Donald Trump’s new tariffs have already grabbed his rural, red-state supporters by their pocketbooks.
Taking a page out of the president’s vengeful politics playbook, China launched its first round of retaliatory tariffs in response to the import duties the president imposed on aluminum and steel on Monday. A list of 128 U.S.-made goods, many of them produced in states that supported Trump in the 2016 general election, are now subject to increased tariffs to the tune of $3 billion. The announcement sent stocks into a free fall, as investors fear an impending trade war.
Monday’s massive fall in the stock market, coming after a series of other losses over the past few weeks, erased any gains made in 2018. The Dow Jones Industrial Average is now down 4.4 percent since Congress passed the big Republican tax cuts last December. We're now nearing correction territory in terms of the post-recession recovery.
Of course, stocks aren’t the big game for the average Rust Belt Trump voter. Still, Trump’s rural and working-class voters look to be the biggest victims of his first provocation in the coming trade war. Here’s one way to assess Trump’s tariffs on imported steel and aluminum: America’s factories are feeling a lot less great again. Raw-material prices have risen to nearly a seven-year high since Trump’s announcement in March, making the cost of manufacturing in the U.S. much more expensive.
The Institute for Supply Management, an industry trade group, reported Monday that its manufacturing index slipped last month from February's reading, which had been the highest since 2004. According to the manufacturing survey, 32 percent of respondents cited concern about the potential for higher costs and the limited availability around production schedules as results of Trump’s tariffs. As Timothy Fiore, chairman of the group’s factory survey committee, noted, the tariffs hadn’t even gone into effect yet when the survey was taken. There are far more U.S. jobs in industries that buy steel, like the automotive industry, than in industries that manufacture or sell it.
"The steel tariff could hurt," one metal manufacturing executive told the Dallas Federal Reserve, according to a survey released last week. "We expect a wild, unpredictable ride as there are also large, negative and unintended consequences which will hurt us."
Meant to prop up the declining Midwestern steel towns that delivered Trump his electoral victory, the steel and aluminum tariffs were met with an equally targeted response from China. The newly announced tariffs target states that supported Trump in the general election, forcing his base to take a direct economic hit. Just as the European Union threatened to tax bourbon whiskey, mostly made in Senate Majority Leader Mitch McConnell's home state of Kentucky, and Harley Davidson motorcycles, manufactured in House Speaker Paul Ryan's home state of Wisconsin, China’s new tariffs are designed to hit Trump country hardest. States like Iowa, Illinois, Nebraska, Minnesota, Indiana, South Dakota, Kansas, Missouri and Ohio, nine of the top 10 corn producers in 2016, will undoubtedly suffer. Soybeans will reportedly be next, a crop that accounts for almost 20 percent of U.S. agriculture exports.
That means the feeling of dread in manufacturing industries is shared with another subset of Trump’s base: farmers.
"Almost unanimous concern" is how Andrew Jerome, communications director for the National Farmers Union, which represents more than 200,000 family farms and ranches in 33 states, explained the reaction to Trump’s tariffs. Jerome told Chinese media outlet Xinhua that his union initially supported Trump's "America First" trade stance, in hopes that he would offer relief to an industry reeling from years of declining profits. Instead, his members now fear that Trump’s tariffs will hit them the hardest.
From almond farmers in California's Central Valley (a red region in a blue state) to pig farmers in Iowa and cattle ranchers in Nebraska, America's 2.1 million farmers — more than 90 percent of whom still run small-scale family operations — will likely be severely impacted by retaliatory tariffs. U.S. farm income was already forecast to drop by nearly 7 percent in 2018 to the lowest level since 2006, according to U.S. Department of Agriculture estimates made before Trump’s tariffs were announced.
"Family farmers and ranchers are always the first to be hit by retaliatory tariffs, and in the case of China, significant export markets are likely to be the first casualty," said Jerome, who called Trump's latest moves dangerous.
According to the group Farmers for Free Trade, which has run ads opposing Trump's tariffs across the three major cable news networks in recent weeks, 20 percent of American farm revenue comes from our exports.
“I wouldn’t sit here today and say I will definitely support him again,” Iowa hog farmer Marv Van Den Top said of Trump after China’s announcement. “This here could be a real negative for him,” he told the Associated Press.
While Trump’s base may be the first victims of his impetuous trade war, it’s naive to think the fallout will be limited to just that one group. While increased prices on foreign goods may protect American jobs in the short term by making foreign labor less competitive, the American steel industry is in no shape to provide enough new jobs in to make up for higher consumer prices across the country on a wide variety of goods. Most U.S. exports to China consist of raw materials, which the Chinese can easily source elsewhere. The U.S. still relies heavily on cheap Chinese labor, however, so any tariffs Trump places on imported Chinese electronics will drive up prices and leave no good secondary options.
Overall it will be the American people, not just those who voted for Trump, who will lose big in a trade war like this, sparked by reckless unilateral tariffs that incentivize other countries to retaliate. Most frustratingly, the president is correct that China engages in unfair trade practices and has no regard for copyright law. But Trump wasted an opportunity to coordinate with U.S. allies to put real pressure on China rather than what amounts to a few meaningless dings. After this round of tariffs, the U.S. no longer has much international capital to spend, much less a leader who could pull off such a multilateral effort.
Still, Trump is likely safe from any political repercussions. Only 39 percent of Republicans, according to a recent Associated Press-NORC Center for Public Affairs Research poll, think increased tariffs will lead to a decrease in jobs. For now, at least, Republican voters remain prepared to swallow Trump's simplistic dictum that "trade wars are good, and easy to win."
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