Southeast vulnerable to trade war, tariff fallout

Bloomberg News

The Southeast is exposed to any trade war stemming from the high tariffs President Trump is chaotically implementing against major trading partners of the U.S.

Four of the top 10 and 10 of the top 20 ports in the country by tonnage are in the Southeast, according to the U.S. Army Corps of Engineers. Four of the top 10 cargo airports in the United States are in the region, according to the Federal Aviation Administration.

The Trump tariffs have imposed been imposed on China, Canada, Mexico with more promised for those countries and the rest of the world.

The Port of Savannah, Georgia, gets 24% of its goods, measured by vessel customs value, from China, according to Moody's Ratings.

Moody's said in November the port, which as part of the Georgia Ports Authority it rates Aa2, "could be exposed if significant tariffs are imposed on the countries that make up the greatest shares of its cargo imports." It noted that 50% of the port's imports come from the five countries with the port's largest share of U.S. imports by vessel custom value. The port is the 13^th largest port in the country.

"Expanded and increased tariffs, especially if implemented suddenly, would disrupt trade flows and create credit risks for ports," Moody's said.

So-called landlord ports — like those in Jacksonville, Florida; Miami; and Fort Lauderdale, Florida, — that collect rent from private users that manage the port operations "will be somewhat insulated from weak or declining trade. Operator ports such as Savannah and Charleston [South Carolina] would be more at risk," said Ted Hampton, vice president and senior credit officer for Moody's.

The biggest port in the Southeast is the Port of South Louisiana, servicing bulk agriculture and fossil fuel transport on the Mississippi River stretch between New Orleans and Baton Rouge; and the biggest cargo airports in the region are the Memphis International Airport in Tennessee, the primary hub for FedEx and the Louisville Muhammad Ali International Airport in Kentucky, the air hub for UPS.

Retaliatory tariffs on agriculture — the Chinese government announced some this week — could hurt Southeast farmers, said Evercore Director of Municipal Bond Research Howard Cure.

And the price-increasing effect of import tariffs will drag on other parts of the regional economy, he said.

"Tariffs on imported, steel, aluminum, lumber, and other building materials can drive up construction costs for housing projects [in the U.S.]," Cure said. "Given the growth rates in Southeast states … this could only add to the growth burden."

Cure said the Southeast has become a large manufacturer of foreign brand automobiles.

To the extent they are reliant on parts made in Canada and Mexico, parts costs will increase. On the other hand, some foreign auto firms may now invest in the region to avoid tariffs on their imports.

Kentucky Gov. Andy Beshear, a Democrat, posted to the X site earlier this month, "Tariffs on Canada will raise the price of gas. Tariffs on Mexico will raise the price of groceries. Tariffs on lumber will raise the cost of housing. That is an inflation trifecta that will be directly and solely inflicted by the federal administration."

After Canada announced retaliatory tariffs on some U.S.-produced alcoholic beverages, Beshear posted to X, "Harmful tariffs are putting our bourbon industry in danger, threatening the livelihood of over 23,000 Kentuckians and their families. I'm asking our congressional delegation to stand with me and fight for the folks who sustain our signature industry."

Several Canada provinces have banned the sale of U.S. alcoholic beverages and the rest plan to do so.

Trump instituted a 25% tariff on aluminum and steel on Wednesday. Europe said it will respond with tariffs on a variety of goods. Trump has said there will be unspecified levels of tariffs on agricultural goods and foreign cars starting April 2.

In a Moody's report released earlier this month, the agency said tariffs could be potentially moderate negatives for state and local governments and for municipal housing issuers across the United States.

"Potentially broad and costly tariffs would be negative for the overall economy but especially regions heavily reliant on cross-border trade or industries reliant on imported inputs," Moody's said. "Ports could experience a decline in revenue because of weakened trade flows over time, although many rated ports have lease-oriented revenue structures that provide some protection against trade volume volatility."

The U.S. trade representative has proposed increased port fees targeting Chinese-built and operated vessels starting the end of this month, which would increase U.S. importers' costs, Moody's said.

Tariffs increase prices, said Karen Daly, head of KBRA's public finance ratings group.

"We would expect those increases to get passed along to consumers, which can then lead to belt tightening in households. In the first instance, the potential knock-on effects as it relates to governments would be reductions in economically sensitive taxes such as sales taxes as consumers react to rising prices.

"Depending on the reliance of budgets to economically sensitive taxes, governments would have the choice of adjusting budgets by drawing on rainy day reserves, increasing other taxes, developing other revenue sources or cutting expenditures," Daly said.

"We continue to observe broad credit stability in the states' sector, southeastern states included," S&P Global Ratings said in a statement.

"However, we acknowledge uncertainty and the potential for downside risks on state and local government credit quality stemming from U.S. driven policy shifts and the downstream impacts linked to their economies and revenue structure," S&P said. "We are also watching how states adjust their growth expectations and forecast tax revenues in response to a highly fluid trade policy environment, particularly if corporate income and sales tax revenue show signs of erosion due to weakening consumer spending and slowing business activity."

The tariffs will affect state and local governments both directly and indirectly, said Adam Hersh, senior economist with the Economic Policy Institute, a think tank that describes itself as pro-worker, pro-union and pro-diversity.

Directly, state and local governments will have to pay higher prices for imported goods or for their substituted domestic goods. "State governments will likely see reduced purchasing power on large-scale infrastructure projects that require steel, concrete or other imported inputs," said Moody's Hampton.

Indirectly, Hersh said, governments will get reduced sales tax revenue due to higher prices leading to diminished spending.

Also indirectly, there will be lower corporate income tax receipts from lower profit margins and/or lower sales figures, Hersh said. Retaliatory tariffs will add to this problem and lead to increased demand for unemployment insurance or other government aid.

A third indirect impact, Hersh said, will be the Federal Reserve raising interest rates in response to rising prices. This will lead to higher municipal bond rates that will increase debt service costs for states and localities.

According to an explanatory paper on tariffs by Hersh and Josh Bivens, the impact of tariffs on consumers won't vary widely across the country, but the impact will be slightly higher in Florida than in the rest of the Southeast and most of the rest of the United States. Consumers in Massachusetts, New Hampshire, Connecticut, Colorado, and California will be hit even harder.

JPMorgan now says there is a 40% chance of a global recession this year, citing "extreme U.S. policies."