Inland Empire could be particularly vulnerable to high tariffs

The Inland Empire economy will take a hit, perhaps a severe one, if President Trump’s 125 percent tariff against China remains in place, according to one local economist.

That damage likely will begin with half-empty warehouses, and be followed by a loss of logistics jobs perhaps as soon as this fall, said Manfred Keil, associate professor of economics at Claremont McKenna College.

“The question is how will this affect the Inland Empire, and there’s no doubt it will have a huge impact if it remains in place for any length of time,” Keil said. “A 125 percent tariff is unfathomable, but it’s so high that fewer goods being shipped has to happen.”

On April 2, Trump announced higher tariffs against most U.S. trade partners, most prominently the 125 percent tariff levied against China.

One week later, when the tariffs took affect, an estimated $6 trillion was lost in two days.  Also, the Dow dropped 2,200 points in one day, sending global markets into a free-fall.

Faced with a possible worldwide economic calamity, Trump delayed for three months the tariffs he levied against most countries that exchange goods with the United States.

He took that action after maintaining that strong tariffs – even against Canada and Mexico, two of our biggest trade partners – were needed to strengthen the U.S. economy and revive its manufacturing sector.

“Sometimes you have to take medicine to fix something,” Trump said.

Trump did put into place a 10-percent tariff on most of the United States’ trade partners, but he made it clear he is willing to engage in a massive trade war in order to correct trade imbalances, despite the hardships that might cause.

“We were looking at a global meltdown,” Kiel said. “There was no sign that Trump was going to change his mind about any of the tariffs, but he did. That he changed his mind 12 hours after they went into effect is unfathomable, just like a 125 percent tariff against of your most important trade partners is unfathomable.”

Trump’s unexpected about-face produced immediate positive results. The S&P 500 stock rose by 9.5 percent, markets worldwide righted themselves, and a lot of people stopped worrying about their retirement savings disappearing.

But that euphoria didn’t last. The stock market tumbled the next day, indicating Trump’s trade war is far from over. China also raised its tariff against the United States to 125 percent, but said it would go no further.

None of those developments are good for the Inland Empire, the region sometimes called the warehouse of the western United States.

The real threat isn’t empty warehouse space, but the inevitable result of empty warehouse space: not as many people working in warehouses.

“The place where the Inland Empire is really vulnerable is jobs,” Keil said. “A lot of logistics jobs will be lost because of this. I think we could have much higher unemployment as soon as six months from now.”

Whenever it happens, the damage will likely be worse in San Bernardino County than Riverside County.

“Last year, logistics was the largest job sector in San Bernardino County,” Keil said. “In Riverside County it was the third largest, so the number of job losses probably won’t be as bad there. But it will be bad in both places.”

Healthcare, another major job sector in the Inland Empire, is facing job losses because much of its government funding is being cut.

“High tariffs would have nothing to do with a loss of jobs in healthcare, but if you combine those losses with job losses in logistics, the impact on the Inland Empire would be devastating,” Keil said.

But the Inland region might not take as large an economic hit as some people fear, said Lisa Anderson, founder and president of LMA Consulting Group Inc. in Claremont, which specializes in manufacturing and supply chain clients.

“Trump is starting with “big-bang” tariffs, rather than starting small and working up,” Anderson said. “The idea is to get manufacturers to ramp up their U.S. operations, or return to the United States so they won’t have to pay the high import tariff.

“They’re also trying to encourage more investment in manufacturing, particularly in critical areas, like defense.”

It’s difficult to say now how that approach will affect the Inland Empire.

“Over time I think there will be some impact, but I don’t think it will be very much,” Anderson said. “We will still get a lot of products from China, because we have the warehouse space to accommodate them.

“But the bottom line is we don’t want the high inflation that it will happen with a 125 percent tariff against China.”

Any company that imports anything – regardless of what it is or where it’s made – has to be concerned about its future, said Bud Weisbart, co-owner of A&R Tarpaulins Inc. in Fontana, which makes canvas “tarps” used in aviation.

A&R also makes canvas mats used in the rings at UFC contests, mats made with cotton imported from India. Those mats account for about 10 percent of A&R’s business, enough that the company’s bottom line would be affected if they were to go away.

“Our biggest concern is the unknown,” Weisbart said. “No one knows what is going to happen. Some people are comparing this to 1929, but I don’t agree. I don’t think we’re looking at a depression, but we could be heading toward a recession.”

Because A&R has been making the UFC mats for years, and because that work requires some special skills, A&R is not likely to lose its UFC contract, according to Weisbart.

But he is concerned about the economic chaos that took over the United States, and much of the world, this week, and he sees only one way to eliminate it.

“I think the people who have to get re-elected every two years, and every six years, have to get us out of this mess,” Weisbart said.