U.S.-China trade tensions have slight impact on Massachusetts businesses, analysts say

By Brittany Kubicko
BU News Service

BOSTON — The rounds of tariffs bouncing between the United States and China have sent shockwaves into trade-sensitive U.S. industries such as manufacturing and agriculture. But Massachusetts has only seen a slight impact from Washington’s trade rift with Beijing, industry analysts told BU News Service.

The U.S. posted a record merchandise trade deficit of $891.3 billion in 2018, ballooning $83.8 billion from the year before, the U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced on March 6.

Trade talks — as well as a presidential summit — between the two nations have floated the possibility of lifting each other’s tariffs, with China offering to increase purchases of U.S. goods. But Chinese officials are reconsidering the prospect of a presidential summit following President Donald Trump’s failed meeting with North Korean leader Kim Jong Un — which could serve as a hindrance to a U.S.-China trade accord, the Wall Street Journal reported March 8.

At stake is a 10 percent tariff on $200 billion in Chinese consumer exports, including agricultural, chemical and automotive products, which went into effect in September 2018. China retaliated by levying tariffs on $60 million in U.S. goods, which included agricultural and intermediate products. The Trump administration postponed a tariff hike of 15 percent that was scheduled for March 1, citing progress in trade talks.

U.S.-China trade tensions, though small in magnitude compared to Massachusetts’ economic activity, could still be detrimental to companies that rely heavily on exports, Branner Stewart, a senior research manager at the UMass Donahue Institute, said in an email.

“On the export side, Massachusetts is a large-scale exporter of intermediate goods and industrial equipment,” Stewart said. “Both could be affected by the tariffs and any slowing of trade with China. On the import side, the price of household goods will go up as retailers are pushed to the limit to absorb the costs without passing them on to consumers.”

Massachusetts’ top 3 exports are gold, medical appliances and machines for manufacturing semiconductors, while the top three imports are medications, artificial joints and electronics, according to 2017 U.S. Census Bureau data.

Stewart said a U.S.-China trade accord can be beneficial to Massachusetts businesses, especially to the technology sector if concerns surrounding intellectual-property protection in China are addressed.

“If the U.S. can make progress on limiting China’s ability to usurp Western intellectual property , that would be beneficial notably to technology leaders like Massachusetts,” Stewart said. “The use of tariffs, however, to achieve these ends is questionable, to say the least.”

Massachusetts companies more concerned with NAFTA renegotiations

While tensions between the U.S. and China trade were high, the Massachusetts economy is more dependent on trade between the U.S. and Canada through the North American Free Trade Agreement, Benjamin Stuart, research and data analyst at the Greater Boston Chamber of Commerce, told BU News Service.

“China’s a big trade partner for Massachusetts, but Canada is our number one trade partner,” Benjamin Stuart, research and data analyst at the Greater Boston Chamber of Commerce, said in a phone interview. “There’s also a large flow of not just goods between Massachusetts and Canada, but also a flow of both people and information that’s also regulated through the NAFTA negotiations.”

Massachusetts imported nearly $7 billion worth of goods from Canada in 2017, while its imports from China were about $4.6 billion, according to the U.S. Census Bureau. In the same year, Massachusetts exported about $3 billion worth of goods to Canada, eclipsing the $2.3 billion exported to China, the data showed.

Trump in December 2018 announced that he planned to withdraw the U.S. from NAFTA in favor of a new trade agreement between the U.S., Canada and Mexico. Trade relations were rocky between the U.S. and its North American trade partners when it levied tariffs on steel and aluminum imports in 2018.

Greater Boston Chamber of Commerce members were more concerned with last year’s NAFTA renegotiations rather than with trade negotiations with China, Stuart said. However, he said, trade tensions between the U.S. and China could have affected both Massachusetts consumers, who face increased cost in goods due to added tariffs, and businesses, which face retaliatory tariffs in exporting their goods to China.

Tariffs imposed on Chinese exports by the Trump administration have cost American businesses and consumers $3 billion a month more in taxes, according to a study published March 2 by economists at the Federal Reserve in New York, Princeton University, and Columbia University. Additionally, they were costing companies an estimated $1.4 billion more in deadweight losses and could place damaging effects economically if tariffs continue to rise.

A separate paper written by four economists prognosticate further economic struggles, with annual losses from imports reaching $68.8 billion, or almost 0.4 percent of U.S. gross domestic product.

Dave Sebastian contributed reporting.

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