Explained | How the dockworkers' strike could ripple through the economy

As dockworkers at East and Gulf coast ports walk off the job, economists are bracing for the strike to reverberate across the American economy.

The strike, a result of a monthslong impasse between the union representing roughly 45,000 longshoremen and port operators, began at 12:01 am on Tuesday.

It will halt almost all activity at some of the busiest ports in the United States, from Maine to Texas. The International Longshoremen's Association is pushing for wage increases that exceed those offered by the United States Maritime Alliance, the port operators group.

President Joe Biden said Sunday that he was not planning to invoke the Taft-Hartley Act, a nearly 80-year-old law, to force dockworkers back to work if they strike.

A strike could cost the economy $4.5 billion to $7.5 billion, or a 0.1 per cent hit to US annualized gross domestic product, every week as truckers and other workers dependent on the ports are furloughed and manufacturers experience delivery delays, according to analysts at Oxford Economics. While those losses would be reversed once the strike was over, it would take a month to clear the backlog for each week of the strike, the analysts estimated.

Here's what else to know about the potential economic fallout of the strike.

How might the strike be felt in the economy?

The transportation and warehousing sectors will bear the brunt initially, said Michael Pearce, deputy chief US economist at Oxford Economics. Tens of thousands of workers at businesses serving the ports could face furloughs or reductions in work hours in the early days of a walkout, putting the total number of affected workers at roughly 100,000, he said -- twice the number actually on strike.

Employees of trucking companies that provide logistics support to the ports, and food establishments that rely on the ports for business, are among "the most geographically and economically linked to striking workers," Pearce said. That will mean an immediate drop in incomes and an associated hit to output and local economies near the ports.

"There's probably more of a local economic impact out of the gate," said Brian Pacula, a partner in the supply chain practice at West Monroe, a business consulting firm. "Within a week, it could become very impactful for the entire supply chain."

The longer the strike goes on, the greater the disruptions. Because of robust supply in many sectors, a strike lasting just a few days is "digestible," according to analysts at Stifel, an investment banking firm -- but a multiweek work stoppage could have a "material effect" on freight volumes, the availability of goods and the underlying economy.

Which industries will be affected right away?

Dozens of commodities -- including bananas and European alcohol, nonperishable products such as car parts and furniture, and raw materials like cotton and wood -- are imported through the East and Gulf coast ports, and suppliers of those would most likely experience the most direct hit. More than 80 per cent of containerized imports of coffee come through these ports, along with about 75 per cent of imported bananas, according to Census Bureau data.

Again, a two- or three-day strike won't be hugely disruptive even to the sectors most reliant on these imports, said Jason Miller, a professor of supply chain management at Michigan State University. Ports often have to shut down temporarily because of extreme weather events like hurricanes, and rampant disruptions rarely ensue.

But at the one- or two-week mark, "that's when we're looking at the multibillion-dollar impacts per day," Miller said. There could eventually be cascading effects -- such as layoffs -- at American firms, including in the auto industry, that aren't directly importing goods.

One concern is for time-sensitive products with short supply chains, like fresh produce and dairy, coffee, tea, and spices. Those goods tend to have among the highest percentage of imports moving through the East and Gulf coast ports. But the vast majority of food consumed in the United States is manufactured domestically, Miller said, meaning grocery shelves will still be stocked. Gov Kathy Hochul of New York said Monday that overall, food supplies would not be affected by the strike, and she urged residents not to stockpile.

How prepared are businesses for the disruption?

Companies have been taking steps for months, including by diverting shipments to West Coast ports. In California, the Port of Long Beach reported its best month of activity on record in August. Businesses have also imported goods earlier than usual, including those for the holiday season, as they did to offset delays in 2022 resulting from the coronavirus pandemic.

"We are prepared to the extent that you can possibly prepare for something like this," Miller said.

But West Coast ports can't absorb all the cargo that goes through East and Gulf coast hubs. Transporting cargo on trucks or trains from the West Coast ports to the East Coast could become a growing financial burden for companies, too, as the strike goes on.

One bright spot: The supply snarls of the pandemic are largely a distant memory. The New York Federal Reserve's index of global supply chain conditions is hovering at its longer-term average. As supply chains have normalized, firms have been able to rebuild their inventories, leaving many companies with a buffer to withstand short-term disruptions, Pearce said.

Could it become an inflationary problem?

A rapid acceleration in inflation, reminiscent of pressures in 2021 and 2022, is an unlikely result of the strike, economists said. Given comparatively robust supply chain conditions and less consumer demand (a key issue back in 2022 was that consumers had stimulus checks to spend), companies might absorb any upward impact on prices in the short term.

Consumers might eventually see prices for some items tick up if the strike lasts more than a few days. Giant retailers like Walmart, which is among the top US importing companies exposed to the strike, may already be pricing in costs from the looming disruptions and diversions, passing some increases along to consumers, Pacula of West Monroe said.

But even if the price of bananas, for example -- many of which are imported through a port in Delaware -- doubled, that wouldn't have a notable impact on a macroeconomic level, Miller said. In the auto sector, inventories have recovered and demand is largely more constrained than supply, meaning a significant inflation shock in the car market is unlikely.

"I'm not concerned from an inflationary standpoint," Miller said.

If a strike lasted until the end of October, it could start to have some impact on inflation, Pearce said. But core inflation is still relatively subdued, and, he added, "it would just mean goods prices are falling slightly less than they were."