The small of trade war between China and the US is becoming ever more rancid.
In the latest development, this morning we reported that the Trump administration is planning a probe of what the U.S. sees as violations of intellectual property by China. Against a backdrop of Trump’s frustrations with domestic policy, sliding approval ratings and disagreement with China over North Korea, the chances of protectionist action are rising according to Bloomberg while CNBC adds that the official start date of the trade war will be this Friday.
But who stands to lose - and win - if the U.S. takes aim at the unbalanced trade relationship? Bloomberg has done the math and found that with total trade of more than half a trillion dollars a year, the list of potential losers is very long. The most notable examples include:
- U.S. companies such as Apple Inc., which assemble their products in China for sale in the U.S., and those tapping demand in China’s expanding consumer market.
- U.S. agricultural and transport-equipment firms, which meet China’s demand for soy beans and aircraft.
- Manufacturing firms from the U.S. that import intermediate products from China as an input into their production process.
- Retailers including Wal-Mart Stores Inc. and the U.S. consumers that benefit from low-price imported consumer electronics, clothes and furniture.
- Other trade partners caught in the crossfire of poorly-targeted tariffs. On steel, for example, U.S. direct imports from China account for less than 3% of the total -- below Vietnam.
And while conventional wisdom is that the US has a chronic trade deficit with China - it does - the U.S. also runs a nearly $17 billion trade surplus with China for agricultural products. China consumes about half of U.S. soybean exports, America’s second largest planted field crop. Soybean farms are mostly located in the the upper Midwest (Illinois, Iowa, Indiana, Minnesota and Nebraska). The volumes are so significant that a spike in soybean exports was a noticeable contributor to GDP growth in the second half of last year as readers may recall. China is also a major buyer of U.S. aircraft, perhaps the only areas of manufacturing where the U.S. retains a competitive edge (though not for much longer). The U.S. also has an $8 billion dollar trade surplus with China in the transportation equipment category.
How about geographially?
It may come as a surprise that on a state-by-state basis, eight U.S. states are running surpluses with China, six of which supported Trump in last year’s presidential election, including West Virginia. In 2016, Louisiana registered the largest surplus, at 2.9% of the state’s GDP. Louisiana’s exports to China are likely inflated given that 60% of U.S. soybean exports are shipped through the Gulf coast. Washington state was second at 1.6% of GDP, largely due to aerospace exports.
Tennessee maintains the largest trade deficit with China at 6.5% of GDP, meaning tariff-induced increases in the price of imports could have the biggest impact on this state.
The biggest losers? Mississippi, Georgia, Illinois and California, all of which maintain deficits at more than 3% of GDP.
For the sake of brevity, we will not discuss another, more troubling, aspect of conventional wisdom, namely that trade wars almost inevitably lead to real wars. Aside for the US military industrial complex, there are no winners there.