How Will Trump’s Trade War Impact American Politics?

If President Trump's trade war continues, it could have a serious impact on the political fortunes of President Trump and his party.

 

With the President threatening to up the ante in his ongoing trade war, market analysts and other experts are warning that the effects of that trade war could end up hurting the President and his party at the ballot box:

President Donald Trump’s trade wars could become a major political drag for Republicans, with job losses and price increases piling up just as voters head to the polls in November.

Trump jolted markets once again early Friday when he said he’s prepared to impose penalties on some $500 billion in Chinese goods regardless of the consequences that might ensue, economic or political. “Look, I’m not doing this for politics,” the president said on CNBC. “I’m doing this to do the right thing for our country.”

But market analysts, industry experts and economists warn that the economic fallout of the president’s tariffs — those that are already in effect and those he’s threatening to impose — is only going to intensify over the coming months and could reach a peak around election time.

“We’re already hearing complaints now from companies, so by the time we get to the midterms, you’re going to be hearing governors, mayors, Congress complaining about jobs, about cost increases, about problems,” Carlos Gutierrez, the former Commerce secretary under President George W. Bush, told POLITICO. “The question is: Will that be strong enough to offset the idea that we have to get tough on our trading partners, and that our jobs are being stolen overseas?”

It takes months for most consumers to feel the impact of tariffs, but as the fall approaches, everything from groceries to appliances could start to cost more at major retailers across the country. Democrats could use these price increases as a political cudgel against Republicans in swing districts as they try to take back control of Congress.

Trump has so far suffered little political blowback for his tariffs and trade threats, saying that he is simply following through on promises he made during the campaign to crack down on trading partners, even close allies, and put America first. Since March, he has imposed blanket tariffs on nearly all imports of steel and aluminum and placed penalties on $34 billion in goods from China, a total likely to increase to $50 billion next month and into the hundreds of billions later this year.

In return, countries have retaliated with tit-for-tat duties on everything from U.S. agricultural goods to Kentucky bourbon and Harley-Davidson motorcycles, aiming to sway top Republican lawmakers by hurting constituents in their districts.

But Trump and his party could soon begin to face consequences as companies in the coming months start reporting lower earnings, reassessing their supply chains and holding back on investment, all of which will begin to ripple throughout the economy and could lead to a slowdown or full-blown recession, experts say.

If all of the tariffs that have been proposed take effect, they would bring down long-run U.S. GDP by 0.47 percent — about $118 billion — in the long term and cost more than 364,000 jobs, a new analysis from the Tax Foundation shows. The International Monetary Fund also warned this week that trade tensions could cut global output by some $400 billion by 2020, and that the U.S. is “especially vulnerable” to effects of an international slowdown.

Price increases would vary by product, ranging anywhere from a few cents on a can of beer or soup to around $6,000 on a family car, if the administration moves forward with auto-specific tariffs it has threatened.

The President, meanwhile, continued his anti-trade propaganda campaign on Twitter this morning:

As I’ve noted before, we’re already starting to see the negative impact from the early stages of the Trump Trade War across a wide variety of industries. The President’s decision to impose tariffs on steel and aluminum, for example, has led to increased prices for both products regardless of whether or not they come from foreign or domestic sources. This has had a negative impact on manufacturers that rely on those raw materials and on American steel and aluminum producers who have seen orders fall due to tariffs that were allegedly intended to “protect” them. Particularly hard hit in the early stages of the trade war has been the American agriculture industry, which predominates in states that Donald Trump won in 2016 and where Republicans have dominated for years. In no small part, this is due to the fact that retaliatory tariffs from nations like China have been specifically aimed at red states. Even in the early days of the trade war, the American pork industry was expressing concerns about the impact that retaliatory tariffs on business with nations such as China, which has become a huge market for American agriculture. In Iowa, it was reported that the trade war could cost soybean farmers more than $600 million this year alone, with larger losses coming if the trade war continues. We’ve also seen that the tariffs and the retaliation are beginning to have a negative impact on other American businesses and have even led iconically American brands like Harley-Davidson to move production overseas in response to retaliatory tariffs from the European Union. Just today, Harley announced that it was cutting its earnings forecasts due to the anticipated impact of the trade war on overseas sales.

