By Mike Rogoway
Oregon is among the nation’s most trade-dependent states, and China is the state’s largest trading partner by far.
Yet the tariffs piling up amid President Donald Trump’s trade war with China have done little to slow Oregon’s historic economy expansion. The state added 3,300 jobs last month and unemployment was just 4.3%, near an all-time low.
As the trade dispute escalates, though, the economic impact may grow sharply.
Certain Northwest industries, including hazelnuts and lasers, are already feeling a profound effect. If the tariffs trigger a broader economic slowdown, whether in China or the U.S., they could do serious damage to some of Oregon’s largest employers.
That was evident Monday, when new American tariffs kicked in and China announced retaliatory measures after a sudden breakdown in negotiations. Stocks fell sharply, in Oregon and across the country.
Economists warn the trade war could chill the global economy by raising prices on products and slowing commerce as the tariffs rise from 10% to 25% on many goods imported from China.
“I think the step up in escalation is important,” said Josh Lehner with the Oregon Office of Economic Analysis.
At 10%, Lehner said, companies could mute the tariffs’ effect by modestly reducing profit margins throughout the supply chain and passing on a relatively small price increase to customers.
“At 25%, firms cannot easily work around the tariffs,” Lehner said.
By inflicting economic damage on China, Trump hopes to persuade it to buy more U.S. products, respect American companies’ intellectual property and reduce barriers for American businesses in China.
There’s no evidence manufacturers are shifting jobs from China to Oregon, though. And Chinese economic pain may be felt more acutely here because the state is unusually reliant on exports.
Take Intel, Oregon’s largest corporate employer. It has 20,000 workers in Washington County and is preparing to start construction on a multibillion-dollar research factory at its Ronler Acres campus in Hillsboro.
Intel is Oregon’s largest exporter, responsible for the vast majority of the $2.5 billion in computer chips the state shipped to China last year. Companywide, Intel’s sales in China totaled $18.8 billion in 2018 — more than a quarter of its entire revenue.
If the tariffs succeed in slowing China’s economy they will inevitably also slow business at Intel. That’s a big reason why the company’s shares slid 3.1% Monday. Shares rebounded a bit Tuesday, rising 0.9%.
The tariffs can have a more direct effect, too. Shares in Clark County, Washington, laser manufacturer nLight Corp. plunged 10.2% Monday, reflecting that company’s extreme dependence on China. Shares were up 1.1% Tuesday.
More than a third of nLight’s revenue comes from China, and the company has 500 employees at a factory in Shanghai, nearly as many as it has in the U.S. After the U.S. and China hit each other with tariffs in September, nLight warned investors “we expect that the new tariffs will have a direct impact on our operations and financial results.”
In the first three months of the year, nLight said revenues fell by $600,000 compared to the first quarter of 2018. The company said declining sales to China were primarily responsible for the shortfall.
Other Oregon companies that have warned investors about the trade war’s impacts include The Greenbrier Cos., Columbia Sportswear and Schnitzer Steel Industries, which said a fall in nonferrous steel prices last quarter “primarily resulted from the continued effects of Chinese import restrictions and tariffs.”
Nike, the largest company based in Oregon, told investors last summer that tariffs could have “a significant impact on our activities in foreign jurisdictions, and could adversely affect our results of operations.”
The tariffs apply only to goods shipped after May 10, giving China and the U.S. a few weeks to work out their dispute before the products cross the Pacific.
China is readying its own retaliatory tariffs in response to the Trump administration’s latest measures. Its ability to inflict direct harm on the U.S. economy is limited because it doesn’t import nearly as much from the U.S. as the U.S. does from China.
By targeting certain markets, though, China is having an effect.
Oregon accounts for nearly all the hazelnuts grown in the U.S. and slightly more than half of those go to China. Recently planted trees mean production could double over the next few years.
China already levies tariffs from 50% to 65% on Oregon hazelnuts and plans to add another 25% starting June 1 in retaliation for the latest U.S. tariffs.
“It’s going to be very detrimental,” said Polly Owen, director of the Oregon Hazelnut Industry Office.
With the global geopolitics out of their hands, Owen said Oregon hazelnut growers and processors are trying to develop personal connections with buyers in hopes those relationship may pay off if the rival governments resolve their broader dispute. She said two hazelnut producers are in Shanghai this week meeting with buyers.
China’s hazelnut tariffs have always been high, Owen said. She said Oregon’s industry is hopeful the current trade crisis may ultimately lead to a broader understanding between China and the U.S. that could reduce tariffs across the board.
“We continue to really strive for a long-term reduction on the tariffs into China,” Owen said. “In the meantime, we are definitely pursuing markets in other countries.”