Foreign retaliation to U.S. tariffs disproportionately affects Republican-leaning counties, report finds
The impact of trade policies the Trump administration began implementing in 2018 is starting to come into sharp relief. A new study suggests that Republican-leaning counties are among the areas that have been hit hardest by trading partners' retaliation to the U.S. tariffs.
The aggregate yearly loss to the U.S. economy from the trade war is about $7.8 billion, or 0.04 percent of the nation's gross domestic product, according to a working paper by a team of economists that includes Pablo Fajgelbaum, a UCLA professor of economics, as well as Pinelopi Goldberg, chief economist for the World Bank, Patrick Kennedy of UC Berkeley and Amit Khandelwal of Columbia University. The economists examined tariff data from the U.S. International Trade Commission and trade flow data from the U.S. Census.
The study found that prices faced by buyers of foreign goods increased by the same amount as the tariff, costing American consumers and businesses $68.8 billion per year, or almost 0.4 percent of gross domestic product. However, those losses are largely offset by the gains of U.S. companies that benefitted from the higher tariffs.
The authors also concluded that if the European Union and individual countries hit by the new U.S. tariffs—including China, Canada, Mexico, Russia and Turkey—had not retaliated with tariffs against U.S. producers, the aggregate effect of the U.S.-imposed tariffs would have been only one-third as large.
For decades, U.S. policies tended toward lowering trade barriers, but in 2018, the Trump administration enacted several waves of tariff increases on specific products, sectors and countries in what the report describes as a "return to protectionism." Import tariffs on 12,007 products covering $303 billion (12.6 percent) of U.S. imports increased on average from 2.6 percent in 2017 to 17 percent in 2018. In response, several large U.S. trade partners imposed retaliatory tariffs on U.S. exports. Those countermeasures increased tariffs on 2,931 export products, accounting for $96 billion (6.2 percent) of annual U.S. exports, from 6.6 percent in 2017 to 23 percent in 2018. Those retaliatory tariffs resulted in an 11 percent decline in the sale of U.S. goods outside the country, according to the study.
The authors also discovered that the trade war is having a heightened impact on workers and companies in counties that supported Donald Trump in the 2016 presidential election.
"The pattern of U.S. tariffs protected sectors concentrated in electorally competitive counties, while foreign retaliations affected sectors concentrated in Republican counties," the authors write. (The paper defines "electorally competitive counties" as those that typically have between 40 and 60 percent Republican vote share.) "Workers in very Republican counties bore the brunt of the costs of the trade war, in part because retaliations disproportionately targeted agricultural sectors."
The paper calls the increased tariffs the United States' most comprehensive protectionist trade policies since 1930, when the Smoot-Hawley Act raised tariffs from 40 percent to 46 percent on one-third of imports.