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Business / Finance / Markets / Money

A Declaration of Trade War on China?

A Declaration of Trade War on China?

Accounts suggest Section 301 based sanctions on China on up to $60 billion worth of goods. [1] [2] Retaliation seems a real possibility. It’s interesting to consider likely targets, geographically.

Figure 1: 2017 state level exports to China, in billions of USD. Source: BuCensus via ITA.

Figure 2: 2017 exports to China as share of total state level exports. Source: BuCensus via ITA, author’s calculations.

What products would be hit? From Landler & Rappaport/NYT:

Experts worry that the United States’ actions could ignite a trade war, noting that Chinese economic officials have a keen understanding of the American system and are good at designing targeted retaliatory measures against American agricultural products and other exports.

Soybeans are one likely target; in 2016, the US exported $14.2 billion to China. China has already started an investigation of US exports of sorghum to China, after the solar panel tariffs, as a hint of what might be yet to come should the US pursue further sanctions. $14.2 billion is a little over 10% of 2016 total agricultural exports of $140 billion. And agricultural exports have already been under pressure over 2017, as shown in Figure 3.

Figure 3: Agricultural exports in billions 4 (blue), and real agricultural exports in billions Ch.2009$ (red), both SAAR, on log scale. NBER defined recession dates shaded gray. 2017 shaded orange. Source: BEA, 2017Q4 2nd release, NBER and author’s calculations.

Illinois and Iowa are the top two soybean producing states.

I do wonder where this will end. Does Mr. Trump expect the Chinese to hold back? Do they need exports more than we do? Right now, maybe yes. True in a year, if the economy slows down?

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