Friday, July 6, 2018

Last Call For Trump Trades Blows, Con't

As steep new retaliatory tariffs on US exports to China are now in effect, even the Wall Street Journal is warning that the biggest losers in Trump's trade war with China are the very "economically anxious" people who voted for him in rural, agricultural, mining, fracking, logging and manufacturing counties.

The fallout from President Donald Trump’s tariffs and China’s countertariffs—which formally went into effect on Friday—will have the greatest impact on the U.S. counties that voted Mr. Trump into office.

The U.S. tariffs on China will initially hit about $34 billion of goods, with plans in place to raise that total to $50 billion. The tariffs will fall mostly on Chinese aerospace products, information technology, auto parts and medical instruments. Beijing is retaliating with tariffs on $34 billion of American goods, aimed at farm products, cars and crude oil.

The U.S. tariffs will provide a protective buffer for some companies that compete with Chinese imports, but Beijing’s retaliation will affect huge swaths of the American heartland, according to an analysis from Moody’s Analytics, which calculated how much of gross domestic product in each county is in industries that would benefit from the protection or be hurt by the retaliation.

The retaliatory tariffs will fall especially hard—affecting more than 25% of a county’s economy—in nearly 20% of the counties that voted for Trump, affecting eight million people. Only 3% of the counties that voted for Democrat Hillary Clinton, with a total population of 1.1 million, would be so heavily hit. In contrast, only 8% of counties that voted for Mr. Trump, a Republican, have protective buffers for more than a quarter of their economy.

“The beneficiaries are pretty narrowly regionally concentrated, right in the industrial Midwest. Outside of that, it’s hard to identify anyone who benefits to any significant degree,” said Mark Zandi, chief economist of Moody’s Analytics. “The areas that suffer are broader and more diffuse. The agricultural areas get nailed. Some of the manufacturing centers get hurt as well.”

The Trump administration has argued that China engages in unfair trade practices with the U.S. that need to be countered, even at the cost of pain to the U.S. economy.

U.S. regions with more than 25% of their economy affected by the Chinese tariffs are likely to feel a painful fallout if the tariffs remain in effect. Industries such as soybeans in the Great Plains, auto manufacturers in the upper Midwest and oil-producing regions in the Dakotas or Texas will be among the most affected. China imports the most soybeans in the world, according to the U.S. Department of Agriculture, and was the second-biggest destination after Canada for U.S. crude-oil exports in 2017, according to the U.S. Energy Information Administration.

These tariffs will be devastating for states like Texas, Oklahoma, Indiana, Nebraska, Kansas and the Dakotas, but they will also affect red counties in swing states like North Carolina, Minnesota, Wisconsin, Ohio, Pennsylvania, Michigan and Florida.  Where I live in Northern Kentucky there won't be much effect, but head south into the bluegrass farmlands or the Bourbon Trail and Kentucky too will be taking serious economic damage.

But there's an extremely good chance that the damage will spread and become far worse, leading to economic catastrophe.

Trump's threats to add more tariffs are what really worry business leaders, foreign governments and even fellow Republican officials. He says he's ready to put tariffs on another $400 billion of Chinese products if China punches back yet again, something most expect China to do either with more tariffs or harsher non-tariff barriers to trade like added inspections of cars and letting fruit rot in Chinese ports while it waits for clearance to come ashore.

And his team is investigating whether to place tariffs on the roughly $360 billion auto, truck and car parts that were imported from foreign nations last year. Either of those moves would immediately vault the number of imported goods subject to the extra tax to close to 20 percent, a far steeper hit. If Trump did both, a third of imported goods would be impacted, an amount that would almost certainly be felt when Americans go shopping.

The damage right now is on about 5% of imports to America.  That number could go higher very quickly, and almost certainly will.

So far, the damage from Trump's trade battle has mainly been on the diplomatic side. China says Trump is “opening fire” on its nation, and Canada, a longtime U.S. ally, called the tariffs “insulting” and “totally unacceptable.” The European Union sent the Trump administration a document Friday warning that adding the auto tariffs would “damage further the reputation of the United States.”

No one is backing down yet, and there's almost no high-level dialogue taking place that could bring an end to the standoff.

“The Chinese have a very high threshold for pain. I don’t think they are going to blink because of a little pain,” said Sung Won Sohn, a former economist in the Nixon administration. “After all, China used to be in much worse economic shape.”

So did we.  It's possible that the real pain might not come ahead of November's elections, but if it does, the blue wave will become a tsunami overnight.  When plants and farms start shutting down and truck and SUV prices skyrocket, when consumer prices jump and the cost of gas hits $4 or $5 a gallon?

People will start voting for "change" real damn fast.

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