President Trump fired the first shots today as expected. Here’s what’s next…
From Zero Hedge:
Today at 3pm, President Trump signed a memo addressing “China’s laws, policies, practices, and actions related to intellectual property, innovation, and technology” effectively firing the first shot in what many predict will blossom into an all-out trade war with China.
As discussed over the weekend, administration officials said Saturday that memo will direct U.S. Trade Representative Robert Lighthizer to consider investigating China over its IP policies, especially the practice of forcing U.S. companies operating in China to transfer technological know-how.
Finally, as observed over the weekend in our take of who stands to lose – and win – if the U.S. takes aim at the unbalanced trade relationship with China, the answer is far-reaching. With total bilateral trade of more than half a trillion dollars a year, the list of potential losers is very long as Bloomberg analyzed recently. 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 geographically?
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.