Connecting state and local government leaders

The Stakes for States Remain High With Trade War ‘On Hold’

Treasury Secretary Steven Mnuchin

Treasury Secretary Steven Mnuchin Susan Walsh / AP Photo

 

Connecting state and local government leaders

“I’m not sure that there’s a blue sky at the end of these back-and-forth negotiations over trade.”

States expecting income and jobs to decline because of retaliatory Chinese tariffs on U.S. exports may be in limbo for awhile after Treasury Secretary Steven Mnuchin on Sunday declared a trade war “on hold.”

The Trump administration agreed to suspend $150 billion in tariffs, imposed in protest of unfair trade practices like intellectual property theft, as part of ongoing negotiations to reduce the U.S.’s $335 billion trade deficit with China.

China also withdrew its tariffs while agreeing to consider increasing purchases of U.S. agricultural and energy products to help offset the deficit, though nothing was finalized.

“I’m not sure that there’s a blue sky at the end of these back-and-forth negotiations over trade,” said Marcia Van Wagner, a Moody’s Investors Service credit analyst. “So where it’s going to end up is unknown.”

States with less diversified economies would feel the effect of Chinese tariffs more acutely, such as Iowa in the case of soybeans, which account for 6 percent of gross state product.

Together U.S. tariffs and Chinese retaliation would cost the U.S. 455,000 jobs and $49 billion in gross domestic product with California, Texas and Florida getting hit worst, according to a National Retail Federation report released earlier this month.

“Tariffs could wash away the benefits recent tax reform will have on the economy, bringing uncertainty to American businesses and devastation to some workers in key states—they might lose their jobs over a trade tax,” Gary Shapiro, Consumer Technology Association president and CEO, said in a statement. “Rising costs on farmers, manufacturers and service providers isn’t the answer; it shows protectionism will weaken America.”

The good news for the agriculture sector is that there are fewer jobs than ever before thanks to automation, but farmers’ income could suffer long term if tariffs go back into effect. Unemployment in the most vulnerable states is generally quite low, Van Wagner said.

Should negotiations result in China increasing net total purchases of U.S. agricultural goods, that would be a positive for the sector, but Moody’s Chief Economist Mark Zandi questioned the significance of such a move, in part, because of foreign competition.

“It’s a global market for agricultural commodities, and there are of course other countries that produce the same goods we produce,” Van Wagner said. “There are a lot of moving parts as to what impacts farmers ... global prices, input costs, rising oil prices.”

Dave Nyczepir is a News Editor at Government Executive’s Route Fifty and is based in Washington, D.C.

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