As I’ve said in the past, it’s likely that the full economic impact of the President’s trade war won’t be felt immediately and may take time to show up in the economic statistics. Indeed, many analysts are expecting that the first estimate of Gross Domestic Product growth for the 2nd quarter of the year is likely to show strong growth, perhaps something north of 4%, which is a target we’ve only hit a handful of times since the end of the Great Recession. Additionally, while jobs and wage growth have both been rather anemic they have been positive and it appears that it will remain so for the time being. Additionally, while Trump’s overall job approval remains negative, his job approval on the economy is quite positive. Taking all that into account, it’s not at all clear that something as esoteric as the long-term impact of the President’s foolish and ill-advised trade policies are going to play well with voters or have much of an impact on the midterm elections. If the war continues, though, the impact will begin to spread through the economy and that could present significant political problems for the President and his party going forward.

FILED UNDER: Campaign 2018, Campaign 2020, Donald Trump, Economics and Business, International Trade, Politicians, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Hal_10000 says:

    The political consequences will be small at first because any downturn will be blamed on Obama and the Democrats. So I expect Election 2018 to be a bit of a dud — partly because the Democratic Party is run by morons and partly because the economy will still be good, at least on paper. If we tip into recession, though, it could get ugly by 2020, in more ways than one.

    (Side note: the big grown in Q2 may be driven by stockpiling in anticipation of tariffs. There were boats literally racing across the Pacific to deliver shipments before the tariffs kicked in.)

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  2. Daryl and his brother Darryl says:

    https://www.outsidethebeltway.com/trump-threatens-to-up-the-ante-on-his-trade-war/#comment-2335787
    So our incompetent President messes up…and has to toss $12B at the farmers he has harmed.
    Hard to believe we have to bailout anyone in the midst of “the best economy in the history of the world.” What about everyone else that gets hurt; loses a job, loses their home, etc?
    It’s hard to believe the level of idiocy inside the White House at this point.
    Trade wars are easy to win if you are willing to subsidize the losers.

  3. Liberal Capitalist says:

    On the other hand, with a decimated agricultural sector, food prices will drop… at least for the short term until stocks are depleted… then, after the various independent farmers and smaller procers go out of business, then costs will skyrocket.

    For example, from the WSJ, beef and meats are piling up, unsold to foreign markets.

  4. Liberal Capitalist says:

    @Daryl and his brother Darryl:

    Trade wars are easy to win if you are willing to subsidize the losers.

    Well… I believe that might be the logic of the Trumpers to begin with. I have often heard complaints from the right that the US could not compete because foreign governments subsidize various market producers so that they can sell their products overseas, specifically to us (US).

    However, as a voter for the Leopards Eating People’s Faces Party once said: “I never thought leopards would eat MY face!”… the Trumpers never understood that starting a trade war would result in greater domestic prices, scarcity and ultimately tax dollars being spent to prop up failing domestic markets.

    This either raises taxes, or increases federal debt. And no matter what, will result in less dollars in the wallet.

    2020 should be an interesting election… all the Dems will need to do is list the GOP “accomplishments” and the resulting costs to American taxpayers.

  5. Ben Wolf says:

    If only Republicans like you had heeded Thomas Jefferson’s advice on compensating the people who lose when you guys pursue dumb trade deals, this whole Trump thing could have been avoided:

    The earth is given as a common stock for man to labour and live on. If, for the encouragement of industry we allow it to be appropriated, we must take care that other employment be furnished to those excluded from the appropriation. If we do not the fundamental right to labour the earth returns to the unemployed.

  6. Michael Reynolds says:

    This will have no effect in 2018. The cult is unteachable, and the cult-adjacent haven’t been hurt enough for it to matter to. And Democrats have many more compelling motivations.

