports, dock workers, truckers and others tied to the ports could be hit hard.
  • About half of the U.S. maritime trade with China goes through the twin ports of Los Angeles/Long Beach so they are especially exposed to any trade dispute.
  • In particular, the West Coast ports are significant for agricultural products worth billions of dollars annually, including nuts, fruit and meats.
A cargo ship is loaded with shipping containers at the Port of Long Beach, Calif.
Harriet Taylor | CNBC

The U.S. ports and shipping sector are bracing for potential impacts from the ongoing trade dispute with China that some economists warn could lead to layoffs and a drops in container traffic.

"What this has done in the immediate term is raise the level of nervousness within the container shipping industry," said Simon Heaney, senior manager of container research for Drewry, a U.K. maritime consulting company. "The burden will across a number of sectors, not just in container shipping."

The impact could be felt especially hard in agriculture-related cargo since it is worth billions of dollars annually to major West Coast ports and is also significant to the East Coast and Gulf Coast seaports.

Barge operators that haul bulk targeted by China and railroads could be affected, too.

A U.S. flag flies above barges filled with soybeans on the Kaskaskia River, a tributary of the Mississippi River, at Gateway FS in Evansville, Illinois, U.S.
Daniel Acker | Bloomberg | Getty Images

China slapped a 25 percent tariff on American pork along with a new 15 percent duty on other kinds of agricultural products, including fresh fruit, almonds, dried fruit and wine. China has also threatened new duties for soybeans, cotton, wheat, corn, sorghum and beef.

On Monday, President Donald Trump sought to downplay the talk of a trade war with China and calm fears in the agricultural sector.

"If during the course of negotiation they want to hit the farmers because they think that hits me, I wouldn't say that's nice," the president said in remarks at the White House. "But I will tell you, our farmers are great patriots. These are great patriots and understand that they're doing this for the country, and we'll make it up to them."

Overall, U.S. agricultural exports to China represent almost $20 billion annually for American farmers.

Last week, the Chinese announced retaliatory tariffs of up to 25 percent on 106 American goods, including soybeans. It came on the heels of the Trump administration proposing duties on more than 1,300 imported products in China's machinery, electronics, aerospace and robotics sectors.

Trump also suggested last week an additional $100 billion in tariffs on China could come on top of what already was announced.

Based on total dollar value, the top two states with the most exports to China are Washington and California, according to U.S. Census Bureau and WISERTrade data. But it's tied to electronics and aircraft, not agriculture.

Regardless, if there's a reduction in trade activity at U.S. ports, the longshoremen, truckers and other workers tied to the ports could suffer. In particular, Southern California stands to suffer since so much of its trade volume is tied to China.

"Fifty percent of all U.S. maritime trade with China goes through the ports of L.A. and Long Beach," said Jock O'Connell, an international trade adviser at Beacon Economics, a California economic consulting firm.

If the threatened tariffs are implemented over the course of the next several months, it would have "a very grave impact upon operations at the ports of L.A. and Long Beach," O'Connell said.

Observers say a decline in trade between the world's two largest economies would impact those workers and businesses in the supply chains that service the Southern California ports.

There are more than 14,000 dockworkers at Los Angeles/Long Beach port complex and thousands of other workers in trade operations and commerce as well as truckers involved in the movement of goods in and out of the ports. Experts say there could be layoffs in some of those operations if trade begins to slow.

"The thing that we're really looking at and concerned with is what happens when there's less exports leaving the country to these longshoremen who obviously rely on a daily basis to be able to move containers," said Michael Smith, director of international trade at the World Trade Center Los Angeles. "But in general, I think this is more of a political tit-for-tat game than anything affecting economies in a deep and profound way."

That said, there have already been reports of some trade getting canceled following the new Chinese tariffs, including at least one shipment of California wine. Also, one agricultural executive in the fruit industry said Monday he's heard of some impacts on orders and it's possible loads slated for China will be redirected to South Korea and Japan or renegotiated for a lower price.

"The West Coast ports are the most exposed," said Dustin Braden, a data analyst at IHS Markit. But he said the widening of the Panama Canal and the West Coast ports labor disputes in previous years also has led to more cargo going through the East Coast ports so the impact could be less than it might have otherwise been.

At the same time, some high value U.S. fruits such as berries use airfreight so that sector also could see some shipments curtailed.

According to data from IHS Markit, almost 7 percent of the U.S. container trade with China is at risk and 3.1 percent of containerized U.S. exports have already been impacted by the first round of tariffs that went into effect.

The U.S. ports most exposed to the U.S.-China trade duties based on overall goods targeted are Los Angeles and Long Beach, California with 25 percent market share apiece followed by the New York-New Jersey port complex, Savannah, Georgia and Wilmington, N.C., according to IHS Markit data.

"China is our number one trading partner — 70 percent of our goods come from or go to there," said Eric Bradley, a spokesman for the Port of Long Beach. "Broadly speaking, China accounts for about two-thirds of our imports, and it's the destination for about one-third of our exports."

The top agricultural commodities shipped out of the Los Angeles/Long Beach port complex to China include oilseeds such as soybeans, various grains, nuts, fruits, dairy products and meats, based on IHS Markit data.

Also, the Port of Oakland has seen its agricultural exports rise more than 40 percent in the past four years and leading export commodities last year included California almonds and rice. The port also has been undergoing a big expansion of its refrigeration capacity to attract more food shipping business.

"We have seen no impacts yet from the trade situation," said Mike Zampa, a spokesman for the Port of Oakland. He said January and February exports from the port were up from a year ago, but March export volumes due to be reported this week will be flat largely as a result of other China challenges, including Beijing restricting exports of U.S. recycled materials.

A good portion of California's wine also gets shipped out of the Oakland port complex, which is close to the state's Napa Valley wine region. Hong Kong was a stronger market for U.S. wine sales last year than mainland China.

Oakland also handles some soybean exports as do other U.S. West Coast ports, including in Seattle-Tacoma marine complexes in the Pacific Northwest region.

China buys roughly half of the U.S. soybean exports, or about $14 billion annually, although the tariffs announced by Beijing have so far been just a threat and have not actually been formally implemented.

One commodity already impacted by the Chinese tariffs is American pork, with Iowa, Illinois and Minnesota the top three producing states. One in 4 hogs in the U.S. is sold overseas, and the Chinese are the world's top consumers of pork. At about $1.1 billion, mainland China and Hong Kong together are the third-largest market for U.S. pork based on value after Mexico and Japan.

Last year, the West Coast ports were responsible for more than $3 billion in exports of pork and the East Coast ports more than $1 billion, according to the National Pork Producers Council. The Great Lakes ports accounted for more than $570 million followed by the Gulf ports with nearly $180 million.

About 15 percent of the general cargo exports from the Port of New Orleans in 2016 were animal or vegetation products.

"At this time, it is unclear how a decline in China trade will impact Port NOLA's volumes, however, it would likely lead to losses in revenues in our import and export markets," said Donnell Jackson, a spokesman for the New Orleans complex. "There is still much uncertainty surrounding tariffs announced by the U.S. and now by China. We will continue to monitor developments as they unfold."