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The Sunday Paper – Tariffs and Politics: Evidence from Trump’s Trade Wars

Not since the 1930s has the world been involved in so many simultaneous trade disputes and the data being generated will providing economists and social scientists study-fodder for decades.

The paper highlighted this week is just the first of hundreds that will follow addressing different aspects. This one looks at the retaliatory effects to see if a) there’s a political dimension (D’uh!) and b) if they’re effective?

Here’s the picture from the work by Thiemo Fetzer and Carlo Schwartz from the University of Warwick that’s worth 1,000 words. This shows counties most affected by retaliatory tariffs from the EU, China, Canada, Mexico, Turkey and India. Looks familiar right??

If it looks a little bit like a county map of swings in favor of, now President, Donald Trump in the 2016 election, it should.

The U.S. let off a blunderbuss of tariffs last year but the response has been laser targeted to areas that both swung Trump in 2016 and where incumbent Republicans are most likely to be discomforted. So far so smart; but has it worked?

Partisans of both stripes have, to date, good reason to take away different messages. The researchers admit there hasn’t been enough time to collate the full data-set from the 2018 midterms but this is what they know so far. In the counties most affected by retaliatory tariffs there doesn’t seem to have been a clear shift away from Republican support. There was a shift away from Presidential approval BUT only noticeably among voters who declared themselves as Democrat. So is that a big surprise?

The U.S. is presently losing c. U$2.6bn of exports per month as a result of the combined retaliation and since loosing off the blunderbuss has lost around U$15.3bn of trade in total. Countries retaliating are being hurt in turn but the EU seems to have done the best job in terms of reducing the pain versus the discomfort they’re able to inflict (they have a secret algorithm for optimizing response apparently).

China, because of it’s larger aggregate trade footprint with the U.S. is being hurt most but able to send back more pain in response.

The paper is great work but certainly not the last word. Even as we struggle to understand the short-term consequences we can only speculate on the long-term effects. My own two pennyworth? It’s hard to see the good in any of this. Now or in the future. The one-word summary might just be ‘SAD!’

You can access the paper in full via the following link Tariffs and Politics

Happy Sunday.

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