In Maine and Eastern Canada, unintended consequences of Trump’s trade war on display

The lobster industry in the US is feeling the tariff pinch, but America’s loss is Canada’s gain, as Andrew Cohen reports from the island of Vinalhaven. 

By: /
August 2, 2018
Maine
Sternman Rob Tetrault II guides a set of lobster traps from the deck of a lobster boat into the waters off Cape Elizabeth, Maine, August 21, 2013. REUTERS/Brian Snyder

This summer, the island of Vinalhaven, Maine dedicated an evocative memorial to its sons and daughters who served in America’s wars since 1917. Carved in 18 square tablets of granite arranged in a semi-circle, the monument remembers those young souls drawn from the coastal marches of this country and sent into battle in the corners of the world.

It is numbing to consider how a distant conflict — in this case, wasting land wars in Europe and Asia in the twentieth century — can reach into isolated communities and carry off a generation. And how the foot soldiers come from everywhere — even a rockbound, pine-clad island in the Atlantic Ocean, 13 miles off the mid-coast of Maine.

Now, a century after the end of the First World War, the United States finds itself in another global conflict. This one is a trade war, not a shooting war. No one from Vinalhaven has enlisted, though islanders will be among the casualties. This time they’re lobstermen (and women), not soldiers, and rather than joining the fight, they’re trying to avoid it. Vinalhaven, the largest island in Penobscot Bay, is one of the unlikely theatres in a commercial war with the European Union, China — and Canada, too. Like all wars, this one has unintended consequences. 

Lobstering — on Vinalhaven and beyond in maritime Maine — is one of several industries threatened by a trade war which Donald Trump promised would have more winners than losers. Perhaps, but that depends what you make, catch or grow. If you are a steelmaker in Pittsburgh, you may benefit from Trump’s much-vaunted tariffs on imported steel. But if you make nails in Missouri from steel imported from Mexico, your nails cost more (and quickly become uncompetitive) because you have to pay more for Mexican steel hit by tariffs. Tariffs are also a threat to small whisky makers in Virginia because Europe is slapping a 25 percent duty on imports from the US. It is a real danger to cranberries from Wisconsin and peanuts from Georgia, Alabama, Mississippi and Florida; both products face European tariffs, the latter hit by tariffs on peanut butter imported from the US. Lobstering, for its part, is not alone on the front line of Trump’s trade war, but its plight is revealing as one of those industries where America’s loss is Canada’s gain. 

The trade war was ignited last spring by a president who is firmly isolationist and protectionist. He is skeptical of collective security (NATO), international organization (United Nations, European Union) and free trade (WTO). All are pillars of the international order that the United States has embraced since 1945. No longer. In March, Trump announced he would impose stiff tariffs on a range of products imported from America’s leading trading partners. Trump had campaigned for the presidency in 2016 claiming that America was being cheated by countries that had taken advantage of long-standing “unfair” trade deals. In retaliation, those countries imposed tariffs of their own. Trump, promising to fix everything, threatened more.

Canada has not been spared. Frustrated by its failure to come to terms on a revised North American Free Trade Agreement, Trump imposed restrictions in June on US imports of aluminum and steel from Canada. On July 1, Ottawa retaliated, dollar for dollar, with tariffs on whisky, motorcycles, peanuts and other products imported from the US. The policy was less to make a difference than to make a point: you tax us, we tax you. Canada cannot win a trade war against an economy some 10 times larger. Politically, though, the government had no choice. Justin Trudeau’s Liberals were responding to an affront (Trump imposed tariffs on national security grounds, which Trudeau called “absurd”) as any self-respecting government would. Canada’s measures have drawn support from all parties and from former Conservative and Liberal prime ministers (though the sour Stephen Harper, now a consultant in the private sector, told his clients that Trudeau has mishandled the issue.) 

"Lobstering is not alone on the front line of Trump’s trade war, but its plight is revealing as one of those industries where America’s loss is Canada’s gain."

But any trade war has unexpected victims and unintended beneficiaries. Which brings us to Vinalhaven, and to Eastern Canada, whose lobstering communities both catch lobster in the frigid waters of the Gulf of Maine, but now find themselves in different circumstances. For one a trade war is a calamity; for another it’s an opportunity.

