AP NEWS

Texas braces as trade war mounts

May 14, 2019

WASHINGTON — Another round of tariffs by the Chinese government Monday sparked fears from Wall Street to the Texas farmland that an escalating trade fight between the United States and China threatened to damage the global economy.

Following President Donald Trump’s announcement last week he was raising tariffs on $200 billion in Chinese goods, China said it was raising tariffs on $60 billion in U.S. goods. The prospect of a prolonged trade war between the world’s two largest economies sent global financial markets reeling.

The Dow Jones Industrial Average and S&P 500 were both down more than 2 percent by Monday’s close, with Texas companies including Cheniere Energy, Schlumberger and Westlake Chemical recording deeper drops.

As China’s economy opened up over the past few decades, its importance in the Texas economy grew. Twenty years ago there were just $1.1 billion worth of goods traded between the state’s energy capital of Houston and China; that number has swelled to more than $20 billion today, according to the Greater Houston Partnership. China is now Houston’s second-biggest foreign trading partner behind Mexico, the partnership reports.

“It’s a damper on any sort of negotiations underway or on any plans of expansion that involve selling into the Chinese market,” said Patrick Jankowski, senior vice president of research at the Greater Houston Partnership, which promotes economic development.

U.S. companies were still trying to figure out Monday the 5,000 U.S. products China plans to target. But a Chinese official said Monday they would raise tariffs on U.S. liquefied natural gas to 25 percent — from an existing 10 percent — targeting one of Texas’ fastest growing industries.

Last year, China was the fourth-largest importer of U.S. LNG, after Japan, South Korea and Mexico, according to the Department of Energy. And the tariffs would likely slow the development of at least some projects in development along the Gulf Coast, said Charlie Riedl, executive director of the Washington-based Center for Liquefied Natural Gas.

“The reality is China is going to be the largest consumer of natural gas in the world very soon,” he said. “The U.S. is the largest natural gas producer in the world, so the two sides deadlocked in a trade dispute — it’s not a great piece of news. This further impedes the progress and slows things down.”

Other industries were left guessing which of their products were impacted, but most predicted more pain was coming.

Farmers on edge

In Texas, tech companies and auto manufactures, which rely on a two-way supply chain with Chinese manufacturers for parts, were likely to be among the hardest hit, said Pia Orrenius, senior economist at the Federal Reserve Bank of Dallas.

A spokesman for American Chemistry Council, a trade group which represents several petrochemical companies in the Houston area, said it is still evaluating which chemicals will be hit by the new round of Chinese counter-tariffs but, “at first glance, it appears that chemicals are a significant target.”

Texas farmers were on edge. Already operating under significant tariffs on grain and other products in China — their largest export market, they watched prices for farm equipment rise under U.S. tariffs on steel and aluminum, said Gene Hall, spokesman for the Texas Farm Bureau.

“We’re still waiting to see the list but tariffs are never good news,” he said. “The tariffs are pinching, hurting agriculture, and we need to wrap this up.”

Trump downplayed the impact on the U.S. economy on Monday, tweeting that he expected many industries would leave China for Vietnam and other Asian nations to avoid the U.S. tariffs.

“There will be nobody left in China to do business with. Very bad for China, very good for USA! But China has taken so advantage of the U.S. for so many years, that they are way ahead (Our Presidents did not do the job). Therefore, China should not retaliate-will only get worse!” Trump wrote.

For now, any hopes for a quick resolution to the trade fight are unlikely, experts say.

The latest round of talks reportedly broke down over the Trump administration’s insistence that China stop subsidizing its domestic industries, a tactic that allows them to undercut foreign competitors and drive them out of global markets.

The Chinese president Xi Jinping has so far shown little indication he plans to shift to a free-market economy, said William Reinsch, a former undersecretary of commerce during the Clinton administration and now a senior adviser at the Center for Strategic and International Studies.

“What we’re asking them to do is fundamentally alter the nature of their economy and reduce the (Communist) Party’s control,” he said. “Letting credit be allocated by the markets reduces the party’s control over the market and in the president’s mind reduces the party’s control over society.”

China’s ability to hit back against the United States is fairly limited, experts say. U.S. exports to China totaled $120.3 billion last year, compared to $539.5 billion in Chinese exports to the United States, according to the Office of the U.S. Trade Representative.

‘Net negative’

That lopsided relationship is greater in Texas. Last year, only 5 percent of Texas’s $315 billion in exports went to China, said Orrenius, the Fed economist.

“It’s a net negative for Texas and our economic growth. But although Texas is the top exporter in the United States, we’re less exposed to China than other regions,” she said.

The escalating trade war already is taking its toll.

Even before Monday’s announcement, China already had imposed tariffs on $10.8 billion worth of chemicals, including two types of polyethylene that are fueling the petrochemical boom on the Gulf Coast. That has depressed pricing for chemicals in both China and other countries, said Nick Vafiadis, an analyst at IHS Market.

“We were hoping for quick resolution and that hasn’t happened,” he said. “Will this affect some those projects going forward? Well it possibly could, but in terms of any action being taken in the last few days it’s way too early to tell.”

james.osborne@chron.com

marissa.luck@chron.com