President-elect Donald Trump has called tariff “the most beautiful word in the dictionary.”
But the word could spell challenges for California’s ports and logistics industry — and the consumers relying on them — if he imposes them, economists, port officials and industry experts said.
During the campaign, Trump touted tariffs as a way to boost federal revenue while protecting U.S. jobs and manufacturing. While short on specifics, he suggested imposing 10% to 20% tariffs on foreign goods and 60% tariffs on Chinese imports.
It’s unclear whether Trump will make good on his tariff talk and how much authority he has to raise tariffs without Congress’ help. But the mere prospect of higher tariffs is spurring a surge in port activity, with the ports of LA and Long Beach setting records in October for cargo containers moved.
“A lot of people in the supply chain are basically already hedging their bets,” said Mike Jacob, president of the Pacific Merchant Shipping Association, a trade group representing ocean carriers, marine terminal operators and other maritime businesses.
Tariffs would affect imports and exports, Mary E. Lovely, a senior fellow at the Peterson Institute for International Economics said at a news conference with Port of Los Angeles Executive Director Gene Seroka on Wednesday, Nov. 20.
Cargo flow “will decrease despite having what I think will be a fairly robust economy next year,” Lovely said.
Roughly 30% of U.S. goods are imported or exported through waterborne containers coming through the LA and Long Beach ports. The Long Beach port handles $200 billion worth of cargo annually and the LA port handled cargo worth $292 billion in fiscal 2022-23.
Freeways and rail lines connect the ports to a sprawling landscape of mega-warehouses in Riverside and San Bernardino counties. Logistics is an economic backbone for the Inland Empire, employing tens of thousands and helping the region rebound economically from the COVID-19 pandemic.
Tariffs are taxes or fees levied on imported or exported goods and services. While Trump argues other countries will pay the tariffs, that’s not true, according to economists who said importers pay them and pass the cost along to consumers.
“I think there is a vision, which is that many people think, ‘Oh, we will create this kind of fortress America” with tariffs that will bring jobs and investment, Lovely said.
“Now, it’s true that some investment will come in,” Lovely said. “We’ll see some jobs increase, but we’ll lose jobs in lots of other areas.”
Consumers also can expect higher prices, a roughly 1% bump in inflation and less variety in what’s for sale, Lovely added.
“We have become, to some extent, sort of sanguine about the variety that we see in our clothing, our household goods, our electronics and some of those products will simply disappear from the marketplace,” she said.
During his first term in 2018, Trump raised tariffs on steel, washing machines, solar panels and a number of Chinese goods.
Seroka, the LA port director, said experiences from the tariffs in 2018 resulted in uneven cargo flows that became hard to predict. In the fourth quarter of 2019, he said, the port saw a 16% drop in business.
“To that point of uncertainty,” Seroka said, “we saw fits and starts of cargo flows that were uneven. We had to jump really quick, and then hurry up and wait as the flow subsided.”
Noel Hacegaba, chief operating officer for the Port of Long Beach, said the 2018 tariffs caused China to retaliate and his port saw a 20% drop in cargo.
Seventy percent of that port’s cargo comes from China, he said. “I’d add, also, that trade disputes create uncertainty. There are no winners in trade wars.”
Tariffs have their defenders.
During an appearance on the cable news channel NewsNation, Grover Norquist of Americans for Tax Reform argued tariffs are a useful negotiating tool “to keep China from stealing our technology (and) to get China to allow our goods and services to go into China.”
Jacob said tariffs would worsen America’s trade deficit.
“You’re still going to demand those widgets. And actually you’re going to demand more of them,” he said. “But if you cut off access to them or you make them more expensive and people start cutting back on the supply of them, what you do is you might induce more demand at a higher price.”
“Which just means those inputs become more expensive, but you won’t physically have more of them … The trade deficit might actually increase because the costs for the scarcity of those goods goes up.”
Christopher Thornberg, an economist and founding partner of the Los Angeles-based Beacon Economics, said the Inland Empire logistics industry is about more than just international trade.
“It’s also just an enormous node within the Southern California and southwestern United States delivery system,” he said. “So thinking that trade is a dominant issue there, I would argue that that would be a mistake to do.”
He added: “Obviously there is international trade that uses that logistics area. And thus the concept of some sort of trade war obviously leads us to the idea that you could see a diminishment in trade flows and that could hurt the industry.”
Inland logistics “is already in the midst of a breather” after sky-high demand for online orders during the pandemic subsided, Thornberg said.
It’s unclear how President-elect Donald Trump’s campaign trail promises to impose new tariffs will affect the Inland Empire logistics industry. (File photo by Jeff Gritchen, The Orange County Register/SCNG)
“The only way this thing would get to the point where it could cause an implosion is if these trade wars got to the point where everybody was willy-nilly slapping 40% tariffs and you saw an absolute collapse in global trade,” he said.
“I just don’t see that happening, but maybe I’m a foolish optimist. No one ever predicts the earthquake.”
Jerry Nickelsburg, an economics professor at UCLA’s Anderson School of Management, said while tariffs could lead to fewer imports, “none of the evidence we have from past increases in tariffs show a lot of impact on employment at the ports, employment in transportation or warehousing.”
Southern California ports could stay busy thanks to Middle East conflict affecting shipping in the Suez Canal and problems getting ships through the Panama Canal, Nickelsburg said.
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Ultimately, what effect tariffs have on Southern California’s ports and warehouses depends on what Trump actually does.
Nick Vyas, founding director of the Randall R. Kendrick Global Supply Chain Institute at the University of Southern California, believes the chances of Trump imposing tariffs early on are “almost 100% … All his picks (for) Cabinet (and) the heads of the government agencies have been (pro-tariff).”
Thornberg is less certain.
“Trump is the king of threatening the nuclear option. He does that all the time,” he said. “His entire world is wrapped around these ridiculous over-the-top threats and in the end, he typically doesn’t go through with it.”
Thornberg added: “You think all these billionaires working for him want a trade war? Hell no … So before he starts slapping his tariffs (the billionaires will say) ’Hey Don, let’s talk, billionaire to billionaire, buddy. Let’s think through this.’”
