As the Trump trade war comes to a crossroads in the next couple weeks, Louisiana, more so than most of states, stands to either profit handsomely or slip into a recession that would make the last one seem tame.
If President Donald Trump loses the war, the nation can expect dramatically higher prices for goods and the nation’s already sliding economy will fall into recession.
It’ll be a lot worse in Louisiana because international shipping accounts for 39 percent of the state’s $243 billion gross domestic product, in 2017, and 553,200 jobs. Louisiana is looking at massive layoffs and $7.1 billion worth of lost business, according to the U.S. Chamber of Commerce, the lobbyists for major industries in Washington, D.C.
The trade war has arrived in Louisiana.
Those numbers are repeated by less partisan organizations like the Federal Reserve Bank of Dallas, which ranked Louisiana as one of the most vulnerable states to a trade war. The state’s gross domestic product could drop of by about 7 percent or a reduction of more than $3,500 per person.
The state’s major gubernatorial candidates – the Democratic incumbent and the two best-funded Republicans – are supportive of President Donald Trump’s efforts but wary that the economic damage could overwhelm everything else at the outset of the four-year term of whoever wins this Saturday’s election for governor. If nobody wins outright, the top two vote-getters meet Nov. 16 in a winner-take all general election.
Incumbent Democratic Gov. John Bel Edwards and his two major Republican challengers, U.S. Rep. Ralph Abraham, of Alto, and first-time candidate Eddie Rispone, a Baton Rouge millionaire, have been cautious about criticizing Trump, whose popularity has waned nationally but remains strong in Louisiana. All three say they are worried.
Greg Bowser, head of the Louisiana Chemical Association, wishes the major candidates for governor would be more vocal about the economic impact a trade war could rack on this state.
“I understand why they’re not; they have to get elected. But I’d like to see them at least be on record,” said Bowser. He represents 66 manufacturers with 30,000 employees who mostly import raw materials, manufacture goods that are exported for products made by others. The trade war already has increased those prices, but a heightened conflict would make the Louisiana chemical manufacturers less competitive in the world market.
“We are concerned, very concerned about the trade war,” Bowser said.
Baton Rouge economist Loren Scott says chemical manufacturers have every right to be worried.
The Great Depression began in 1929 because of a trade war aimed at protecting American manufacturers led to a two-thirds drop in volume.
“If the president really is trying to protect domestic companies, we’re in for a recession,” Scott said. “And there won’t be anything a (Louisiana) governor can do. Just batten down the hatches.”
Fulfilling a campaign promise, Trump launched the trade war against China in early 2018, saying that he wants a major expansion in Chinese purchases of U.S. crops and a decrease in subsidies that allow Chinese companies to make and deliver goods in the U.S. cheaper than American manufacturers. Additionally, Trump wants changes to contracts that require Americans to transfer portions of their technology to Chinese companies and increased U.S. access to Chinese financial markets.
If there was a single, largest surprise for economist Loren Scott in preparing his 2020 economic outlook for Louisiana, it resided in Gulf of …
If the president succeeds, those concessions will be a tremendous boost for America, in general, and Louisiana in particular, Scott said.
But trade negotiations have stalled as both countries raised tariffs on each other’s products leading to higher prices that consumers must pay.
China’s Vice Premier Liu He will the head of a delegation Thursday and Friday for the 13th high-level trade talks with senior U.S. officials. A sharp increase in U.S. tariffs to 30% are scheduled to go into effect on Oct. 15, a little a more than a week away.
Louisiana exports to China fell 61% in 2018, from $7.7 billion to $3.0 billion, with soybeans taking the largest hit, down from $5.6 billion in 2017 to $968.8 million in 2018, according to the state Department of Economic Development.
Liquified natural gas exports from Louisiana to China were trending upwards to $389 million in 2018. But those shipments have dropped off with only $49.4 million of LNG value being shipped through July 2019, state statistics show.
“What we need to do is to encourage our president to keep moving forward and solve our problems because we can’t let them continue to take advantage of us,” said Rispone, who is running on the need for Louisiana to have chief executive with business experience. “He’s been in tough negotiations before. You just don’t walk with your hat in hand and say, ‘Please would you mind doing it right?’”
A few days after the China meetings, trade officials sit down with the European Union executives to try and avoid a steep rise in tariffs on Oct. 18 that will dramatically increase the prices to consumers on goods like wine, olive oil and cars. The EU is expected to retaliate by raising tariffs on U.S. goods.
Louisiana total exports to the European Union have been increasing each year to $11.2 billion in 2018, but higher tariffs could impact future growth.
Gov. John Bel Edwards has expressed those concerns in a letter and during a personal visit with Trump.
“I just encouraged him to do everything he could to be successful in these negotiations,” Edwards said during the recent Louisiana Public Broadcasting debate in Lafayette. “We export 60 percent of the nation’s grain from our ports in Louisiana.”
He also raised concerns because Louisiana imports steel and aluminum.
“The biggest problem we’re having now trying to get the off-take agreements out of China because they have stop signing those contracts,” Edwards said. “I just want him to be successful, but as quickly as possible.”
About $115 billion of new manufacturing and natural gas export plants have been announced but construction has not begun, Scott said. Prior to 2012, $5 billion in industrial announcements would have made officials ecstatic.
Tariffs have caused the price of steel and aluminum to rise significantly in plants that will use a lot of it. An additional $30 million in construction costs, along with unexpectedly higher prices for their products gives executives a moment of pause. “We’ve seen some of them waiting to see how this all turns out. We’ve seen some of them pulling back,” Scott said.
The trade war also has harmed Louisiana farmers, particularly those growing soybeans and corn. The price of soybeans took a substantial hit in dropping from about $10 a bushel last year to about $8.50 this year.
“Our farmers are patriots. They have taken it on the chin but they stand with this president as I do,” said Congressman Abraham, who grows soybeans and corn on his farm.
Exports out of the Port of New Orleans were down 14% in 2018 compared to 2017, mostly due to the decline in agricultural cargo.
In May Trump authorized $16 billion of aid for the nation’s farmers harmed by the ongoing trade war. The U.S. Department of Agriculture’s Market Facilitation Program issues payments based on a mathematical calculation of market conditions when a particular crop is harvested. The idea is to pay farmers about what they would have earned absent the trade war.
The payments have ranged from $45 per acre in Jeff Davis Parish to $105 in Tensas Parish, based on the crop and market, said Commissioner of Agriculture & Forestry Mike Strain. “Those subsidies will change as we move into the new year,” he added.
In negotiating these new treaties, the long-term benefits far outweigh the short-term pain, Strain said.