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One Year Later, Louisiana Remains Vulnerable To Tariffs

Oil rig in the Gulf of Mexico

It’s been nearly a year since trade tensions between China and the U.S. began escalating. Since then, both countries have introduced several rounds of tariffs, hitting multiple industries in Louisiana.

On this week's Capitol Access, Greg Upton, an assistant research professor at LSU’s Center for Energy Studies, discusses the impact in Louisiana so far. 

Q: These tariffs have hit across multiple sectors of Louisiana’s economy. Where are we seeing the biggest impact?

So, to really understand the implications of the tariffs on Louisiana's economy, you really need to think about two trends that have happened over the past decade.  The first is on the production of oil and natural gas.  We've seen historic increases and today we're producing more oil and natural gas than at any point in our history.  On the demand side for that product though, we've actually had very stagnant demand for energy products in the United States.  Right now, Louisiana is in the midst of making tens of billions of dollars of investments in refining, chemical manufacturing, and the export of energy.  And it's those billions of dollars of investments that are geared towards international markets, in particular, in the developing world.  And so if the tariffs continue to be ratcheted up, there's a risk that could cause a stop in those investments or at least a slowdown in those investments and the implications for Louisiana's economy could be pretty significant.

Q: Louisiana is particularly vulnerable to these tariffs, compared to other states. Why is that?

Well, Louisiana historically has been in the market of international trade.  We have about 30 ports here in Louisiana and while those ports themselves employ about a thousand workers, the economic impact of those ports on the state as a whole is way more significant than that.  The second reason that Louisiana is particularly vulnerable to trade wars is, right now, we have over $100 billion in projects that have been announced.  And these projects are largely dependent upon opportunities for export.  In order to have these investments be made over the next five or six years, we really have to have access to those international markets.

Q: Late last week, both the Chinese government and President Trump announced higher tariffs - or taxes - could be on the horizon. If these tariffs continue escalating, what’s the potential economic threat to Louisiana?

The Federal Reserve Bank of Dallas released a study last year that ranked all of the states in the United States in terms of their vulnerability to a potential trade war.  Louisiana was actually in the top three states in terms of vulnerability.  They estimated in a worse case scenario, Louisiana could see a 7% reduction in our gross state product.  To give you some perspective of what that means, that's about $3,500 per person.  That would certainly be enough to put Louisiana into a recession.  Now, on the other hand, that's the worse case scenario. The Chinese market is not the only market in the world to sell to.  Hopefully at the end of these negotiations, we're able to see lower tariffs overall, which would be good for economic growth not only for China, but also for the United States.