In the latest sign that there's a political angle to the retaliatory tariffs being levied against US goods, those imposed by China on Friday overwhelmingly target counties that voted for President Trump during the 2016 election, according to an analysis by Moody's. This would suggest that, like the EU, China crafted its retaliation with the intention of destabilizing President Trump's political base.
To wit, Moody's calculated that Beijing's retaliation will have an outsize impact on 20% of the countries that voted for Trump in 2016, with a total population of 8 million people. By "outsize" impact, we mean that the tariffs will impact industries that represent at least 25% of the GDP in those counties. To be sure, the negative impact on some of these industries might be mitigated by the US's tariffs on Chinese goods, which could help offset the damage. But only 3% of counties that went for Hillary Clinton, with a total population of 1.1 million people, are expected to be impacted to such an extent.
"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."
"If it’s over 25%, there’s a pretty good chance that the economy is going to feel it pretty significantly, could even contract, and see unemployment rise," Mr. Zandi said.
Trump has argued that China has been engaging in unfair trade practices for decades, and that it must be brought to heel, regardless of the impact on the US economy. And anecdotal evidence would suggest that at least some employees at tariff-impacted businesses support the president's efforts, regardless of the impact on their own employers. Recent polls also suggest that a majority of Americans support the president's overall agenda. The impact on soybean farmers in particular is coming at a time when farmers across the US are being squeezed by low crop prices and rising borrowing costs. The impact of soybean exports on the US economy as a whole cannot be understated, as we learned back in 2016.
As a reminder, here's what industries are effected by US and Chinese tariffs (courtesy of the BBC).
According to WSJ, soybean producers in the Great Plains, auto manufacturers in the upper Midwest and oil-producers in the Dakotas and Texas will see the largest negative impact from China's retaliation. And it's worth noting that Moody's analysis didn't factor in second-order effects, like which counties have consumers and businesses that will pay higher prices due to the tariffs. Higher prices for certain basic goods could stoke inflation and soak up consumer spending at a time when oil prices are moving steadily higher. But in addition to the magnitude, Republicans will be watching to see how quickly the impact from the tariffs is felt, as they prepare for the November midterms.