  7. Guarneri says:

    Viewing the last few posts and comments I see the hyenas are in typical form today.

    You guys should really think about what Ben just said. Reversing years of bad policy is bound to be messy. Further, it’s easy, although mindless, to bemoan the lot of prior beneficiaries of bad policy when the worm turns and they become victims of the cure and prior victims have their day. Of course we know you all don’t really care about the issue, just it’s utility in Trump bashing.

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  8. Jen says:

    President starts a trade war, hurting farmers in the process, which are part of his base. So, what do we now have? An offer for a $12 billion AID PACKAGE TO FARMERS.

    Unreal.

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  9. Jen says:

    @Guarneri: Don’t be daft. Trade wars are loony, expensive, and no one wins them.

    The President is now looking to fund a farmer welfare bill due to his dumb moves.

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  10. Daryl and his brother Darryl says:

    @Liberal Capitalist:

    all the Dems will need to do is list the GOP “accomplishments” and the resulting costs to American taxpayers.

    The problem…and I don’t claim to have a solution…is to get the deplorables to believe in facts.

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  11. wr says:

    @Guarneri: “Reversing years of bad policy is bound to be messy.”

    I believe this is exactly what Mao said as he launched the Cultural Revolution. Good on you, comrade!

  12. Daryl and his brother Darryl says:

    @Guarneri:

    Reversing years of bad policy is bound to be messy.

    Sorry pal…your dear leader said it was going to be easy.
    It’s tough being a fanboi to a retard, isn’t it?

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  13. Daryl and his brother Darryl says:

    @Guarneri:

    Reversing years of bad policy is bound to be messy.

    When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!

    Again…It’s easy! We win big…I guess having to drop $12B to deal with the backlash from your trade war is winning big.

  14. Michael Reynolds says:

    So in our fight against unfair trade practices we’re going to use 12 billion in taxpayer money to support agricultural producers. One of the very things we accuse the EU of doing. Got it.

    A trade war might be necessary, but a trade war carried out simultaneously against all our major trading partners – China, the EU, Canada and Mexico is just stupid. Trump has laid the foundation of a world-wide trade alliance that excludes the US.

    If I were Xi I’d be on the phone with the EU, Japan and Canada three times a day urging a free trade zone between those powers. That would break us. I have no idea if that’s politically feasible for Xi, but it could be a master stroke.

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  15. Daryl and his brother Darryl says:

    Republican Ben Sasse:

    “This trade war is cutting the legs out from under farmers and White House’s ‘plan’ is to spend $12 billion on gold crutches”

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  16. Kylopod says:

    @Hal_10000:

    The political consequences will be small at first because any downturn will be blamed on Obama and the Democrats.

    When has that ever happened? Sure the Republicans will blame it on the Democrats, Fox News will amplify the claim, and the base will eat it up. But the bulk of voters–fairly or unfairly–pretty much always blame the party in the White House for whatever happens on its watch.

  17. Michael Reynolds says:

    Since I’m playing speculative war games, the other move open to Xi is to take the initiative by escalating: stop exports to the US entirely. Embargo exports to the US. Dangerous to his own economy, but I’m guessing the People’s Army could keep a lid on longer than we could resist the pressure from iPhone fans.

    The Top 10 US Exports to China
    1. Soybeans: $15 billion
    2. Civilian aircraft: $8.4 billion
    3. Cotton: $3.4 billion
    4. Copper materials: $3 billion
    5. Passenger vehicles (small engines): $3 billion
    6. Aluminum materials: $2.4 billion
    7. Passenger vehicles (large engines): $2.2 billion
    8. Electronic integrated circuits: $1.7 billion
    9. Corn: $1.3 billion
    10. Coal: $1.2 billion