Lobstering is the lifeblood of Vinalhaven. Lobster has been its cash crop for more than a generation, returning prosperity to the island after its granite quarries, which cut stone for America’s monuments, courthouses, churches and bridges, closed in the 1930s. For years, Vinalhaven has boasted among the largest lobstering fleets in the world. Many of the 1,165 year-round islanders join the 5,000 or so men and women who catch lobster in Maine. The industry generates US$1.5 billion a year in the state, creating jobs beyond Penobscot Bay. Naturally, Maine fears the fallout from Trump’s economic adventurism.

Like American manufacturers, lobsters are collateral damage in the new trade war. On July 6, China imposed a 25 percent tariff (in addition to existing taxes) on 545 American exports that generate US$34 billion in sales. This worries not just those who catch lobster on Vinalhaven, but those who build their traps, maintain their boats and produce their bait, as well as those who transport, process and export lobster.

“Maine’s lobster industry is an irreplaceable piece of our state’s economy that supports thousands of jobs and entire coastal communities,” said the state’s congressional delegation in June, appealing to Trump to find a solution. Still, while lobsters are the state’s signature seafood, the industry is a fraction of Maine’s US$61 billion economy. Of course, that’s small comfort to the lobstering crowd.

The new tariff is likely to make American lobster about US$3 a pound more expensive to China. After less than a month since the tariffs were imposed, the impact on prices is unclear. What is clear is that a fifth to a quarter of Maine’s lobsters go to China; for some lobster companies, it is even more. In 2017, total US lobster sales to China generated US$137 million, nearly tripling in the last two years. China has been a good customer for Maine as its catches increase and it tries to diversify its markets internationally. In 2017, China bought 17 million pounds of the state’s lobster, up from 14 million pounds in 2016. It has a growing appetite for Maine’s sweet crustaceans, which are considered a luxury among a rising moneyed Chinese class. 

Now, who knows? The Lobster Company in Arundel, Maine sells 1.5 million pounds of lobsters a year to China, comprising 35 percent of its annual sales. Stephanie Nadeau, the company’s co-owner and sales manager, says it hasn’t shipped an order to mainland China since July 4. She’s worried about her company making it to next winter. “We’ll just be handing over the business to the Canadians at that point,” she told Undercurrent, an industry publication.

Predictably, Canada will happily sell lobsters where the Americans cannot. Suddenly, producers in New Brunswick and Nova Scotia are in a stronger position. Last September, under its new free trade agreement with Canada, the European Union eliminated its eight percent tariff on live lobster and began to phase out even higher tariffs on processed and frozen lobster. At the same time, China has lowered its tariff on lobsters from Canada. It means Canada has easier access to those markets than the United States. 

In recent years, Canada’s lobster sales to China have surged. In 2013, Canada exported $42 million in lobsters to China; in 2017, that had grown to $209 million. It’s Canada’s second-largest single market for lobsters, after the US, which buys two-thirds of its lobsters. With the price of US lobster in China hitting US$15.50 per pound after the tariffs, the United States is now much less competitive there. Advantage, Canada. 

But much as Canada has an opportunity to build on its success of recent years, there are structural challenges. The reason that two-thirds of Canada’s lobster exports go to the US is that Canada has fewer plants and transport capacity to process and ship its lobsters to distant markets. So if sales fall off dramatically in the US and the Canadian market is flooded, Canada may suffer, too. At the moment, though, producers in Canada report that business with China is good. In the third week of July, for example, four chartered airplanes left Halifax carrying 400 tons of live hard-shell lobsters to China.

As for the trade war between the US and China, and its enduring impact on domestic constituencies, no one knows. On July 24, feeling heat from his loyalists in the farm belt, Trump announced US$12 billion in aid to farmers. The relief did not extend to the lobster fishery. It is possible that Trump’s tariffs, and threats of more, are simply posturing — short-term bluster — and that the president will come to a deal with China, as he hopes to reach one with the European Union. (On July 25, he and the EU president met, declared a truce and committed to new talks.) But the truth is that trade is a small part of the US economy, and the cost of the tariffs are miniscule. With a full-employment economy and four percent annual growth in the second quarter, Trump could wait for the other side to blink — as long as he can stand the political opposition at home in a midterm election year. 

The losers in the trade war, for now, are the same as always: manufacturers, farmers, fishermen, consumers. On the jagged coast of Maine, this means those who go to sea at dawn, brave the weather, bait their traps, and haul lobster. In the past they died in war. Today, the battle is not about their lives but their livelihoods. For that loss, there will be no granite memorial in the public square.