The impact of President Trump’s trade tariffs is being debated in many corners, but a team of researchers at The Ohio State University has found evidence that Ohio is bearing the brunt of the backlash.
First, the good news: “We found that the trade war has not had a great impact on the economy to date, with the 2017-2018 tax cut bill providing enough stimulus to overcome any harm from the tariffs and retaliatory tariffs,” concluded the study led by Professors Edward Hill and Fran Stewart of OSU in Columbus.
Now, the not-so-good news: “We note that Ohio is the state that is most affected by the retaliatory tariffs put in place by Canada,” the researchers said. “And a poll of Ohio manufacturers that was completed in January shows that more of Ohio’s manufacturers were harmed by the trade skirmish than benefited from it.”
“Ohio suffered the most from the retaliatory tariffs put in place by Canada. Iron and steel are paying the largest share of these. To date, that is $1.1 billion.”
These were just two of the principal findings of “The Economic Impact of the Trade Skirmish of 2018 on the Nation and Ohio,” conducted by the John Glenn College of Public Affairs and the Ohio Manufacturing Institute.
Noting limited impact today but mounting concern for the near future, the study found that the retaliatory tariffs in place at the end of 2018 had a negative impact on Ohio for several reasons. Among them:
- Ohio had the largest exposure of any state to the retaliatory tariffs imposed by Canada.
- China is the largest international destination for Ohio’s soybeans.
- Ohio is the nation’s second-largest production location of motor vehicles and parts, before GM shuts down its Lordstown assembly plant.
- Ohio’s iron and steel mills produce the third-highest value of output among the states.
“Ohio suffered the most from the retaliatory tariffs put in place by Canada,” says Hill, professor of economic development at OSU and a member of the Ohio Manufacturing Institute. “Iron and steel are paying the largest share of these. To date, that is $1.1 billion.”
Ohio Relies on Canadian Consumers
Why is Ohio paying the price? “Distribution centers in Ohio distribute products into the Canadian retail system,” Hill says. “Cleaning supplies paid the second-biggest trade tariff tax. The prepared-foods sector paid a high price as well. So did appliances and water heaters.”
Retaliatory tariffs were placed on all agricultural products and manufactured products. As a result, manufacturing states were hit the hardest, says Hill. “Michigan, Ohio, Indiana, Tennessee and Kentucky bore the brunt of this,” he notes.
A separate study conducted by Oxford Economics concluded that South Carolina, Louisiana, Indiana, Michigan, Oregon, Wisconsin, Kentucky, Minnesota, Ohio and Tennessee were the states that were most negatively affected.
Moody’s, meanwhile, noted that Michigan, Ohio and Tennessee were hit hard by the farm tariffs, while Washington and Kansas suffered the effects of the retaliatory tariffs on aerospace.
“The European Union targeted whiskey for tariffs to smack Sen. Mitch McConnell of Kentucky,” notes Hill. “Some whiskey makers had to curtail their exports to Europe because of the tariffs.”
Hill cited studies showing that U.S. consumers are absorbing the costs of the tariffs. “The London Center for Policy Research found that exporting countries are not paying the tariffs; consumers are,” he says. “Supply chains are shifting out of Canada and into Vietnam and other places in Southeast Asia. Consumers are picking up the tariff differential. Markets work.”
Studies by the New York Fed and San Francisco Fed found that the Trump trade tariffs raised inflation by one-tenth of a percent to one-third of a percent, while another study, according to Hill, showed that tariffs reduced business investment in the U.S. by 1.2 percent or $32.5 billion.
“Overall, the tariffs reduced incomes in the U.S. by nearly $7 billion, and the tariffs were costing U.S. consumers nearly $4.5 billion a month,” adds Hill. “Our study showed that the stimulus caused by the tax cut prevented a recession from occurring. A trade imbalance with a stimulus works, but the stimulus will be cut in half this year.”
Why a Broader Economic Decline Could Occur
Why did business investment not take place from the tax cuts? “Most of the money saved went into stock buybacks,” Hill says. “Secondly, it was due to uncertainty around the trade war.”
Moving forward, the OSU study offers “cautions about the continuation or expansion of the trade actions, as there are signs that metal-users are beginning to make adjustments in their supply chains and where they source metal-intense products.”
The study adds that “economic decline will likely occur if the sanctions on China are ratcheted up and the U.S. imposes a new global duty against automobile imports and parts.”
141 out of 213 Ohio manufacturers (66 percent) surveyed this year identified tariffs as an area of regulation that concerned their companies. In 2018, only 4 percent did.
More ominous clouds may be brewing, however. “Anecdotal data coming from corporate earnings reports, comments recorded in the Federal Reserve’s Beige Book, and answers to the Ohio Manufacturers Survey all point to accumulating damage,” notes Hill. “The current trade skirmish is not enough to trigger a recession on its own. However, growing trade tensions between the U.S. and China, threats of additional actions against Europe, and continued actions against Canada and Mexico, coupled with signs of a softening domestic economy, may provide enough kindling to stoke the fires of recession – either regional or national.”
To read a copy of the full OSU study, go to http://glenn.osu.edu/trade-skirmish/.