    China’s main exports:
    1) Electrical machinery, equipment: US$599 billion (26.4% of total exports)
    2) Machinery including computers: $382.9 billion (16.9%)
    3) Furniture, bedding, lighting, signs, prefab buildings: $89.8 billion (4%)
    4) Clothing, accessories (not knit or crochet): $73.6 billion (3.2%)
    5) Knit or crochet clothing, accessories: $72 billion (3.2%)
    6) Optical, technical, medical apparatus: $70.6 billion (3.1%)
    7) Plastics, plastic articles: $70.6 billion (3.1%)
    8) Vehicles: $67.4 billion (3%)
    9) Articles of iron or steel: $57.3 billion (2.5%)
    10) Toys, games: $55.3 billion (2.4%)

    Who breaks first in a game of soybeans vs. electronics? Plenty of places for the Chinese to buy soybeans, not many places for us to buy phones. That strikes me as a battle between China’s communist party apparatus and the coddled American consumer and in that fight I’d bet on the People’s Army.

  18. Mikey says:

    So we’re basically going to pay for Trump’s idiocy twice: once when the prices of everything imported from China goes up, and again when we sink another $12 billion into the federal deficit paying farmers to let their crops rot.

    Not that $12 billion is all that much in the context of Trump’s $1 trillion deficit, but still.

  19. Daryl and his brother Darryl says:

    @Ben Wolf:
    @Guarneri:
    Let’s remember that Dennison is already in charge of the largest explosion of the deficit in a non-recession year…he’s borrowing from China to give this $12B bailout to the farmers harmed by his tariffs on China.
    Maybe he went to Wharton for a semester…but I’m guessing he didn’t take any economic courses.

  20. Andre Kenji de Sousa says:

    1-) It’s complicated to talk about “unfair trade practices” when you consider agricultural tariffs and subsidies in the United States. I don’t see much of moral authority here.

    2-) Currency manipulation was never a problem. Low income economies are going to have far lower labor costs, and the low manufacturing costs of Asian countries is a huge boon for consumers worldwide.

    Subsidies are another story, but it’s pretty difficult to keep large conglomerates dominating a large sector of your economy only with subsidies.

    3-) Trump is trying to do the same thing that countries like Mexico, Argentina and Brazil did in the past. Is not going to work. In the end these countries had noncompetitive industries with expensive products for consumers.

  21. JohnMcC says:

    Probably we also ought to also consider that there may be mines floating in the Strait of Hormuz at some not-to-future moment….

  22. george says:

    @Michael Reynolds:

    Trump is going out of his way to make China the number one economic force in the world – driving old American allies into China’s camp. As much as Putin wants America disrupted, he certainly doesn’t want China to replace America. Which is the problem in trying to use loose cannon’s as puppets – they simply don’t follow instructions.

    My guess is that Putin thought the US congress would stop Trump from this kind of madness (he must have assumed they wouldn’t let Trump get away with trade war against all the top countries at once – he’d have liked the idea of a US-China trade war as it would weaken both, but US against everyone helps China immensely), and is now scrambling to find a way to restrain his puppet before China becomes the globe’s dominant country.

  23. george says:

    @Michael Reynolds:

    Apparently what China is doing is in part putting restrictions on American businesses in China, but their main focus is playing the role as the reliable economic super power – they want to take over America’s role as the mainstay of the global economy.

  24. george says:

    @Kylopod:

    Yup, for good or for bad, and all around the world, whoever is in power is credited or blamed for the current economic position by most voters.

  25. Kathy says:

    for a bit of brighter news, check out the latest Quinnipiac poll. It’s a thing of beauty.

  26. Kylopod says:

    @george: My understanding of the political science research (for American elections, I’m unfamiliar with what it says about other countries) is that it’s not so much the state of the economy in an absolute sense that voters react to, it’s the direction of the economy. So for example, in 1936 America was still in the middle of the Great Depression, and unemployment was around 16%. But the conditions had dramatically improved since FDR had entered office, and so he won reelection in a landslide.

    One-term presidents like Carter and the first Bush faced an economic crisis that struck on their watch. In contrast, Reagan, Clinton, and Obama all won reelection in part because voters remembered that the economic problems they faced began before they entered office. Yet they all suffered a bad first midterm anyway.

