Trade Wars on the Home Front

By Sean Nealon

The tit-for-tat trade war being waged by the Trump administration has drawn criticism from business and economists. While the impact in the Pacific Northwest is felt in pockets of the economy, overall, it has not been severe, say experts, including several at Oregon State University. This is, in part, because trade retaliation from major trading partners is usually done in a politically strategic manner: Tariffs are levied against goods produced in states that are politically supportive of the president, says Alison Johnston, an associate professor in the School of Public Policy at Oregon State University.

“The saving grace for Oregon is that it is not a state that is politically sympathetic to Trump and, therefore, is not in the crosshairs of our trading partners,” Johnston says.

In response to the Trump administration’s trade actions, last year Canada counter-attacked with a 10 percent hike on U.S. plywood, which touched about $3.6 million of a Glendale, Oregon–based lumber company’s product. The Swanson Group exports north of the border, but experienced minimal impact. Canadian customers kept buying their engineered wood.

Meanwhile, U.S. tariffs on steel overall haven’t hurt Thompson Metal Fab, a Vancouver, Washington–based company that works throughout the West. It is facing longer lead times to get steel for its projects because importing steel is less economically appealing now, but “there is more work out there than there are people to make the structures,” says Michael Moore, the company’s vice president of business development.

In Oregon, Washington and Idaho the trade war between the U.S. and China has caused soft white wheat farmers to lose the $70 million Chinese market for their product.

These three industries and their accounts exemplify the sector-specific impact of President Donald Trump’s trade policies.

Moving forward, with Democrats taking control of the House of Representatives following the midterm election, Johnston says she could see Congress playing a role in future trade decisions. But, she adds, it is still easy for Trump to impose tariffs on a temporary basis.

Archaic Policy

Jeff Reimer, an applied agricultural economist at Oregon State, says from a historical perspective, Trump adheres to many of the tenants of mercantilism. This was a national economic policy that was dominant in Europe from the 16th to 18th centuries and was designed to maximize the exports of a nation.

The mercantilist philosophy has long since fallen out of favor, especially with the creation of intergovernmental trade organizations. The primary example is the World Trade Organization, which regulates international trade by providing a framework for trade agreements between nations. It was created in part to protect smaller countries, Reimer says.

“If someone is not treating us fairly we have a way of dealing with them,” he notes. “International institutions, like the WTO, make a lot of sense. And we’re the ones who helped design them.”

Oregon State University President Ed Ray, who is also a professor of economics, compared the administration’s current trade policies to the Smoot-Hawley Tariff Act, which was passed in 1930 and raised U.S. tariffs on more than 20,000 imported goods.

“The passage of the Smoot-Hawley tariff is credited with beginning a wave of protective tariff increases around the world that deepened and prolonged the Great Depression,” Ray says. “There are no good arguments for protective tariffs.”

He goes on to say that the current and continuing problem in trade relations with China involves the protection of intellectual property rights. The nation’s current actions to undercut NAFTA and trade relations with the European Economic Community are the exact opposite of what the U.S. should be doing to strengthen its hand in negotiations. “Not signing the Trans-Pacific Partnership was a terrible mistake,” Ray adds.

Minimal Statewide Impact

Josh Lehner, an economist with the Oregon Office of Economic Analysis, says Oregon is among the most trade-dependent states in the nation because many Oregon-produced goods are exported. Moreover, the Port of Portland is a hub for exporting products from other parts of the United States, especially the Midwest.

Despite being trade dependent and having a strong manufacturing base, Oregon has been lightly affected by the president’s trade policies, Lehner explains. Oregon’s economy is also diversified with a lot of what he calls “home-grown industries,” such as beer, wine and timber, where the products tend to remain in the United States.

But, adds Lehner, there are some secondary impacts at the Port of Portland. For example, with a drop in Midwest soybeans passing through the port on their way to China, there is less work for longshoremen and truck drivers, and less need for warehouse space.

Potential Regional Impact

Soft white wheat, which is farmed in Oregon, Washington and Idaho, is not used for American-style bread because it doesn’t have the gluten needed to rise well. Almost all soft white wheat is exported and used in Asia for pastries, cookies and some kinds of noodles. So, soft white wheat farmers were impacted when China stopped importing their product in March, says Tom McCoy, a retired wheat farmer from Sherman County, Oregon.

McCoy, who previously served on the Oregon Wheat Commission and still tracks the industry, says China imports about 6 percent of the soft white wheat grown in the Pacific Northwest. That equates to about $70 million, he says. “We had a reputation as being a reliable supplier, but the tariffs are casting that in doubt.”

Optimistic About the Future

Unlike the soft white wheat industry, plywood manufacturers have seen a “minimal impact.” For example, the Swanson Group sells less than 10 percent of the firm’s plywood to Canada, says Steve Swanson, the company’s president and CEO. The Swanson Group employs about 800 people at several wood-product mills and recently opened a plywood mill in Springfield, Oregon.

Canada produces most of its plywood, and the U.S. housing market, particularly in California, remains the dominant destination for Oregon-made plywood. “I believe in the process,” Swanson adds, referring to the president’s trade policies. “Because I think it creates more jobs in the U.S. eventually.”

Like plywood manufacturers, Pacific Northwest steel fabricators have also been impacted by the trade policies. Moore, vice president at Thomson Metal Fab, says that, due to Trump’s steel tariff, his company has to consider other things when bidding on a project. For example, there are now longer lead times to get the steel they need to complete their projects. Domestic steel mills are backlogged because the tariffs have made importing steel less economically appealing to U.S.-based companies. Instead of waiting eight weeks, the norm is now 12 weeks or longer, Moore says. He has worked around this concern by communicating more frequently with his customers.

Another tariff-related impact hit early in 2018. Thomson Metal Fab was in negotiations to secure a large project that would have employed the equivalent of its entire 120-member crew for a year. But the quickly rising price of steel got to be too much for the project owner to take on, so the client suspended the job until additional funding could be secured. However, it was easy enough to find other projects to keep them busy, Moore says.

Overall, Moore, who is also president of the Pacific Northwest Steel Fabricators Association, says the recent strong economic growth coupled with the new trade policies make him optimistic about the future.

“We all talk about how good things are right now and how good they have been in the last few years,” Moore says. “And we expect it to go on for a few more years. We expect to ride the wave a little while longer.”