Has Trump trade war burned the wrong bridges?
Trump’s trade war has caused issues in some industries across the United States. Farm and factory workers have been the first to get hit by the tariffs that Trump put in place earlier this year, and unfortunately for him, a lot of these workers live in states that will effect his 2020 reelection bid.
“In most of these key states farm production is actually down, so that's obviously a bad thing.” Says Rick Newman on Ballots and Dollars. “The swing states that matter here, Minnesota, Ohio, Iowa, North Carolina, Michigan, Wisconsin and Pennsylvania. Those are all states that Trump won in 2016, and they basically have a shrinking agricultural sector. The agricultural sector in all of those states actually shrank probably because of the trade war in 2018.”
So in short, Trump is biting the hand that feeds. The real question is, can he revive his image in these areas? He may have to if he has any hope in getting re-elected.
Full Transcript Below
Rick Newman: From Yahoo Finance this is Ballots and Dollars, a podcast about the politics that affect your pocketbook. I'm Rick Newman.
Alexis C.: And I'm Alexis Christoforous. Today we are talking about the trade war risks for President Trump's reelection campaign. Rick, we know that farmers and manufacturers have been Trump's base and they make up a large share of the economy in key battleground states. I know that you actually came today with some really cool information about which states may actually not go Trump in 2020.
Rick Newman: Yeah. The farm and factory vote, that's what we're talking about here. This is some analysis published by Larry Sabato's Center for Politics at the University of Virginia, great source of political information and intelligence.
He is publishing some information by a guy named Louis Jacobson, and he's looking at the farm and factory vote in some of the key swing states, and there are a few interesting points here. Now he got data from 2017 to 2018 on the farm economy, is farm production up or down in some of these states?
In most of these key states farm production is actually down, so that's obviously a bad thing, and the ones that matter, the swing states that matter here, I'll just tick off a few, Minnesota, Ohio, Iowa, North Carolina, Michigan, Wisconsin and Pennsylvania. Those are all states that Trump won in 2016, and they basically have a shrinking agricultural sector. The agricultural sector in all of those states actually shrank probably because of the trade war in 2018.
Again, this data only goes through the end of 2018, and the trade war of course has actually intensified. We now have more tariffs in place than we had at the end of 2018, which means more restrictions on exports of US farm products to China mostly.
Alexis C.: These are retaliatory tariffs that they're now being faced with.
Rick Newman: That's right. That's right. So probably these numbers are worse, and you certainly are hearing a lot of anecdotal reports from farms saying we lost our soybean market in China. We haven't been able to sell there. So the question is are these... I think there are two questions really.
Is this going to turn around by the time of the election of 2020, roughly a year from now? It has to turn around before November of 2020. It has to turn around, you know, so that-
Alexis C.: They can see a material effect, right?
Rick Newman: Yeah. Yeah. Over time. So it would have to turn around pretty quickly. Then the other question is will voters in these states hold Trump responsible? Will they actually vote for somebody else because they're dissatisfied with what has happened to the farm economy [inaudible]?
Alexis C.: Or I'm going to throw another one in there. Are they willing to accept the near term pain for the long term gain? And I have heard a number of his supporters come out and say yeah, these are not easy decisions to make, but if you look at what happened under Obama and under Clinton and even under Bush, no one took the stand the way Trump is against China. It's about high time we did. We know we're hurting for it in the short term, but we're willing to give that up.
Rick Newman: Yeah. So let's talk about who is supposed to be helped and who is just kind of the sort of unintended victim here. Trump's trade policy, mostly with regard to China, is supposed to help US manufacturers, that it's supposed to bring more jobs back to the United States.
I don't think Trump every said I'm doing this to help farmers, because farmers already had a good market in China, so farmers don't really stand to gain anything from the trade war except to go back to the way it was before the trade war essentially limited, and in some cases closed what's an important foreign market for them, I mean a huge market if you sell soybeans or pork.
Alexis C.: So if I'm a farmer do I feel like a pawn in this whole trade war fight?
Rick Newman: That's a big question, and you certainly... You know, we've interviewed some farmers and people who run farm bureaus in different states and counties, and they tend to be sort of understated people. They're not hair on fire people to start with.
Alexis C.: Right.
Rick Newman: But yes, they've definitely been saying we are hurting from this. Now Trump has done these farm bailouts. I think it's $28 billion so far in 2018 and 2019, and that is helping, but farmers generally say we don't want a bailout. We just want to be able to sell into our markets.
The problem with the bailout in lieu of foreign sales is if you lose the foreign market you don't just necessarily lose it for a year. You might lose it forever.
Alexis C.: Because they could go elsewhere and find somebody else to supply them.
Rick Newman: So the other portion here is the manufacturing economy, and in those eight states we were talking about manufacturing has held up better, but there's a lag in this data. So again the data he's looking at, which goes through the end of 2018, and in some cases into the first quarter of 2019, manufacturing looks better in these states, but since... In the last six months we've had a notable downturn in manufacturing, so manufacturing is worse than this paper actually shows you.
Alexis C.: And this paper shows pretty bad. I mean Nevada, manufacturing percentage change 2017-2018, 19.2%. And actually Clinton we should mention-
Rick Newman: So that's good. That's a good thing.
Alexis C.: That's a good thing. But now if you look at 2018... The end of 2018 to the first quarter of 2019, annualized change in manufacturing, 7.3%.
