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A look at the impact of tariffs in Washington

The ongoing trade war between the U.S. and China has resulted in tariffs on hundreds of billions of dollars worth of Chinese imports and retaliatory tariffs on a long list of U.S. goods.

What does that mean for Washington State, where China is the leading trade partner?

Data from the U.S. Census Bureau shows that China accounted for 30.1% of Washington’s total imports in 2018, up from 20.3% in 2015.

In contrast, exports to China made up 20.6% of Washington’s total exports in 2018 — down from 23.5% in 2017.

This suggests that Washington State fell into a trade deficit with China for the first time in recent years, even as federal tariffs seek to limit Chinese imports through increased tariffs paid by Americans.

Moreover, Washington industries subject to retaliatory tariffs are feeling the impact on exports. And, while imports on specific items have slowed, overall imports from China at the Port of Seattle still grew in 2018.

The Northwest Seaport Alliance — a marine cargo partnership between the ports of Tacoma and Seattle — lists China/Hong Kong as its top trading partner, with the value of its two-way trade at $32.5 billion (2016). Japan came in at a distant second, at $17.4 billion.

In a recent letter opposing proposed tariffs on an additional $300 billion-worth of Chinese goods, Port of Seattle Commissioner Stephanie Bowman and Port of Tacoma Commissioner Clare Petrich wrote that 49.5% of all seaport imports through the two ports come from China. Meanwhile, 20% of their seaport exports go to China.

“Our data shows us that the impact of tariffs on Chinese imports to-date – and the resulting retaliatory tariffs – has fallen mainly on our exporters,” the commissioners wrote.

The NWSA’s 2018 Annual Trade Report shows that four of the top five origin ports, and one of the top five destination ports, were located in China in 2018.

Peter McGraw, Maritime Media Officer with the Port of Seattle, wrote in an email that the port’s trade business with China has continued to grow despite the tariffs. Overall two-way seaport trade with China, he wrote, was up 11% in 2018 over 2017. Two-way air cargo was up 17%.

The port, McGraw said, believes those increases can be traced to two things: overall economic growth compensating for the trade war and importers trading to get ahead of expected tariff increases — buyers stock up on goods that might get more expensive, in anticipation of those theoretically higher prices when theoretical tariffs hit.

But, the continued growth doesn’t provide a full picture.

The port’s data on goods that are facing higher tariffs shows that some goods still demonstrated growth — flooring and wall coverings, which showed 92% growth between 2017 and 2018, was one example.

On the other hand, overall exports to China through the seaports are trending steadily downward. McGraw said they declined 32% in 2018 and an additional 21% in 2019, through the end of March. Exports to China via Sea-Tac Airport are up, but specific commodities show an impact on that side of the equation, as well.

“While tariffs haven’t yet led to major declines on our overall business with China, 2018 saw significant declines in specific exports to China compared to the year prior – such as a 69% decline in soy exports via our seaports and a 38% decline in cherry exports through our airport,” McGraw wrote in an email. “We expect to see additional declines across the board in 2019 – in part because firms have been overtrading to get ahead of the imposition of additional tariffs.”

Mark Powers is President of the Northwest Horticultural Council, a regional trade association that represents tree fruit growers, packers, and shippers, in Washington, Oregon, and Idaho. Powers estimates that the council represents over 90% of the fruit exported from the U.S.

The impact of recent tariffs on commodities, Powers said, has primarily been felt by apple and cherry growers, packers, and shippers. He said that’s due to a 20% tariff that Mexico placed on apples, but was recently taken off.

Today, though, there remains retaliatory tariffs from China on apples, cherries, and pears that total 40%. And, Powers pointed out, that’s in addition to the typical 10% tariff.

Toni Lynn Adams, Communications Outreach Coordinator with the Washington Apple Commission, said that Washington exports a third of its fresh apple crop and accounts for 90-95% of all U.S. apple exports. The statewide industry, Adams said, has seen exports to China dip 38% compared to the previous season, according to the most recent report. But, she also said growers have seen lower crop volume than normal.

“On a decreased crop volume year, it can be expected export volume will be less so it is difficult to say how much is attributed to tariffs and how much is reduced because of the smaller crop volume,” Adams wrote in an email. “China is our #6 export market and is high value market for Washington growers.”

Powers said the tariffs have had a bigger impact on cherries than on apples. 2017 was the first year China surpassed Canada as the region’s largest market for exporting cherries, Powers said. However, regional cherry sales to China dropped 41% in 2018, and Canada reclaimed the top spot. This year’s cherry harvest is just beginning.

While exporting goods is “inherently more risky” than domestic business, Powers said the current situation is unique and that growers, particularly, are feeling the pressure.

“We’d much rather be in a situation where we’re responding to market signals and market demands and doing that, rather than having government actions impact the price that growers are going to get for their fruit,” Powers said. “So, we need it to come to an end.”

Another Washington industry that’s feeling pressure: wine.

Ryan Pennington, Senior Director of Communications and Corporate Affairs at Ste. Michelle Wine Estates, shared that the markup of combined tariffs and local taxes on American wines in China totals 91%. Pennington said the fact that other wine producing nations — e.g. Australia, New Zealand, and Chile — have free trade agreements that allow them to get their product into China tariff-free, compounds the situation.

For the time being, Ste. Michelle isn’t looking for new opportunities in China, Pennington said, but is instead focusing on protecting its existing business there.

“China is still an important wine market that holds great promise for the future, but it’s also a difficult market to navigate under optimal conditions,” Pennington said. “We have invested considerable resources opening and developing the Chinese market, and the current situation certainly represents a setback. However, we remain firmly committed to Chinese market, and we encourage the administration to find a swift resolution to the current impasse, so that we can continue introducing Chinese consumers to the tremendous quality of American wines.”