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Trade protectionism has been a recent focus of the Trump Administration, beginning with tariffs announced in January 2018 on imported solar panels and washing machines, and recently escalating into a “tit-for-tat” between the US and China of imposed and proposed tariffs on a variety of goods. Within the next few days, Trump Administration representatives are expected to travel to China to try to resolve this ongoing trade disagreement, but a quick resolution looks unlikely. What’s at stake for California? Though California’s overall economy is less dependent on exports than those of many states, the California counties most likely to be harmed by the potential emerging trade war with China include many that are already struggling economically.

With California’s large and diverse economy, metro areas within California are generally less dependent on exports as a share of GDP than in states in the Midwest and South, according to an analysis by the Brookings Institution. However, the Trump Administration’s trade actions to date have particularly targeted trade with China, and China is an important export destination for many goods produced in California. The back-and-forth tariff exchange with China illustrates some of the risks to California of a trade war initiated by the Trump Administration’s protectionist actions.

To briefly review the timeline of the recent trade standoff between the US and China:

  • In January, the Trump Administration announced a first set of tariffs, on imported washing machines and solar panels, with China particularly affected by the new duty on solar panels.
  • Then in early March, President Trump announced additional tariffs on steel and aluminum, taking effect on March 23, with a significant impact on China as a major producer of these materials.
  • China responded by imposing tariffs on 128 US products, including key agricultural goods, effective as of April 1.
  • The tit-for-tat continued in April, when the Trump Administration proposed additional tariffs specifically targeting China, described as punishment for unfair Chinese trade practices including intellectual property theft. These new tariffs would target 1,300 Chinese products, emphasizing machinery and high-tech components, representing $50 billion in imports to the US, with implementation delayed until at least late May to allow for a public hearing and opportunity for comments from US companies.
  • China responded in kind with a proposal for tariffs on 106 US products including soybeans, cars, and chemicals, representing $50 billion in US exports.
  • In response, President Trump said the US would consider additional tariffs on another $100 billion in Chinese goods, though no specific proposal has yet been announced.

California technology companies are among the businesses significantly affected by China’s questionable intellectual property practices, so could benefit over the long term if the Trump Administration’s actions lead China to change these practices. However, tech industry representatives have come out against the tariffs, arguing that tariffs are an inappropriate strategy to address the legitimate problem of China’s trade policies because they are likely to harm US workers and consumers.

California companies as a whole are not heavily dependent, as producers or importers, on the products that the Trump Administration has targeted for tariffs to date. As a result, in the short term the state would not be expected to experience a strong positive or negative direct impact of the US-imposed or proposed tariffs on imported aluminum and steel and other items — though individual companies and projects may be strongly affected.

However, the tariffs adopted and proposed by China, in retaliation for the tariffs imposed by the Trump Administration, could have a significant negative effect on California companies and workers, because China is a key destination for many California exports. More than $16.4 billion in exports to China originated in California in 2017 (though not all of those goods were produced in California), making China the state’s third-largest export destination overall, after Mexico and Canada. Agriculture is an area specifically targeted by the retaliatory tariffs proposed by China, and California farmers exported $2.0 billion in agricultural products in 2016 to China (including Hong Kong), which ranked third as a destination for the state’s agricultural exports.

Ultimately, as tariffs reduce demand or profit margins for specific products, their effects will be felt most strongly at the local level, among the companies that produce those goods and the workers they employ. Researchers at the Brookings Institution recently calculated the number and percentage of jobs, by county, in industries that produce the items targeted by retaliatory tariffs imposed and proposed by China, based on local employment data for 2016. The data show that California has more jobs in industries targeted by China’s tariffs than any other state, at 287,000 (see chart below), with Texas at 156,000 jobs and Washington State at 154,000 — a distant second and third.

Beyond the number of jobs potentially affected by China’s tariffs, it is important to consider how much the economy at the local level depends on those jobs, measured through the percentage of jobs in each county that are in the affected industries. The Brookings data show that California counties where agriculture is an important sector of the local economy have the largest shares of jobs in industries targeted by the retaliatory tariffs. And many of these counties already struggle with higher-than-average unemployment. Colusa County, for example, has the second-largest share of local jobs in industries affected by tariffs among California counties, at 14.1%, and had an unemployment rate of 14.3% in 2017, nearly three times the state average unemployment rate of 4.8%. Of the top 10 California counties in terms of concentration of local jobs in industries affected by tariffs, eight counties had 2017 unemployment rates higher than the state average (see chart below). Out of the full 17 counties where at least 5% of local jobs are in industries targeted by China’s tariffs, only five had unemployment rates that were at or below the state average. This means that the retaliatory tariffs from China can be expected to have the largest local impact on jobs and wages in parts of the state where jobs are already harder to find.

As with some other areas of policy, such as climate change and immigration, California’s priorities in the area of international trade differ substantially from those of the Trump Administration. Under the administration of Governor Brown, California has signed international agreements with eight countries, including China, to encourage mutual trade and investment. In fact, China has been a particular focus for trade engagement, with California opening its own foreign trade office in Shanghai, the California-China Office of Trade and Investment (CTO), in 2013.

In imposing tariffs on products from China and elsewhere, the Trump Administration intends to protect and promote US companies and workers. So far, however, the Administration’s protectionist trade actions appear more likely to result in increased economic insecurity for workers in California, with the effects concentrated in communities that are already struggling economically. Given that California contributes far more to the national economy than any other state, both California and the US as a whole should be concerned about national trade policies that harm rather than boost California’s economy.

— Sara Kimberlin

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