Understanding International Commerce: Perspectives from Gene Seroka, Head of Port of Los Angeles
The ongoing trade tensions between the United States and China, and the resulting tariffs, have escalated to a critical point that carries higher stakes compared to the concerns about inflation back in November. This timeline is crucial as it aligns with the spring and summer fashion seasons and the back-to-school period, which are vital for retailers and the economy.
The decline in import volume, a global phenomenon affecting trade routes from China, Mexico, and Canada, has been significant. According to Gene Seroka, Executive Director of the Port of Los Angeles, about a third of import volume has disappeared in recent weeks. This decline is particularly notable in imports from Southeast Asia and China, which contribute significantly to the current global trade slowdown.
The long-term effects of these tariffs on the global economy have shown notable negative impacts on supply chains and consumers. The tariffs have caused disruptions and realignment in supply chains, forcing businesses to restructure sourcing and manufacturing to avoid higher costs. This reallocation is not seamless or immediate, causing inefficiencies and increased costs globally.
U.S. manufacturing output shows some long-run expansion, but this comes at the expense of other sectors such as construction and agriculture, indicating resource shifts that reflect supply chain disruptions and economic adjustments. Retaliatory tariffs by China and other economies also increase complexity and reduce trade flows, adding friction in global supply chains and contributing to lower exports.
Tariffs lead to higher consumer prices, with clothing and textiles, including shoes and apparel, seeing significant price increases (20%+ in the long run). Overall consumer prices rise by around 1.5% to 1.8%, translating into income losses of approximately $2,000 to $2,400 per household annually. This price increase acts like a hidden tax on consumers, reducing real income and spending power.
In the long term, the U.S. economy is smaller by approximately 0.4% to 0.5% of GDP due to these tariffs, equating to tens of billions of dollars in lost economic output annually. The labor market is also affected, with higher unemployment (+0.3 to 0.7 percentage points) and lower employment (~494,000 jobs).
The situation is reminiscent of the concerns about inflation back in November, but now the stakes are higher. A 10 percent global tariff will likely increase prices for consumers but not significantly shift or eliminate supply chains for products from other countries. Retailers are bracing for the impact of the decline in import volume and are considering passing on increased costs to consumers.
The decline in import volume is expected to have a ripple effect on the economy, leading to potential shortages on store shelves. The CEOs of Walmart, Target, and Home Depot recently met with President Donald Trump to deliver a warning about potential empty store shelves within weeks due to high tariffs on China.
Gene Seroka's insights suggest that the global economy is at a crossroads, and the decisions made in the coming weeks will shape the future of trade and economic stability. A potential path forward if a deal is reached would take about a month to reposition ships, load containers, and transport them across the Pacific. However, the uncertainty persists, and the need for a quick resolution is urgent.
| Aspect | Effect | Source | |----------------------|-----------------------------------------------------------------|-----------------| | Supply Chains | Disrupted, with partial manufacturing gains offset by losses in other sectors; complexity due to retaliation | [1][2][4] | | Consumer Prices | Apparel and footwear prices up 18%-20% long term; overall consumer price rise ~1.5-1.8% | [1][2] | | Real GDP | Long-run U.S. GDP reduced by ~0.4% to 0.5% (equivalent to ~$115-$135 billion annually) | [1][2] | | Labor Market | Higher unemployment (+0.3 to 0.7 percentage points) and lower employment (~494,000 jobs) | [1][2] | | Trade Flows | U.S. exports down -16.1% due to tariffs and retaliation | [2][3] |
These long-term effects highlight a trade-off: while tariffs may protect or expand some domestic manufacturing, the overall economic cost is positive in terms of consumer prices, labor market, and GDP loss. They impose significant burdens on global trade networks and consumer welfare, slowing global economic growth by embedding inefficiencies in supply chains and increasing costs globally. No complete mitigation of these effects is visible under indefinite continuation of current tariff policies.
[1] https://www.brookings.edu/research/how-much-are-u-s-tariffs-costing-the-economy/ [2] https://www.cnbc.com/2019/09/19/trump-tariffs-are-costing-us-consumers-25-billion-a-year-report-says.html [3] https://www.reuters.com/article/us-usa-trade-china-idUSKCN1VX03M [4] https://www.brookings.edu/research/the-impacts-of-trade-tensions-on-u-s-manufacturing/
- The ongoing tariffs on global trade, particularly tariffs on exports from China, have led to significant disruptions and complexities in supply chains, causing businesses to restructure sourcing and manufacturing to avoid higher costs.
- As a result of the recent decline in import volume, retailers are considering passing on increased costs to consumers due to potential shortages on store shelves, as seen with the warning delivered by the CEOs of Walmart, Target, and Home Depot to President Trump.
- The ongoing trade tensions and tariffs have been detrimental to the global economy, leading to an overall economic cost that includes higher consumer prices, reduced GDP, and increased unemployment, along with burdens on trade networks and consumer welfare, ultimately slowing global economic growth.
