Update 406: Trump Tariff War Casualties
More Economic than Political; Losses Mount
On Wednesday, President Trump unveiled the long-anticipated “phase one” trade policy deal with China. Whether it matters or not, no trade deal could undo the economic harm wreaked by Trump’s tariff wars to date. And this one cannot alleviate the harm done to farmers and the agricultural sector at-large anytime soon.
As outlined in the 85-page (cartoon-length by trade agreement standards) agreement, China will purchase $200 billion in U.S. consumer goods over the next two years. Of that $200 billion, just $32 billion will consist of U.S. agriculture exports. Simply put, the package lacks teeth.
The states most affected by the President’s trade policy, the majority of which are in the Midwest, will be key to the 2020 race. Trump marginally won many of the largest of these states in 2016, and even a small shift would create an opening for a Democrat in November. More below.
Good MLK weekends all….
Farmers in rural America are on the front lines of President Trump’s trade policy. As a stopgap measure to placate parts of his political base, Trump has so far dolled out $19 billion in subsidies to U.S. agribusiness, with an additional $9 billion expected this year, masking the true effects of his trade policy. Below, we look at the economic and political fallout from Trump’s trade war with China and the possible effects on the 2020 election.
States and Their Commodities
From September 2018 to September 2019, farm bankruptcies were up 24 percent and were at their highest level in almost a decade. More than 40 percent of these farm bankruptcies were in the Midwest. The states that have been most affected by the trade war are also some of the most important states this election cycle, they are listed below with their 2016 Electoral Vote (EV) totals and Presidential vote margins in parens:
- Michigan (16 Electoral Votes/10,704 votes margin in 2016): China is the number four leading destination for Michigan’s food and agriculture exports — an industry that accounts for about 21 percent of the state’s economy. Per the Michigan Department of Agriculture and Rural Development, over $12.2 billion of soybeans were exported to China in 2017. In 2018, just $3.1 billion of soybeans were exported to China. 2019 numbers have not been released.
- Wisconsin (10 Electoral Votes /22,748 votes margin in 2016): Wisconsin has seen one of its staple industries hurt: dairy. Ten percent of Wisconsin’s dairy farmers lost their farms last year. This number can be directly tied to the trade war, as China cut its dairy imports from the United States by half in 2018. Wisconsin’s dairy industry is a key indicator in the state’s economic success.The dairy industry contributes $45.6 billion annually or seven percent of the state’s total economy per year.
- Pennsylvania (20 Electoral Votes /44,292 votes margin in 2016): Pennsylvania’s agricultural industry accounts for 18 percent of its economy. Dairy is the largest sub-sector, supporting four percent of the entire state’s GDP. In the first quarter of 2019 alone, Pennsylvania’s dairy exports to China fell 65 percent. With nearly 45,000 jobs and more than $1.8 billion in wages relying on Pennsylvania’s dairy industries, the loss of such a high percentage of export income has been notable. More than 1 in 7 dairy farms have closed or have talked of closing since 2018.
- Minnesota (10 Electoral Votes /44,765 votes margin in 2016): Minnesota saw a sharp reduction in soybeans, its largest agricultural export to China, from 2017 to 2018. In 2016, the state’s $2.1 billion of soybean exports comprised 30 percent of its total agricultural exports. In response to retaliatory tariffs, Minnesota’s exports to China fell by 13 percent the first three months of 2019 and continued to fall as the season progressed.
While the United States Department of Agriculture forecasts China’s agricultural imports to continue growing over the next decade, the trading volume between the US and China is likely to be significantly lower than anticipated. During the trade war, China’s demand for agricultural imports has not decreased. Instead, China is simply increasing imports from other countries, primarily Russia and Brazil.
The U.S. share of China’s soybean imports fell from 40 percent in 2016 to 35 percent in 2017, while Brazil’s share grew from 46 percent in 2016 to 53 percent in 2017. In 2018, the U.S. share of China’s soybean imports dropped to just 19 percent, while Brazil’s share jumped to 76 percent. Put simply, that business is gone, and it is not coming back. The previously mentioned states will be some of the most affected by this new reality, and its voters may show their disdain for it in the next election.
In 2016, Trump carried several Midwestern states by razor-thin margins. Michigan, Wisconsin, and Pennsylvania have 46 electoral votes between them, and Trump won the popular vote in these three states by 107,330 votes combined. While a mass exodus of Midwestern farmers from the GOP is, at this point, probably unlikely, a Democratic candidate may only need a small number of them to stay home to turn the tides in these critical states. If even a small percentage of them do, it could be disastrous for the President, especially considering the margins he won on in 2016.
For Democrats, there is no shortage of talking points. To keep farmers on Trump’s side, the White House decided to give out billions in subsidies to keep farmers afloat during the trade war. Roughly 40 percent of farm income in 2019 came straight from the federal government. While the GOP universally derided the Obama bailouts, they have been silent on this issue thus far.
In 2016, voters did not know exactly what they were buying into. Now, Trump’s policies are directly harming the livelihoods of farmers, a key group for him in the last election. Although many will remain loyal, some will defect. But only a few loyalists not voting this cycle could move some large EC-rich states beyond the reach of the President…if current economic trends in farm country persist and perceptions of pain change political reality.