The Biggest Losers in Trump’s Potential Trade War

My Comments: It’s been hard to tell if the mistakes coming out of the White House are simply the result of the learning curve necessary to be competent or whether it’s the result of overt incompetence. But I do think it’s increasingly clear that Donald Trump is in over his head.

The person most likely in charge now is Steve Bannon, who reminds me of a James Bond villain, trying to take over the world. Nothing coming out of the White House, despite the rhetoric that it will all clear up soon, suggests it’s in our best interest as citizens. I don’t see him as an evil person, but his motivation is to ultimately do what is in Steve Bannon’s best interest, and we’ve given him the keys to the kingdom. There’s very little we can do about it. Yet. This writer is too wishy washy; we will all lose if we concede the economic high ground.

Ronald Brownstein Jan 30, 2017

If Donald Trump’s aggressive moves on the international economy spark a trade war, the American communities that will lose the most in absolute terms are the giant metropolitan areas, largely along the two coasts, that are most deeply integrated into global markets.

But in proportional terms, the biggest losers from a trade war would be small and midsized cities, almost entirely in interior states, that are heavily dependent on exports of manufacturing goods or energy products.

That distinction between the communities with the greatest absolute and proportional stake in access to global markets emerges from an important analysis of exports’ role in local economies that was released Monday by the Metropolitan Policy Program at the Brookings Institution.

That contrast frames the political risk of Trump’s flurry of moves to raise barriers against imports and withdraw from U.S.-led efforts to open markets around the world—for instance, abandoning the Trans-Pacific Partnership agreement across Asia and demanding a renegotiation of the North American Free Trade Agreement with Mexico and Canada.

If Trump’s moves ultimately reduce trade flows and squeeze exports, the biggest U.S. losers will include not only big metropolitan areas that almost entirely supported Hillary Clinton in November, but also the smaller places that provided the core of Trump’s support. “You have to tell both parts of that story to get the full local picture,” said Joseph Parilla, a Metropolitan Policy Program fellow who specializes in local economies, particularly their connection to the global market.

In the new analysis, Parilla and Mark Muro, the Metropolitan Policy Program’s director of policy, produced data on trade flows at the county and metropolitan-area level that quantify this split-level picture.

On the one hand, they found that although Trump won about five-sixths of all U.S. counties, the counties that supported Clinton accounted for 58 percent of all American exports in 2015. The counties that backed Trump only generated 42 percent of all American exports. That’s in line with earlier Brookings calculations that Clinton’s counties accounted for about two-thirds of the nation’s total economic output.

The overall export imbalance reflects Clinton’s dominance in the metropolitan areas that are most firmly integrated into global markets. In 2015, Brookings calculated, 15 U.S. metropolitan areas each generated at least $25 billion in exports. That list is topped by New York ($132 billion), Los Angeles ($98 billion), Houston ($80 billion), Chicago ($63 billion), Dallas ($59 billion), and Seattle ($51 billion). And it extends through Boston and San Francisco (about $41 billion each); Detroit ($38 billion); Philadelphia and Miami (about $31 billion each); Washington, D.C., San Jose, and Atlanta (about $27 billion each); and Portland ($25 billion).

These are all places that have accelerated their growth by steering into the jet stream of the global economy. “The big cities, one of the reasons they are so big is that they have figured out how to provide products and services that have a lot of global demand, and they have been able to build a lot of wealth because they are doing things that very few other places in the world can do,” Parilla said. “New York in finance and L.A. in media, and Houston in energy and Seattle in aerospace and tech, and San Jose in a range of technology and advanced-manufacturing sectors—these are absolutely global hubs for these advanced, traded industries. And a lot of the country’s wealth is invariably [generated] in those places.”

They are also almost all places where Clinton trounced Trump last fall. Overall, Clinton won 88 of the nation’s 100 largest counties, even slightly more than Obama did in 2012. In that way, a Trump turn toward protectionism would represent another offensive against the interests of major metros that overwhelmingly rejected him—a pattern evident in his attacks on so-called sanctuary cities, his drive to repeal the Affordable Care Act, and his demand for an investigation of voter fraud focused on urban areas.

But as Muro and Parilla show, the trade picture is more complex. Although the big metropolitan areas generate the most exports, selling to the world is often proportionally more important to smaller places. In fact, the Brookings analysis found that while the Clinton counties accounted for most of the nation’s absolute export volume, exports accounted for a larger share of the total economic output of counties that Trump won (13 percent) than of those that Clinton carried (10 percent).

The metropolitan areas where exports account for the largest total share of local economic output are smaller and midsized communities that are almost all hubs for either manufacturing or energy production. These places read like a recap of Trump’s campaign-travel itinerary: Columbus, Elkhart, Kokomo, and Lafayette in Indiana; Racine, Fond du Lac, and Sheboygan in Wisconsin; Lake Charles and Baton Rouge in Louisiana; Waterloo, Iowa; Hickory and Rocky Mount in North Carolina,; and Midland and Battle Creek in Michigan. The list of metropolitan areas where exports provide the greatest share of total gross domestic product doesn’t reach a big city until Seattle—which ranks about 40th.

For the big, mostly blue-leaning metropolitan areas, a turn toward protectionism is a relatively unambiguous threat. “This is pretty clearly negative for those places,” Parilla said. Not only do they depend on selling to global markets, but they also “benefit from the fact that people from all over the world come to these places because they see these locations as the best destination to advance their economic prospect.“ Protectionist trade policies, reinforced by immigration limits, could stanch those flows.

For smaller communities at the foundation of the Trump coalition, the ledger is more complex. Many of those smaller places, Parilla notes, would initially welcome a more protectionist trade policy, on the belief that it will force manufacturers now relocating or building new facilities abroad to reinvest in the United States. The downside for them is less visible, but potentially more consequential: the cost to their local economies if retaliation from other nations, or simply a diminished effort to open other markets, leads to fewer sales from American firms to the world.

“When you start to [assess] what the motivation is … [for] the new administration, they were brought in to respond to a lot of these smaller communities,” Parilla said. “And [a protectionist approach] is just really dangerous [for them] because of how export-intensive some of them are. The bet, obviously, on their part is [that] it is going to be beneficial—that more production is going to concentrate in these places as a result of us closing ourselves off. But that takes a zero-sum view of trade. And if you play that out and you suggest there is going to be retaliatory measures—and overall global trade becomes less and less an important part of what drives our economy—then the most export-intensive places stand to see some changes in their economy.”

For example, a protectionist approach might save jobs at one factory, but those policies could eventually mean another employer down the road doesn’t hire new workers, or lays off existing ones, because their export markets contract.

Parilla acknowledges that it’s difficult for local officials to keep that broader perspective in mind when trade’s losers are so much more visible than its beneficiaries. But the Brookings data showing the heavy reliance on trade in the smaller cities, he said, make clear that “what might incentivize production for one industry … might be limiting opportunities for another.” And that’s why a protectionist lurch that seemingly favors Trump’s small-town bastions over the Democratic-leaning major metropolitan areas might ultimately hurt both types of communities.