Smaller U.S. cities that supported Donald Trump’s march to the White House are likely to suffer the most economically if the U.S. becomes engaged in a trade war with China, Mexico or another country, according to a Brookings Institution study obtained by the Wall Street Journal.
According to Mark Muro, who heads the Brookings metropolitan policy program, “Trump communities are relatively more reliant on trade,” as reported by the Journal. "Disruption could be especially troubling for these places." As such, he noted that these smaller communities are less “flexible” in their ability to adapt to a falloff in trade. (To read more, see: President Donald Trump: The Road to Victory.)
Columbus, Indiana, for example, a machinery- and engine-manufacturing powerhouse with a population of 46,000, voted 2 to 1 for Trump. The city also topped Brookings’ list of the most export-intensive metro areas in the U.S., with 50.6% of its local GDP dependent on exports, according to the Journal's January 30 story. A trade war that wiped out the city's exports would thus also wipe out at least half of its GDP.
The next four cities on the Brookings list include Beaumont, Texas, with around 40% dependency; Lake Charles, Louisiana, at around 37% dependency; Elkhart, Indiana, at nearly 35% dependency; and Kokomo, Indiana, at around 34% dependency.
Measuring the amount of goods and service exports as a percentage of GDP, or what it calls export intensity, Brookings examined a number of urban areas throughout the U.S. during 2015 and found that the most export-dependent centers were these smaller Midwest and Southeast cities, precisely the sorts of cities that voted for Trump, the Journal says.
While the nation’s biggest exporters are large cities such as New York or Los Angeles, which no doubt would be affected by a trade war, they are less reliant on exports. The small export-dependent centers, being less diversified, are less capable of finding ways to adapt to declining demand in the event of a trade war.
Possible Trade Wars
Three of the top five export-intensive cities are located in Indiana, the home state of vice president and former governor Mike Pence, which in 2015 saw nearly half of its $33.8 Billion worth of exports go to the U.S.’s two closest neighbors and NAFTA partners, Mexico and Canada, according to the Journal.
Renegotiating NAFTA was part of Trump's campaign promises, and as he has already threatened imposing a 20% import tax on Mexico to help pay for a border wall. The consequences of these moves for Indiana and other states with small cities could be significant.
Then there is also the risk of Trump igniting a trade war with the second largest economy in the world, China, which has already put together contingency measures to retaliate against any U.S. protectionist policies. If implemented, China's measures would inflict more pain on America’s small export-intensive cities. (To read more, see: U.S.-China Trade War May Hurt U.S. Companies Most (TXN, MRVL)).