By Mike Rogoway

The Oregonian

For most Oregonians the effects of the trade war are nearly invisible. Perhaps you’re paying slightly more on a couch made in China. Maybe the price went up, perhaps a dollar, on a sweater online.

Manufacturers have absorbed many of the cost increases triggered by the tariffs President Donald Trump imposed on Chinese imports in hopes of forcing China to reduce its trade imbalance with the U.S. And while economists believe the trade war has slowed domestic growth, the effect has been modest. Oregon unemployment remains at a historic low, 4.1%.

In certain industries, though, including fiber lasers, forest products, hazelnuts and microprocessors, the trade war is having a profound impact.

That could be a glimpse of what’s ahead for the rest of Oregon — and the nation — if the U.S. and China fail to resolve their impasse.

In a typical year, for example, the Port of Astoria sends 10 vessels full of Oregon logs to China. This year there may be just two.

Retaliating against U.S. trade barriers last year, China slapped 5% tariffs on hemlock and Douglas fir, and a 10% tariff on spruce. China then doubled the tariff on spruce as the trade war dragged on.

Timber exporter Astoria Forest Products slashed its workforce from 14 employees to 5, according to general manager Chad Niedermeyer. He said his firm does $45 million in revenue during an average year but expects just $12 million this year.

If the trade war goes unresolved and he cannot find new markets for Oregon timber, Niedermeyer said his firm will consider a “shutdown and layoff and liquidation,” though he won’t discuss a timetable.

“The Chinese are very ­adept,” he said. “When there are tariffs put on them for a certain raw material, they’ll find other sources.”

Threats to longtime partnerships

Oregon businesses and trade groups worry that same effect could spread broadly. Relationships in China take years to build, and they say the trade war risks a long-term breach that could undermine connections to a variety of Chinese markets key to Oregon’s economy.

“That’s what’s really at stake here. Once they find another avenue to get what they need it’s hard to pull that away,” said Maria Ellis, director of federal affairs for the Portland Business Alliance and executive director of the Pacific Northwest International Trade Association.

Oregon is one of the nation’s most trade-dependent states and perhaps the only one that has a trade surplus with China. The state exported $4.7 billion in products to China last year and imported $3.3 billion.

Business and government leaders from the U.S. and China met Friday in Oregon City for the 9th Oregon-China Economic Forum, hoping to shore up ties strained by the trade fight.

“Because we are highly intertwined, any move to hurt the other will backfire,” said Chinese Consul General Wang Donghua, who drove up from the consulate in San Francisco to attend.

The dispute has put immense pressure on China, where the economy grew last quarter at its slowest rate since 1992. But last week, Wang insisted the U.S. is working against its own interest, cutting off access to China’s 1.4 billion people and their rapidly growing consumer appetites.

“In the short term the tariffs have impact on both countries, probably more in China,” Wang acknowledged. “But in the long term I think the harm on the United States will be harder.”

The U.S. and China have at times appeared close to a breakthrough in the dispute. The U.S. said a pending deal broke down in May after China pulled back on agreed-­upon terms. Wang, though, said China is befuddled by the messages coming from the U.S. capital.

“The policy at D.C. is sometimes unpredictable,” he said. “That’s what we feel, frankly.”

Many Oregon businesses support the Trump administration’s efforts to win protections for intellectual property and to reduce barriers to doing business in China, according to Ellis. But she said there’s been a cultural breakdown that has made China reluctant to agree to deals that would make it appear as if it were losing face.

“We can all agree (the negotiations) could have been done a bit more diplomatically and with a bit more transparency and certainty for companies,” she said.

Industries feeling the pain

While most of Oregon isn’t feeling the trade war yet, Ellis said the pain in Oregon’s agricultural sector could be a harbinger of future problems in other fields. Wheat, potato, hazelnut and timber exporters are feeling it most acutely now, she said, because their profit margins are so low.

The pain those sectors feel could spread to others if they lose access to the Chinese market, or if the trade war slows the Chinese economy to the point they stop buying Oregon products.

“There are warning signs out there that something is slowing down and the problem is a lot of that slow growth is because of what’s happening in Asia right now and what the U.S. is doing,” Ellis said.

Intel is Oregon’s largest corporate employer, with 20,000 people working in Washington County, and the chipmaker depends on China for more than a quarter of its sales. When the company released its quarterly financial results Thursday, the lingering trade tensions prompted Intel to trim its outlook for the rest of 2019.

“As we go into the second half, we’re just the — there’s still a little bit unknown about what — how this China thing is going to play out,” CEO Bob Swan told Wall Street analysts on a conference call. “That’s a big important market for us and that’s probably what makes me a little more anxious.”

Oregon hazelnut growers have been living with that anxiety for more than a year. The state produces 99% of all the hazelnuts grown in the U.S. and in past years as many as 70% of those went to China.

A few years ago, anticipating Chinese appetites would continue growing, Oregon farmers planted more trees that are just now beginning to bear nuts in varieties tailored for China.

But as the trade war escalated, China raised tariffs on U.S. hazelnuts from 25% to 65% — and cut off secondary routes through Vietnam and Hong Kong that Oregon farmers had used to circumvent the tariffs.

“It’s really put the growers under an immense amount of pressure,” said Larry George, CEO of George Packing Company, a large hazelnut processor and marketer in Newberg.

Oregon farmers have been absorbing the cost of the tariffs to keep their nuts affordable in China, he said, but the trade war is wiping out their profits.

“They’re taking it on the chin, really hard, and it’s been difficult for the growers the past year,” George said.

As the battles raged between Washington and Beijing, though, George said Oregon growers have maintained their relationships with customers in China. And he said they have made inroads with the congressional delegation, the Trump administration and negotiators in China.

While the trade war has been very painful, George said it has focused attention on the hazelnut industry’s longstanding trade issues — and sparked optimism that any broad deal with China might not only roll back the new tariffs but might reduce the preexisting ones.

Oregon has historically sent about 700 containers of hazelnuts to China each year, according to George. He said a deal to lower the baseline tariffs could enable that total to grow to 2,000 annually, or perhaps 3,000.

“This trade war is very, very difficult for all of us in the hazelnut industry,” George said, “but it was a problem that had to be fixed.”

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