President Donald Trump’s intensifying trade dispute with China is starting to hit some of California’s premier industries. Experts warn that if the conflict escalates, more and more of the state’s businesses – and regular people – will feel the impact.
On March 22, China threatened to slap tariffs on a handful of American products in retaliation for up to $60 billion in tariffs the White House levied against Beijing earlier in the day. Among the U.S. products facing a 15 percent tariff: wine and fruit, two of California’ top agricultural exports.
The next day, the San Francisco-based Wine Institute, which represents the California wine industry, warned in a statement that the tariffs “could have a significant negative impact on the future growth of wine exports to China,” which is “one of the fastest growing wine markets in the world.” According to the Wine Institute, the value of U.S. wine exports to China and Hong Kong have increased 450 percent in the past decade. In 2017, alone, the country sold $197 million worth of wine to China.
California wine represents 97 percent of all American wine sold abroad.
Wine Institute CEO Robert P. “Bobby” Koch noted that “a number of our foreign competitors will soon have tariff-free access to the Chinese market” thanks to free trade agreements.
“This, combined with additional punitive tariffs on California wine, could result in lost market share for years to come,” he said.
Winemakers aren’t the only ones getting nervous about the White House’s aggressive trade moves in recent weeks.
The president announced at the beginning of March that he would impose a 25 percent tariff on steel and a 10 percent tariff on aluminum to protect those industries from cheap imports from abroad, mostly from China. Last Thursday night, the White House revealed it was granting a temporary exemption to allies in the European Union, Argentina, Australia, Brazil and South Korea. The Trump administration had previously exempted Canada and Mexico, citing ongoing talks to rewrite the North American Free Trade Agreement.
Even with those exemptions, the tariff on steel is expected to drive up the price of the material, regardless of origin. And that has the construction industry – one of the biggest consumers of steel of any sector – bracing for fallout.
Jock O’Connell, international trade adviser at California-based Beacon Economics, said the infrastructure sector will be one of the first to feel the impact of the tariff.
“What you had budgeted for steel or rebar is likely to jump in price over the next several months,” said O’Connell.
So “if you’re building new bridges, or the twin tunnels the governor wants to build, or the high speed rail system,” you’re going to have to start recalculating, he said.
That would be yet more bad news for California’s High-Speed Rail Authority, which is already taking a beating for years of delays and cost overruns. The good news, spokeswoman Annie Parker said, is that the high-speed rail project has “already secured most project steel requirements” for its first construction contract, 32 miles of rail between Fresno and Madera Counties, and the majority of steel for another construction contract for a 22-mile stretch in Kern County.
“We are assessing potential implications for our remaining contracts,” Parker said.
According to Peter Tateishi, CEO of the Associate General Contractors of California, which represents the state’s commercial construction industry, Trump’s tariffs “are the types of percentages and numbers that can have a real impact on our costs.”
He predicted that the first people to feel the impact of rising steel prices will be contractors who have already inked contracts for projects based on certain price assumptions. “You’re seeing a lot of construction companies looking at their contracts and … saying, ‘can we pass on these rising costs or are we going to have to eat those costs?’”
Longer term, those higher construction costs will affect everyone from local business owners to condo renters. “This impacts cost of living because it gets passed on into the overhead of any person who is renting a facility,” explained Tateishi.
California can ill-afford a slowdown in new home-building, but that may well be another indirect result of the tariffs. While steel isn’t a major component in single-family homes, it is widely used for building large apartment complexes or mixed-use buildings. And developers factor in construction prices in deciding if and how to build.
“If we start to slow down the commercial side, construction across the board will slow down,” Tateishi predicted.
Emily Cadei: 202-383-6153, @emilycadei