This blog post was co-written with James A. Huff, an undergraduate student in the Maine Business School’s Management Program. It resulted from one of the assignments we worked on during our Global Business course, BUA 343, this semester.
Protective tariffs have an effect on Maine’s lobster industry. The squabble between China and the United States over trade policies and the implementation of trade tariffs has impacted or threatens to impact local economies not only in the United States and China, but across the global market system.
In the last ten years, Maine’s lobster industry has strengthened its ties with China. In the year 2010, a few hundred tons of American lobster entered the Chinese market and by the year 2017 exports had reached close to 7,500 tons. In 2017 China imported approximately $130 billion dollars from the U.S, of which about $132 million represented exports of Maine lobster (frozen and live). This relationship is now in jeopardy as a result of the rising tariffs being imposed on Maine lobsters (25% as of July, 2018). With the tariffs being imposed, China may be forced to buy more of their lobster supply from Canada.
Currently, 51 percent of the North American lobster market is controlled by Canada; with the twenty-five percent tariff increase that China imposed on U.S. lobsters that percentage is expected to rise. It has become harder for the Chinese importers to do business with their American wholesalers. In addition to tariffs, Chinese Customs has made things more difficult for importers by requiring more paperwork and stringent regulations than they had previously. Unfortunately, these tariffs are not the only ones affecting the Maine lobster fisheries.
In the escalating trade war between the United States and China tariffs on aluminum and steel have risen. This causes the costs of equipment essential to their operations such as lobster traps, steel-lined rope, and fabricated parts to rise. All these factors take a toll on their revenue stream which also has a ripple effect throughout the local economy. This is devastating for the state’s economy considering that lobster fisheries infuse approximately $1 billion into the Maine economy each year.
Although it represents just 2 percent of Maine’s Gross Domestic Product (GDP), it guarantees food and a roof over the heads of thousands of Mainers that directly or indirectly live from this commodity. The tariffs on China, therefore, impact the livelihood of these Mainers. At the same time it benefits our direct competitor, Canada. Not only will Canada capitalize on the trade war between the United States and China by filling in the gap left by the tariff-loaded lobsters, but they will also cash in on their recent Free Trade agreement signed with the European Union (EU). The Comprehensive Economic and Trade Agreement (CETA) will allow Canadian lobsters to enter the EU under a preferential treaty that is not enjoyed by Maine or for that matter American lobster industry.
Canada and the European Union are part of the Comprehensive Economic Trade Agreement that went into effect provisionally about a year ago. One of the provisions that have affected the Maine lobster fishery is that the 8% tariff would be lifted on live Canadian lobsters and eventually phase out processed lobster tariffs as well. Meanwhile, Maine lobster fisheries are still shackled with the 8% tariff. This obviously puts Maine and the United States at a disadvantage in the EU market, in addition to the disadvantage they already face in the Chinese market.
As a result of the tariffs and the current dynamics of globalization, Maine might have to depend more on Canada in order to reexport its lobsters through the Canadian market. The Canadian maritime ports will become an entrepot for Maine lobster exports, taking advantage of our neighbor’s deal with the EU and their amicable relations with China. If in the recent past we were dependent on their canneries, leaving the value-added part of the lobster business on the other side of the border, we are now even more dependent on the Canadian market in order to keep our lobster industry alive.
This all shows how the decisions that are made on the national and global stage influence almost all levels of the economies of the nations that are directly or indirectly involved. Everything is tied together, from far away nations such as China right down to an individual lobster fisherman in Down East Maine. It makes one wonder if those instituting the tariffs understand exactly how far-reaching the impact really is.
At the end, we are a nation of fifty independent and interdependent markets. We are one of the world’s most complex markets, simply because each state advances economic development policies that are aimed to benefit its own local market and not that of its neighbor; in essence, we are an internal competitive market that is not centrally regulated. Our economy as a whole does not depend on the export of a few key commodities, it thrives on the collective success of these independent markets. Nevertheless, each of the fifty markets does depend on the sustainability of certain commodities that are strategic for the long-term economic development of the state.
Marine products and lobster, in particular, represent the key commodity for the state of Maine. Our representatives must, therefore, make a case to the Executive that if we are going to sacrifice our economy for the sake of the national economy, then the disenfranchised sectors must be either compensated or subsidized, just like the soybean and pork producers in other states; at least until the China-US trade relation adjusts to the new trade norms and hoping that we do not end up in an all-out economic war.
In the meantime the industry will try to navigate away from the storm, possibly increasing our dependency on the Canadian entrepot while diligently diversifying the lobster export market, with the objective of reducing its dependence on China and the EU. One thing is clear, in this era of globalization, Maine and its people depend more on Canada and other external markets than on the American economy. We are linked more to the globe than to the country. Route 2, I-95, and US-1 are the connecting arteries that keep us physically attached, while our ports and borderland provide us with a window to the global market system.
We never asked for a trade war but for Free Trade. Now we have to re-strategize in order to effectively navigate the global market system, while our national economy becomes more protectionist. The current trade policies might protect certain commodities and reignite certain engines of production, but not here in Maine. Americans will not be able to consume our annual yield of more than 120 million pounds of lobster, but the global market will. If we fail to reexport through Canada or diversify our lobster export market then we will return to the stagnant years of the end of the twentieth century.