Trade war could have widespread effect in US

US President-elect Donald Trump and Vice-President Elect Mike Pence tour a Carrier factory in Indianapolis, Indiana on Dec 1, 2016.
US President-elect Donald Trump and Vice-President Elect Mike Pence tour a Carrier factory in Indianapolis, Indiana on Dec 1, 2016.PHOTO: REUTERS

Question is whether jobs lost would be offset by those gained through manufacturing revival

WASHINGTON • When US President Donald Trump talks trade, it is often about fighting to get back the jobs the United States has lost. He focuses on sweeping measures such as rewriting the free trade agreement with Canada and Mexico, or new taxes to make imports more expensive and boost competing American goods.

The bold actions Mr Trump has proposed could succeed in preserving jobs or bringing them back to American shores. But they could also end up having unintended negative consequences, economists say.

Barriers to imports, for example, could cut into the profits of US manufacturers by raising prices on parts and supplies. They could spark retaliation from other countries and even a harmful trade war, where countries take turns hiking restrictions to undercut each other's goods and services, raising prices for consumers.

The effect of a trade war on US communities could be significant and widespread, shows research from the Brookings Institution's Metropolitan Policy Programme. Nearly six million US jobs are directly tied to exports. Another six million are indirectly tied to trade - for example, the driver who transports a truckload of widgets to the port.

While exposure to trade differs substantially across the country, every US metro area has some exposure, with at least US$1 (S$1.40) out of every US$20 generated in the local economy coming from exports.

Most cities get much more. That means these cities have a lot to gain and potentially lose from major changes to trade policy, said Mr Joseph Parilla, a fellow at the Metropolitan Policy Programme.

He said the largest US cities have big and diverse economies, including sources of economic growth that cannot be traded with other countries, such as tourism or government. But small towns are much more likely to have specialised in one or two industries that are tied to trading abroad.

The Brookings data ranks the cities most dependent on exports and with the most export-related jobs. Small Midwestern cities that export auto parts and other manufactured goods appear high on the list, as do coastal cities that export chemicals and petroleum by-products.

Columbus city in Indiana - home base for auto manufacturers and Vice-President Mike Pence's home town - tops the list. About half of its local gross domestic product (GDP), a broad measure of economic activity, is tied to exporting abroad.

Brookings calculates that the counties that voted for Democratic presidential candidate Hillary Clinton actually produced most of the US' exports in goods and services - about 58 per cent in 2015.

But because Clinton voters are concentrated in large, economically diverse cities, exports actually account for a greater proportion of economy in counties that voted for Mr Trump than in counties that voted for Mrs Clinton. That means Trump voters would likely feel the heaviest effects from changes to trade, Mr Parilla said.

According to Brookings estimates, exports make up 13 per cent of local GDP in counties won by Mr Trump, compared with 10 per cent in counties won by Mrs Clinton.

For these areas, new trade policies could have benefits. For example, if Mr Trump renegotiates the free trade agreement with Mexico and Canada, US manufacturers could end up selling more goods to neighbouring countries.

The critical question for Mr Trump is whether the jobs that might be lost in a trade war in the parts of the country that supported him would be offset by jobs gained if the US ramps up its manufacturing industry. For now, that outcome is highly uncertain.


A version of this article appeared in the print edition of The Straits Times on February 09, 2017, with the headline 'Trade war could have widespread effect in US'. Print Edition | Subscribe