Trump's Trade War Would Be Very Bad for Many Americans

Here's what the U.S. stands to lose in a trade war.
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President Donald Trump, pictured here on May 26th, 2018.

Earlier this week, President Donald Trump announced that the United States would move forward with a plan to impose 25 percent tariffs on certain high-tech Chinese imports. The tariffs are designed to punish Chinese manufacturers for allegedly unfair trade practices with respect to American technology and intellectual property. In reality, however, many Americans may pay the price.

The tariffs Trump mentioned this week follow broader tariffs announced in March on steel and aluminum imports (both of which prompted a round of retaliatory tariffs on American agricultural and manufacturing imports to China). The administration initially granted the European Union, Canada, and Mexico a temporary exemption to those steel and aluminum tariffs, but news broke last night that they will allow the exemptions to expire; tariffs on steel (25 percent) and aluminum (10 percent) from those U.S. allies will go into effect at midnight tonight.

This week's escalation has already prompted retaliation. In response to Trump's announcement on Tuesday, the Chinese government released a statement expressing surprise at the president's reversal and promising that "China has the confidence, the capability, and the experience to defend the core interests of the people and the nation."  The E.U., meanwhile, quickly announced it would file a dispute against the U.S. at the World Trade Organization and implement retaliatory tariffs against American imports.

Trump's inflammatory rhetoric on trade is, of course, nothing new; it was a hallmark of his campaign and helped him gain popularity in the Rust Belt. Trump's eagerness for a trade war—he reassured supporters earlier this year that trade wars are "good, and easy to win"—does, however, represent a dramatic departure from traditional and current GOP attitudes on trade. Numerous Republican politicians have previously expressed opposition to the White House's announced and proposed tariffs, and Trump administration officials have been sharply questioned by Republicans in Congress about the administration's trade policies in recent months.

So, assuming a trade war does come to pass, does anyone wind up a winner?

For starters, most economists believe that tariffs will damage the U.S. economy, even in the absence of any retaliation, by increasing prices and reducing economic activity. In an analysis published in April, the Tax Foundation estimated that the Trump administration's proposed tariffs on high-tech Chinese imports would reduce U.S. gross domestic product (GDP) and wages by 0.1 percent and result in 79,000 fewer jobs. The Tax Foundation, which describes itself as a non-partisan research group based in Washington, D.C., also predicted that these tariffs alone would reduce after-tax income by 0.24 percent (on a static basis) and by 0.32 percent (on a dynamic basis), with the reductions falling disproportionately in low- and middle-income households.

When the effects of retaliatory tariffs are added into the mix, the potential for economic harm increases, and Trump country may be particularly vulnerable. In an analysis published in April by the Brookings Institution, researchers analyzed how China's first round of retaliatory tariffs (which applied to primarily agricultural and manufactured products) would affect different regions of the U.S. As the map below of employment in potentially exposed industries shows, rural and Midwestern counties are particularly vulnerable:

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All in, the Brookings researchers estimated that there are 2.1 million jobs in the U.S., in over 2,400 counties, that could be affected by China's first round retaliatory tariffs (to say nothing of possible future rounds of tariffs). Interestingly, 82 percent of the affected counties voted for Trump in the 2016 election.

Meanwhile, the E.U.'s tariffs on U.S. imports are also projected to have damaging effects on a wide range of states. As the chart below (from a separate Brookings analysis) illustrates, Michigan and Missouri are particularly exposed, and Wisconsin's pretty vulnerable as well:

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More broadly, in March, Penn Wharton Budget Model researchers modeled the effects of an "all-out trade war." They concluded that such a war would reduce U.S. GDP by 0.9 percent and wages by 1.1 percent by 2027. (If the administration's game of chicken is successful and ultimately produces lower tariffs on U.S. products, the PWBM predicts much smaller positive effects on GDP and wages.)

In an older analysis, published back in 2016 during the presidential campaign, researchers at the Peterson Institute for International Economics projected that the trade policies Trump advocated during the campaign could send the U.S. economy into a recession and result in millions of job losses. In one prospective scenario modeled by the researchers—in which China stopped importing soybeans from the U.S.—several rural counties in Mississippi and Missouri would lose 20 to 40 percent of local jobs.

More plainly, almost everyone stands to lose in a trade war.

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