Saturday, July 21, 2018

The first casualties of the trade war are Trump supporters

...International trade is central to the US economy. In 2014 (the latest data available), trade represented an estimated 30 percent of US GDP and supported 41 million US jobs, up 300 percent from 1992.  In 2016, US exports alone supported an estimated 10.7 million U.S. jobs.  Small entrepreneurs play an outsized role in US trade, exactly the people businessman Donald Trump says he respects. In 2014 (the most recent available figures), small- and medium-sized US firms (SMEs) made up 98 percent of US exporters, 97 percent of US importers, and concluded one-third of all US merchandise trade.  In fact, in 2014 US companies with 0-9 employees exported $190 billion, 161 percent more than its closest G-7 competitor’s companies of the same size.  
...The economic damage from these decisions is considerable. Estimates project that Trump’s tariffs will reduce US economic growth by between 0.3 to 1.3 percent — economists expect 2.4 percent growth next year. The US Chamber of Commerce, America’s business voice, states that these actions threaten 2.6 million U.S. jobs. 468,790 US jobs are estimated to be lost from the steel and aluminum tariffs alone. Over 41 percent of clothes, 72 percent of shoes, and 54 percent of non-leather handbags sold in the US are made in China and will likely now be more expensive. As a result of the EU’s retaliatory tariffs, Harley Davidson is moving some production of its iconic American motorcycle out of the US to the EU, which it says “is not the company’s preference”.
Trump’s trade wars promise both immediate and longer-term economic effects.  BlackRock’s CEO Larry Fink stated that intensifying trade tensions could reduce stock prices by 10 to 15 percent, spur a broad market downturn and slow down the U.S. economy. In June, investors withdrew $12.4 billion from global stocks, the fastest withdrawal since the 2008 financial crisis. That same month, the market values of US corn, soybeans, and wheat crops dropped $13 billion, about 10 percent. Reflecting a 25 percent Chinese tariff, US soybean prices fell by 16 percent to their lowest level in ten years, after having exported some $12 billion to China last year (56 percent of all US soybean exports).  
According to Mr. Rusty Smith, a corn and soybean farmer in Cotton Plant, Arkansas, this price drop is “like $100,000 that has disappeared into thin air. We were already in the red, and now it’s even worse.” Bloomberg Economics estimates that all these tariffs could cost the global economy $470 billion, reduce global trade by 3.7 percent, and shrink the US economy by 0.9 percent by 2020.  
In the US, who will be most affected? The emerging conclusion is Republican states, Trump voters, and small business people.  Moody’s Analytics projects that China’s tariffs will significantly affect 20 percent of the counties that voted for Trump (with a total population of eight million Americans), as opposed to only three percent of the counties that voted for Hillary Clinton (1.1 million total population).  Soybean farmers in the Great Plains, car manufacturers in the Midwest, and oil producers in the Dakotas and Texas have all been hit by China’s tariffs, and they are predominantly from red states.
Finally, 59 percent of small- and medium-sized firms export to only a single market, compared to 75 percent of large firms that export to multiple countries, leaving smaller firms exceptionally vulnerable to international trade turmoil. They are the most exposed to the costs of Trump’s frenzied policies and often live in red states. 

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