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U.S.-CHINA TRADE STANDOFF | Economic Brinkmanship

Major West Coast Ports Stand to Lose Big If an All-Out Trade War Ensues


Business executives in the shipping, agriculture, textile and retail industries watched nervously Wednesday as the United States and China embarked on their latest round of trade-sanction brinkmanship.

Although most expect this round to end like most of the others--with a face-saving compromise at the last minute-- they noted that billions of dollars in mutual access to two of the world's largest markets hang in the balance.

"We remain far from the outbreak of what the media has taken to calling a 'trade war,' " said Robert Kopp, president of the Washington-based U.S.-China Business Council. "Both sides will be working very hard over the next month on what would be an accessible, enforceable agreement."

The Clinton administration threatened Wednesday to impose punitive tariffs in a month on about $2 billion of Chinese products, including textiles and apparel, consumer electronics and other consumer goods. The threat followed months of increasingly rancorous and unproductive talks over China's alleged failure to reduce piracy of U.S. software, movies and sound recordings and to liberalize its markets for those products.

Within minutes of the announcement, China responded with its own list of proposed 100% tariffs on imports ranging from agricultural products such as cotton, vegetable oils, chicken and fruits to wireless phone sets and pagers, cameras, tape recorders, alcoholic drinks, cosmetics and vehicles and spare parts.

The U.S. sanctions are scheduled to take effect in one month, during which they will be subject to negotiations with the Chinese as well as with U.S. importers striving to get their products removed from the hit list.

What is clear, however, is that among the biggest losers if a full-scale trade war breaks out between the two countries will be major ports on the West Coast. The leading victim there might well be the Port of Long Beach, which handled 25% of the $48 billion in air- and seaborne U.S.-China trade last year. That trade, in turn, accounted for a fifth of all cargo handled at the port.

Port officials are within months of signing an agreement to build a $200-million container facility for the China Overseas Container Co., or Cosco, a unit of the Chinese government that is among the port's fastest-growing customers.

A port spokesman said Wednesday that the escalating bilateral tensions so far had had no effect on talks with Cosco, which has signed a letter of intent to pay rent of $13 million a year over at least 10 years for the facility.

"We're keeping an eye on [the situation]," spokeswoman Yvonne Avila said. "We're still meeting regularly with Cosco and everything is moving ahead as scheduled. We're going to remain optimistic."

Other observers said the impact of even widespread tariffs would take several months to be felt in their industries. China has already completed its planned $765-million purchase of 1.8 million bales of American cotton for the current growing season ending July 31, according to Bruce Groefsema, senior vice president at Calcot Ltd., a cooperative of California cotton growers.

That means that any clampdown on imports of U.S. cotton would take effect next year at the earliest. In any event, China's import needs traditionally vary widely year to year. "You might not see any purchases from them next year anyway," Groefsema said.

Many business people were unnerved less by the list of specific goods targeted for punitive tariffs on both sides than by indications that overall relations between the two countries are deteriorating.

That could threaten U.S. sales of such big-ticket items as aircraft, a potentially huge market for U.S. manufacturers.

The Long Beach-based Douglas Aircraft unit of McDonnell Douglas Corp. has already started shipping equipment to China as part of a $1-billion deal for 40 of its 150-passenger MD-90 jetliners, 20 of which would be built in the U.S. and 20 assembled in Shanghai.

Although China has still not formally signed the contract for that deal, "we're proceeding in good faith," said Paul Tobin, a spokesman for McDonnell Douglas in St. Louis.

Aircraft and jet parts were not threatened with punitive tariffs by China on Wednesday, but trade tensions were blamed in part for China's decision last month to buy 30 model A-320 airliners from the European consortium Airbus Industrie for $1.5 billion--an order that could have gone to Boeing Co. or McDonnell Douglas.

"We believe that having stable, better trade relations with the U.S. and China would have helped us in that sale," said Boeing spokesman Christopher Villiers in Seattle.

As it is, one of every 10 Boeing airplanes is sold to China, Villiers said, accounting for $721 million of the company's $8.2 billion in 1995 sales.

But as the company warned shareholders in its annual report this year, "If government and trade relations between the United States and China deteriorate significantly, the company's ability to sell commercial aircraft to airlines in China could become severely constrained."

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