Why West Coast Warehouses Are Bursting at the Seams

(Bloomberg) --

The next barrage of U.S. tariffs on Chinese products may hurt more than the others because many American businesses are out of room to shield their supplies from the new import taxes.

That’s the main lesson from a Bloomberg News look at the busiest cargo ports on the West Coast.

In previous rounds, businesses front-loaded their purchases to avoid the tariff hikes before they took effect. That’s left unsold goods piling up at one of the world’s biggest warehouse complexes in southern California that serves the twin ports of Los Angeles and Long Beach — a major gateway for trade with China.

With a new 10% duty on $300 billion of many consumer and technology goods from China set to be imposed on Sept. 1, U.S. importers have almost no more warehouse space, let alone enough time, to beat the deadline. Here are a few other reasons why that’s a problem:

• Companies may be more reluctant to front-load this time around. Some were burned by rushing purchases ahead of a January deadline for President Donald Trump to increase tariffs on China — a hike that was eventually delayed until May. Now they’re stuck with the inventory and the extra cost of holding it.
• Trump’s latest tariff threat and China’s retaliation warnings “continue to add another layer of uncertainty in the broader economic picture and supply chains,” says Gene Seroka, executive director of the Port of Los Angeles. He’s watching for three possible outcomes: sticker-price increases, higher costs for companies and a continued shift in production to southeast Asia from China.
• Imports from China have already dropped 11.9% in the first four months of the year to the ports of Los Angeles and Long Beach, bigger than overall drop of 4.6% from all countries and compared with a 22.1% increase in volumes from Vietnam.
• For American consumers, the new tariffs will land at a terrible time — the day before the Labor Day holiday, right around the busy back-to-school shopping season and just as importers plan inventories for the December holidays.

Charting the Trade War

The drop in arrivals at L.A.’s two main ports this year reflects a sharp slowdown in China trade — but traffic with other Asian nations, especially Vietnam, is rising. It’s a trend that started before Trump’s entered office but may accelerate on his watch.

Today’s Must Reads

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• Flying blind | U.K. officials wondering how to cope if Britain crashes out of the EU can agree that there’s no real precedent to illustrate how such a supply-system shock will pan out.
• Pots of gold | The safe-haven asset has been a chief beneficiaries of the turmoil in global financial markets as Washington and Beijing joust over global economic dominance. 

Economic Analysis

• U.K. outlook | The uncertainty stemming from the trade war is a big risk for the U.K. economy.
• Impossible Trinity | The PBOC is unshackling monetary policy from the need to support the yuan.

Coming Up

• Aug. 8: China trade balance
• Aug. 9: Germany trade balance 

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

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