Trump’s Global Trade War Comes to Alabama

(Bloomberg Businessweek) -- Jimmy Lyons ought to be sleeping soundly. Business is good at the port in Mobile, which he oversees as chief executive officer of the Alabama State Port Authority. European aviation giant Airbus SE is expanding a plant nearby that relies on the port for shipments of critical parts. And near Tuscaloosa, a 3½-hour drive north, things are humming at a Mercedes-Benz plant, which is one reason the port authority is building a new auto export facility.

But Lyons has plenty to worry about. Alabama may have avoided the wrath of Hurricane Dorian in September (despite President Trump’s forecasts), but the trade wars threaten to bring a severe economic storm down on the state. “The thing that keeps me up at night is a global recession,” says Lyons. “I’ve seen what it can do to our business. It dips very quickly and comes back very slowly.”

The conflict with China has already caused a collapse in grain exports from Mobile. A slowdown in the global economy would hit outbound shipments of metallurgical coal that account for 12 million of the 28 million tons of goods that pass through the port annually. But what looms largest in Alabama these days is the possibility that Trump will open a new European front in his global trade wars.

In early October, the Trump administration is expected to roll out tariffs on imports from the European Union. The duties are being authorized by the World Trade Organization, which in 2018 ruled in the U.S.’s favor in a long-running dispute over illegal subsidies for Airbus. (An announcement from the WTO on the value of goods that can be tariffed is imminent.) Then in November the president faces a self-imposed deadline to decide whether to go ahead with auto tariffs that would target big European carmakers such as Mercedes, which has been making vehicles in Alabama since the 1990s.

Trump has called the EU “worse than China” when it comes to its trade relationship with the U.S. Through July the U.S. had a $103 billion trade deficit in goods with the EU, with cars and auto parts making up a big chunk of that. Duties on Airbus’s imports of fuselages, landing gear, and other components made in Europe would also go some way toward addressing the trade imbalance with the EU.

Alabama would also be punished. The EU is the state’s largest foreign investor. German companies alone have spent $8.5 billion since 1999, according to Greg Canfield, Alabama’s secretary of commerce. Eighty-two German companies have operations in the state along with 51 French businesses and more than two dozen based in the U.K., he says. “Alabama’s economic ties with Europe, and Germany in particular, trace back decades,” Canfield says.

Democratic Senator Doug Jones says the Trump administration’s threat of auto duties is already putting a damper on investment. But he’s more worried about what would happen in a state that has become home to a growing number of auto assembly plants if they actually were put in place. The tariffs “are not going to cause all these plants to close. But they are not going to be able to expand,” he says. “And the same is true with Airbus.”

Airbus’s plant in Mobile turns out A320 planes at a rate of five a month. Its output is expected to double by 2023 with the addition of a production line for the A220 model, a move that will bring at least 600 jobs with it. If, that is, the trade wars don’t get in the way. “Any tariffs applied to major components—fuselages, wings—would see an impact to our business model,” says Daryl Taylor, the Airbus executive in charge of manufacturing at the Mobile plant. He says 40% of the cost of the planes made there is spent on avionics, engines, and other parts sourced in the U.S. The Trump administration has already turned down a request from the company to exempt from tariffs sections of the A220 that are made in China.

Mercedes is building a new battery plant near its factory that will one day supply batteries for the electric vehicles the German automaker expects to build there. If Trump goes ahead with his threatened tariffs on auto parts, that could raise the price of myriad imported components beyond batteries, throwing a wrench into Mercedes’s manufacturing strategy. Potentially at risk: some of the 8,000 jobs the automaker and its suppliers have brought to Alabama.
 
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To contact the editor responsible for this story: Cristina Lindblad at mlindblad1@bloomberg.net

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