    Dubya is a bit of an outlier. He entered office at the peak of the late ’90s economic boom, then faced a recession early in his term, which should have hurt him. (He also, I should note, imposed tariffs on steel around this time.) But it was relatively small and short-lived, and it was drowned out to some degree by 9/11, enabling his party to actually gain seats during the first midterm. Even then, he was reelected only very narrowly.

  27. Michael Reynolds says:

    @Kathy:
    Wow. Lovely numbers.

    American voters believe 51 – 35 percent ‘that the Russian government has compromising information about President Trump.’

    Special Counsel Robert Mueller is conducting a fair investigation into possible collusion, voters say 55 – 31 percent.

  28. Kathy says:

    @Michael Reynolds:

    Notably El Gran Cheeto Who wields the Mighty Cheeseburger gets good grades on the economy. I think that is because the economy is going well, and therefore he’ll begin to get terrible grades if/when the recession he’s doing so much to bring about actually begins.

    Unfortunately we cannot predict when that will be, how bad it will be, or how long it will last.

  29. Stormy Dragon says:

    "Major Major’s father was a sober God-fearing man whose idea of a good joke was to lie about his age. He was a longlimbed farmer, a God-fearing, freedom-loving, law-abiding rugged individualist who held that federal aid to anyone but farmers was creeping socialism." – Catch 22— Ed Mix (@the_edwin_mix) July 24, 2018

  30. Hal_10000 says:

    @Kylopod:

    What I meant was that Trump and his enablers will blame it on the Democrats. And that will be enough for his base to turn out and support him. The only way his base breaks is if things get bad to the point where he can’t pretend it’s fake news anymore.

  31. Kylopod says:

    @Hal_10000:

    What I meant was that Trump and his enablers will blame it on the Democrats. And that will be enough for his base to turn out and support him.

    Then what did you mean when you said “The political consequences will be small at first because any downturn will be blamed on Obama and the Democrats”? Are you under the impression that it’s his base that determines the political impact of something, that as long as they stick with him he’s got nothing to worry about? I highly doubt that’s true.

  32. MattBernius says:

    @Kylopod:
    I suspect that Hal could be right, at least for the 2018 elections, due to the structural issues facing the Dems. I’m not sure its the case that Trump has nothing to worry about, but the reality is a Dem victory (taking at least the House and the Senate) is going to require a lot of Republicans (in particular non-Trump supporter) to decide that, at a minimum, they will stay home.

    Provided that those Republicans can find a way to “blame it on the Dems” (despite what they think of Trump) enough to go out an pull the lever for the incumbents (or to vote against people like Joe Manchin and Bill Nelson), then the Dems have a problem in the short term.

  33. Kylopod says:

    @MattBernius:

    but the reality is a Dem victory (taking at least the House and the Senate) is going to require a lot of Republicans (in particular non-Trump supporter) to decide that, at a minimum, they will stay home.

    Agreed. But “Republicans” aren’t the same thing as “the base.” When Conor Lamb won a district that had voted for Trump by 20 points, it wasn’t because “the base” abandoned Trump. In fact Lamb got a lot of his support from the suburbs–an area that includes many Republican-leaning voters, but not necessarily “base” Republicans. In addition, he got a strong turnout from Democrats, which may have been just as crucial. None of that was dependent on the types of voters who are likely to blame the party out of power in the event of a recession.

  34. Barry says:

    @Daryl and his brother Darryl: “So our incompetent President messes up…and has to toss $12B at the farmers he has harmed.”

    And China looks at that…and raises tariffs to soak that up.

  35. Andre Kenji de Sousa says:

    @MattBernius:

    I suspect that Hal could be right, at least for the 2018 elections, due to the structural issues facing the Dems.

    Red States Dems running for reelection are polling pretty well, even Manchin is pretty ahead on the polls. Bredensen is also polling pretty well in TN.

    Besides that, coal(!) is a pretty easy target for retaliation. This is just the beginning.

