Trump Country in Greatest Peril as China Tariffs Risk Trade War

(Bloomberg) -- Trump Country looks to be hit hardest as China strikes back against new tariffs the U.S. president announced Thursday.

U.S. agriculture and the president’s rural political base are in China’s sights as it weighs retaliation after Donald Trump slapped tariffs on at least $50 billion in Chinese imports.

In its initial counterstrike, China announced a 25 percent levy on U.S. pork imports -- a heavy blow to Iowa, the top pork-producing state and a political battleground that swung to Trump in 2016 after going for Democrat Barack Obama in the previous two elections.

For Trump, U.S. tariffs on Chinese goods and on steel and aluminum imports are the fulfillment of pledges he made in his campaign to crack down on perceived trade abuses. Those promises likely helped him win key states including Michigan, Wisconsin and Pennsylvania.

The administration has offered exemptions on the steel and aluminum tariffs to some countries, and on Thursday night announced that it would at least initially shield allies, including Europe, Australia, South Korea, Argentina and Brazil.

But the president risks broader damage to the economy and to his political standing if the tit-for-tat with China escalates into a trade war, an outcome investors worried was growing more likely, sending stocks tumbling.

“We do not want a trade war with the United States or with anybody else. But we are not afraid of it,”  Chinese ambassador Cui Tiankai said in a video posted to the U.S. embassy’s Facebook page. “If somebody tries to impose a trade war on us, we will certainly fight back and retaliate. If people want to play tough, we will play tough with them and see who will last longer.”

The Dow Jones Industrial Average on Thursday fell 724 points, almost 3 percent, its biggest drop in six weeks.

Campaign Promises

Voters’ perceptions of the economy are always crucial to the political strength of a president and his party. Trump in particular has staked his success on the strength of the economy, repeatedly promising stronger growth and crediting his policies for improvements.

He recognized the electoral impact of trade as he signed the tariff order. “It’s probably one of the reasons I was elected, maybe one of the main reasons,” Trump said at the White House.

Trump’s order calls for 25 percent duties on targeted Chinese products to compensate for what the White House says is harm caused to the American economy by China’s policies, according to a fact sheet released by the U.S. Trade Representative. The proposed product list will include goods in the aerospace, information and communication technology and machinery industries. USTR will announce the proposed list within “several days,” according to the fact sheet.

China has plenty of leverage over the Farm Belt voters who helped elect Trump. He captured 61 percent of the vote in U.S. rural areas and small towns, according to exit polls. The Asian nation is the most important foreign customer for U.S. agriculture; China purchased about one-third of the entire U.S. soybean harvest last year.

Hurting Farmers

Any hit to agricultural producers’ earnings would be especially painful as falling commodity prices already are hurting rural America. U.S. farm income is forecast to drop 6.7 percent this year to its lowest level since 2006, according to U.S. Department of Agriculture estimates that assumed normal trade relations with China.

“Were farmers faced with falling prices for the exports and higher prices at home because of the import tariffs, the popularity of the tariffs would diminish quickly,” Mike Jakeman, a global analyst at the Economist Intelligence Unit, said by email. “This is a high-risk strategy for the U.S. administration and one that is likely to weaken, rather than strengthen, the global economy.”

While some lawmakers welcomed Trump’s get-tough approach, those with constituencies most vulnerable to Chinese countermeasures urged caution. U.S. farmers and manufacturers braced for retaliation.

Rural lawmakers’ anxiety over the possibility was clear as U.S. Trade Representative Robert Lighthizer testified before the Senate Finance Committee on Thursday.

Bipartisan Concern

Republicans including Chuck Grassley of Iowa, which is also the nation’s biggest soybean-producing state, raised concerns about Chinese retaliation against American farmers. Senator Michael Bennet, a Democrat from Colorado, also expressed his displeasure at the potential impact on rural areas.

“Our farmers and ranchers want to be able to export the goods that they are producing here in the United States,” Bennet said. “They don’t need sympathy; they need the administration to act responsibly.”

Lighthizer acknowledged farmers could bear the brunt of retaliation.

“The most vulnerable sector of the economy are the ones who export and farmers are a very sympathetic group," Lighthizer said.

©2018 Bloomberg L.P.