Trade

Trumps new midterm threat: A trade war smacking voters

U.S. President Donald Trumps 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 hes prepared to impose penalties on some $500 billion in Chinese goods regardless of the consequences that might ensue, economic or political. “Look, Im not doing this for politics,” the president said on CNBC. “Im doing this to do the right thing for our country.”

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

“Were already hearing complaints now from companies, so by the time we get to the midterms, youre 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.

If all of the tariffs that have been proposed take effect, they would bring down long-run U.S. GDP by 0.47 percent.

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.

“If this escalates into a full-blown trade war, the innocent victims are going to be American consumers” — Matthew Shay

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.

Even if Trump doesnt move forward with any additional duties, the uncertainty caused by his policies and rhetoric is leading some companies to begin pulling back investments in research and development. Theyre afraid that if they develop products for foreign markets, those markets might no longer be accessible to them in six months or a year.

The agricultural industry has been particularly vulnerable: Countries like Mexico have begun to diversify their import markets by buying more corn and soybeans from Brazil instead of the United States, in an attempt to reduce their dependence on a country that could erect new trade barriers at any time based on the presidents whims.

And while the administration has so far taken pains to avoid hitting consumers directly, leaving products like flat-screen televisions and cellphones off the list of products facing tariffs, they will be unable to continue to do so as the list of goods caught in the crossfire begins to expand.

“If this escalates into a full-blown trade war, the innocent victims are going to be American consumers,” said Matthew Shay, president and CEO of the National Retail Federation. “Thats what wed like to avoid.”

As midterm campaigns heat up, vulnerable Democrats and Democratic super PACs are already using the presidents trade war — and the Republican Partys reluctance so far to challenge him on it — to frame their opponents as complicit in an escalating trade battle with no end in sight.

The Democrat-aligned group American Bridge launched an effort Thursday aimed at targeting Republican candidates for, as the group says, “failing to stand up to Trumps trade war.” In one of two launch ads, the group targets Josh Hawley, who is running to unseat Missouri Sen. Claire McCaskill, for saying that he supports Trumps goals on trade and feels that the president is doing the right thing.

“Hawley welcomed this trade war,” it reads at the end of a minute-long spot featuring clips of local farmers and manufacturers complaining about the harmful effects of Trumps tariffs. “Now Missouri families are paying the price.”

The president has so far ignored increasing calls from Republicans in Congress to back down on trade, or at least to begin pursuing dialogue with Chinese President Xi Jinping. The White House insisted this week that trade talks with Beijing are ongoing, but there are no formal discussions on the books and the two sides have not met at the ministerial level since Commerce Secretary Wilbur Ross traveled to China early last month. Treasury Secretary Steven Mnuchin will have informal opportunities to talk with his Chinese counterparts at the G-20 finance ministers meeting in Buenos Aires this weekend, but no formal bilateral meetings are expected.

Instead, Trump has sought ways to expand his tariff crusade: Beyond ratcheting up duties against China, he has directed the Commerce Department to conduct investigations examining whether to impose penalties on imports of cars and car parts, as well as uranium. And he has continued to frustrate Canada and Mexico by refusing to back down from what they see as unreasonable demands in the ongoing renegotiation of NAFTA.

Moving forward with either car tariffs or a NAFTA withdrawal before November elections would be an “enormous political mistake,” said Bill Reinsch, a senior adviser at the Center for Strategic and International Studies. “If he does that, youll see an immediate sharp consumer impact, which I think will translate into a political reaction. Everything else will be like sand leaking out of the bag.”

But even the slow accumulation of economic effects could build up enough by November that consumers will be feeling the pain. It might be difficult for everyday Americans to recognize at this point how the tariffs will affect them, given that many of those proposed are not yet in effect, so in the meantime, the retail industry is working to educate consumers that “there are greater consequences, and price increases and real impacts” that could be coming in the near future, Shay said.

“Thats going to create a lot more attention around the things that right now sound a lot more hypothetical,” he added.

So far, at least, polls show that Trump appears to still have the support of the bulk of Republican voters when it comes to tariffs. Nearly three-fourths, or 73 percent, of Republicans and Republican-leaning independents who responded to a Pew Research survey out this week said they felt increased tariffs would benefit the country. Roughly the same percentage — or 77 percent — of Democrats and Democratic-leaning independents felt the opposite.

But reaction overall is trending increasingly negative: Nearly half, or 49 percent, of all respondents to the Pew poll said they feel tariffs are a bad thing for the country, up 4 percentage points from a similar survey done in May.

The partisan split bodes well for Trump, who has so far shown little willingness to heed anyones advice over trade policy beyond his own and who will likely barge into the midterms with the same protectionist messages that helped him win over laid-off factory workers and struggling farmers in 2016.

Democrats might try to point to a worsening economy to say that Trumps policies are wreaking havoc across middle America, but the White House has already begun to fire back that the long-term payoff will be worth it.

“Itll be those two competing narratives” during midterm campaigns, said Gutierrez, who now chairs the board of the National Foreign Trade Council. “It all depends on how bad the numbers get and how much pain there is that cant be offset by simply saying, Were doing this for the country and were getting tough on our trading partners, so its worth the pain.”

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