Republicans are warning President Trump that a trade war with China would deal an economic blow to politically important areas of the country that will cost the party in November’s congressional elections.
The president’s proposed tariffs on a variety of imports are aimed at fulfilling a campaign promise to protect domestic industries slammed by globalization. But the impact of retaliation by China could drown out the Republican message that tax cuts are delivering prosperity, which the party is counting on to save their majorities in the House and Senate in what’s already a tough election year.
“If tariffs and a trade war erase the positive economic impact we have seen from tax reform, it is a big, big problem,” said Michael Steel, a managing director at Hamilton Place Strategies, who previously worked for former House Speaker John Boehner.
The latest salvo came Wednesday from China, which announced $50 billion worth of tariffs on American products including soybeans, pork and aircraft in retaliation for Trump’s plan to impose duties on 1,333 Chinese products. The biggest potential impact will be in rural areas that long have been part of the Republican base. Eight of the 10 biggest soybean-producing states went for Trump in the 2016 election and three of those will feature close Senate races in November.
Commerce Secretary Wilbur Ross argued that China’s response won’t disrupt the U.S. economy, and other administration officials said the world’s two biggest economic powers still have time to back away from a trade war. That helped markets reverse early losses Wednesday as investors speculated the back-and-forth may not do much damage to global growth.
But many Republicans still were left with some dread of a potentially perilous road ahead. “The problem is the potential for larger retaliation from China, and perhaps other countries, if it spills over. That’s a huge fear,” said Douglas Holtz-Eakin, an economist with the American Action Forum, a research and advocacy group with close ties to the House Republican leadership.
Researchers at the Dallas Fed said in an analysis published Wednesday that the steel and aluminum tariffs that Trump previously announced, if fully implemented, would probably reduce U.S. gross domestic product by a quarter-percentage point over the long run. If the situation escalates to a trade war involving the U.S., China and the European Union, the disruptions could reduce GDP by 3.5 percent, according to the analysis.
Holtz-Eakin said some of the responses from other countries to Trump’s trade pronouncement put a target on “sensitive electorates.”
After Trump announced plans for tariffs on steel and aluminum imports, the European Union threatened to impose new duties on bourbon from Kentucky, the home state of Senate Majority Leader Mitch McConnell, and motorcycles made by Harley Davidson, which has its headquarters in Wisconsin, the home state of House Speaker Paul Ryan. Trump gave the EU a temporary exclusion from the tariffs. China’s proposed retaliatory steps would hit hardest in farm states where Republicans dominate.
“That’s all about making the Republicans hurt,” Holtz-Eakin said.
If China follows through on its retaliatory tariffs, they’d be hitting just as campaigns are gearing up for the midterm elections that will decide control of Congress. Republicans already are confronting signs that Democrats have a solid chance to seize control of the majority in the House of Representatives.
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