  36. rachel says:

    @Kathy: 71% of White Evangelical voters approve of the way he’s handling his job. What gods do these people evangelize for, Mammon and Moloch? I’m pretty sure it’s not Jesus Christ!

  37. MarkedMan says:

    How will Trump’s trade war effect American politics? Well, his $12B bribe to his supporters (the farmers) may have a much bigger impact than we realize. Why? Trump came to power not because he’s smart (he is, in fact, a moron) but because he is ruthless and amoral. He shares this with many, many rulers in third world countries. And just like the rulers in say, Zimbabwe, Venezuela, Cuba, etc he feels he can just reach into the market and adjust things by fiat and the market will respond as he wants. So he intervened in the market with his ham fisted and ill thought out tariffs, he now finds that some of his supporters are angry with him. So he uses tax money to ease the impact. Note that he isn’t preserving their market. The Brazilians, the Canadians, the Russians, the Argentinians are all rushing in to sell their produce which is now competitive with American products. If they use this to expand and modernize operations then the economies of scale will mean that even if the US tariffs are one day removed they will still be competitive. Trump is doing what stupid regimes have done since time immemorial. Prices rise or markets disappear so he uses his powers to try to bend the market. What will he try next? Gas prices are rising so will he subsidize gas prices by cutting the federal gas tax? There isn’t much there, so maybe he will move to subsidize the price of gas? Maybe he will try to mandate that states can no longer levy gas tax if they want to get highway funds? But if he cuts the federal gas tax, where do the highway funds come from? (I think this ends by having to get the mice back to chase out the elephants.)

    This Banana Republic market manipulation never works in the long term. But Trump and his faith-based followers don’t think in the long term.

  38. Just nutha ignint cracker says:

    ” But if he cuts the federal gas tax, where do the highway funds come from? ”

    Easy, they’re added to the Federal deficit. Highway construction is infrastructure spending, so the money comes rushing back into the coffers as efficiencies enter the marketplace lowering wages and thus, making everything cheaper.

  39. Kathy says:

    @rachel:

    71% of White Evangelical voters approve of the way he’s handling his job. What gods do these people evangelize for, Mammon and Moloch? I’m pretty sure it’s not Jesus Christ!

    I’ll be the first to tell you I don’t understand religion. Fortunately I do understand history and politics (perhaps because they deal with real subjects). Therefore it’s easy to say the Bible is a product of its times, and has inevitably been adapted to subsequent times.

    In particular, since few people read it, and since neither God nor Jesus are around to say otherwise, religious leaders can assume effective divine authority to advance their agendas, prejudices, personal goals and, incidentally, fleece large amounts of money to advance all those things in other areas, such as politics.

    This is not new. at one time, the priests of Amun in Egypt owned much of the land in the kingdom, in the name of Amun. Of course, everyone from the Pharaoh to the peasants knew Amun was the real owner of the land. And you could know his will easily, by asking the priests of Amun what his will was.

  40. Mikey says:

    @rachel: Writer and comedian John Fugelsang put it pretty well: “Donald Trump is Jesus to American followers of Jesus who’ve totally rejected the teachings of Jesus.”

  41. MBunge says:

    https://www.bloomberg.com/news/articles/2018-07-25/trump-juncker-reach-deal-to-ease-trade-tensions-dow-jones-says-jk1jtfs8?utm_content=tictoc&utm_medium=social&cmpid%3D=socialflow-twitter-tictoc&utm_source=twitter&utm_campaign=socialflow-organic

    Wow. It’s almost as if a wildly successful businessman understands some things better than a bunch of yahoos on a blog. Nah, this must be something that secretly helps Russia!

    Mike

  42. Mikey says:

    @MBunge:

    a wildly successful businessman

    Bullshit.

    Now go shill for treason elsewhere, you sycophantic, degraded lickspittle.

  43. Andre Kenji de Sousa says:

    @MBunge: .

    It’s almost as if a wildly successful businessman understands some things better than a bunch of yahoos on a blog.

    What did Trump precisely achieve here, other than vague declarations?