Politicians, economists and executives agree China isn't playing fair on trade. But there's a lot of disagreement about whether President Trump's hefty tariffs are the right weapon for fighting back. American farmers and Walmart shoppers are likely to feel pain in this fight, and a lot of them voted for Trump.
In many U.S. stores, “Made in China” labels and stamps are on tons of T-shirts, shoes, plastic Easter eggs and water bottles, among other goods. Tariffs are basically taxes that mean Americans will pay more when they shop. That's especially true for low-income families who spend a higher share of their paychecks on goods and often buy the cheapest products, families that Trump often thinks of as his base.
“Lots of stuff we import from China is for the Walmart shopper,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics. “If you start to increase the price of clothing, sheets, etc., lower-income households would feel it more.”
Top retailers including Walmart and Apple have sent letters to Trump urging him not to do this because it would worsen inequality and “punish American working families with higher prices.” The Tax Foundation pointed out that Trump's tariffs on China would cancel out about 20 percent of the benefits of the recent GOP tax cuts.
The other knock is expected to come when China fights back. Senior Chinese officials have made it clear they'll take “necessary measures” to retaliate for Trump's tariffs. All indications from Beijing are that China's countertariffs will target goods and jobs in parts of the United States that voted for Trump. At the top of China's list are agricultural products such as soybeans and hogs.
Soybeans and grains are the second-largest U.S. export to China. Trump carried eight of the top 10 soy-exporting states, and the critical swing states of Michigan and Wisconsin are in the top 15 soybean exporters, according to U.S. Department of Agriculture data. Airplanes, the top U.S. export to China, could also end up on the hit list.
“There is virtually certain to be Chinese retaliation aimed largely on U.S. agriculture,” said Greg Valliere, chief global strategist at Horizon Investments. “Most of Trump's policies hurt his base, and this could be a real problem in places like the Midwest.”
In a best-case scenario, Trump does his tariffs, China responds with its tariffs, and then the two sides decide to cool down and talk. The whole ordeal is short-lived. But the reason the stock market fell sharply — with the Dow down about 500 points at one point on Thursday — is that this trade spat could turn into an all-out trade war. That would last longer and make the pain far more widespread on consumers and specific U.S. industries and workers.
The United States may “just be warming up here, and we would hit them again,” said Derek Scissors, a resident scholar at the American Enterprise Institute who has advised the administration on China trade policy. “I think it will end up being Round 1.”
Trump fanned those concerns Thursday when he signed the tariff announcement and told the crowd of onlookers, “This is the first of many.”
Consider the numbers: Trump is starting with tariffs on at least $50 billion of Chinese goods or about 10 percent of the roughly $500 billion worth of Chinese goods and services that come to the United States. (White House officials have put the figure at $50 billion, although Trump himself has said $60 billion). The bigger tariff figure gets, the more it will be felt by people on both sides of the Pacific.
Trump and his top advisers dismiss such concerns. They say that even if consumers have to pay a bit more, it's worth it because it would save U.S. jobs and industries.
“It's important to put this action in context. As a practical matter, China benefits far more from the U.S.-China trade relationship than the U.S. does,” said Peter Navarro, a senior Trump adviser who has been driving trade policy. “The trade deficit results in 2 million more jobs in China and 2 million less here.”
What has stopped trade spats in the past is foreign countries hitting back at politically sensitive industries in parts of the United States that the president and his party want to keep happy. In 2002, President George W. Bush's steel tariffs ended early after the European Union readied tariffs on Florida oranges and North and South Carolina textiles. Bush didn't want to anger voters in Florida, a state he won in his first election by only a few hundred votes.
The Chinese are eyeing soybeans and pork products, and with good reason. Heading into the midterms 2018 elections, Trump might have a hard time convincing voters in the top 10 soybean-exporting states that tariffs are a good idea. Those states are: Illinois, Iowa, Minnesota, Indiana, Nebraska, Ohio, South Dakota, Missouri, North Dakota and Kansas.
“I’m a farmer from Iowa, and someone is messing with my biggest market; that’s frustrating,” said John Heisdorffer, a farmer in Keota, Iowa, and president of American Soybean Association. “We send $14.6 billion in soybeans to China, equivalent to nearly 1 in every 3 rows of beans we grow, and more than the rest of the world combined.”
The map of farmers that raise and sell hogs looks similar: It's heavy in the Midwestern states Trump won in 2016, including the key swing state of Ohio. Eight of the top 10 pork-exporting states went for Trump, according to USDA data. (The 10 states are: Iowa, Minnesota, North Carolina, Illinois, Indiana, Missouri, Oklahoma, Nebraska, Ohio and Kansas).
Republicans in Congress are concerned. While they agree with Trump that the United States has long been too soft on China, they also look at these maps and worry about the impact on their home turfs. Rep. Kevin Brady (R-Tex.), one of the lead authors of the tax bill, has been vocal about pushing Trump and his team to make the tariffs more targeted and narrow.
“We must not punish American families and workers for China’s misbehavior. Indiscriminate tariffs are not the right approach,” Brady said at a hearing Wednesday with U.S. Trade Representative Robert E. Lighthizer.
Trump is shrugging it off so far, saying many countries want to negotiate with the United States now and that should lead to better deals. His base remains steadfast, and he has long championed stiffer penalties on America's trading partners.
“One would think it would hurt him and his base, but people don’t seem to hold it against him,” said Valliere of Horizon Investments. “His base is so loyal that they overlook these things.”
But it's a gamble. The GOP's electoral future may end up in the hands of the Chinese and global companies that decide how much to raise prices and whether to cut jobs.
“A tariff is an extremely inelegant tax. It’s like trying to kill a tsetse fly on your desk with an anvil. You might kill the fly but you usually end up totaling the desk & damaging the floor,” tweeted Joseph Brusuelas, chief economist at accounting firm RSM.
Correction: A previous version of the maps in this story mislabeled the winner of the 2016 election in Wisconsin and Colorado.