Rick Newman: Right. So a drop off... That's a drop off in the growth rate and that's in Nevada. Now I don't think Nevada is considered a swing state. I think that's pretty reliably blue.
Alexis C.: And Clinton, yeah, did take Nevada last time.
Rick Newman: But the other manufacturing states here... I mean Pennsylvania, obviously a very important one, Michigan obviously, Wisconsin, slowing growth rates, and that was back in the first quarter of 2019. We have seen a big downturn... The manufacturing sector is actually contracting right now.
Alexis C.: It's in a recession. It's in a recession.
Rick Newman: That is basically what the definition of a recession in that part of the economy. And, again, this tells you how important the outcome of the trade war is for Trump's reelection, because both of these factors are directly related to the tariffs he has put on Chinese imports and the retaliatory measures that the Chinese have imposed on American exports to China. You could argue that this very important... I mean this is literally the swing vote.
Alexis C.: Right. Well I mean if you take a look at the three narrowly divided states in the last race, it was Pennsylvania, Michigan and Wisconsin. They do have a disproportionate amount of manufacturing going on in those states compared to the national average.
Rick Newman: Right. That's right. And I think that tells you why they're swing states, because they're going to swing one way or the other based on how well that very important part of the economy is doing. That is a part of the economy that is vulnerable to recession, and it's also a part of the economy where there's been a lot of wrenching change.
So what I find interesting and I keep going back to, the Morning Consult is a polling firm and they've been doing... Tracking Trump's approval state by state throughout his presidency. In a lot of the states we're talking about Trump's net approval rating is negative, which means more people disapprove of him than approve of him, which is what his-
Alexis C.: Are there any surprises in that list for you, because I mean some you just know they're going to be.
Rick Newman: I think it's-
Alexis C.: I want to know what Iowa... Because they're most dependent on manufacturing and farming when you look at it versus the rest of the country.
Rick Newman: Farming is huge obviously.
Alexis C.: Right. So what... How did Iowa feel about Trump?
Rick Newman: He has a net approval of -14%, so that's the gap between... So I don't know what the actual numbers are, but if he had a 54% disapproval and 40% approval, that would be a net 14. That's big. Iowa voted for Trump, so these are all states that voted for Trump in 2016.
So he's -14 in Iowa, -11 in Minnesota, which he won, -11 in Wisconsin, which was the big surprise. Ohio is actually where he's doing better. He's -5. Pennsylvania, -8. North Carolina is another one, -3. He won that, so he's even a little bit under water in North Carolina.
Alexis C.: Where was he not under water, and are any of those states necessarily surprising to you Rick?
Rick Newman: He's not under water in the more rural states. I mean that's where he... You know, those are the red states no matter who the candidate is, but Texas... I mean so Texas he's net 2, he's positive 2. That doesn't seem like a lot, does it?
Alexis C.: Right. Not a lot [crosstalk].
Rick Newman: What's the most red state, like Mississippi? His net approval is positive 21. That's pretty big. Alabama, 22. But here, look, Georgia only net by 1. Florida is another one, and he's -2 in Florida. I mean a lot of this-
Alexis C.: By the way, Georgia actually saw an agricultural percentage change on the plus side for at least 2017-2018 and-
Rick Newman: So probably that's because just the farm economy there is not sensitive to these particular exports.
Alexis C.: Not as sensitive? Right. Right.
Rick Newman: It's the exports that matter and where they go.
Alexis C.: Right. So I guess the larger question is is this really... Are these about cultural issues? Because everything we're saying here seems pretty anecdotal, right?
Rick Newman: Yeah.
Alexis C.: But are there cultural issues that are going to outweigh things for Trump's base as they head into the polls to vote? Are they solidly going to be Republican no matter what happens?
Rick Newman: Yeah, so that's a key question raised by this paper, and again this is published at the Center for Politics at the University of Virginia.
They did some analysis of the data relating to all these states and then the author of this paper went and asked some people in these states who track voters do you see that there's a real break to get away from Trump because these economic factors are not working in his favor, they're actually working against him?
The answer generally was no, we don't see that yet. It certainly could happen, but for the moment cultural factors are more important to these voters than economic factors. Cultural factors are largely immigration... I mean that's a big issue for certain voters, and especially for Trump voters. I suppose probably abortion.
Alexis C.: Would you put gun control under there too?
Rick Newman: Yeah. Yes.
Alexis C.: So the cultural issues?
Rick Newman: Yeah. And they like Trump on those issues. But I think that the worse the economic pain gets, I think the more the economy matters. There certainly is a point at which you might say I like the guy because of where he stands on social issues, but come on, the economy here is going down the drain. We need somebody else. I think the economy always is the top thing when the economy is weak.
Alexis C.: Right. When it's going great we sort of tend not to think about it.
Rick Newman: Right. You say don't mess with what's working. Don't break what's working, and then you're more likely to vote on cultural or social issues.
Alexis C.: But if it gets to that point you have to wonder if Trump is just going to say look, we don't know where... At the time of this podcast now we've got the phase one trial of this trade war proposal on the table that both sides seem to be saying they're going to sign. That's still yet to be seen.
But anything can happen between now and November of next year, so if the economy really does turn south, especially for Trump's base, does Trump just cave-
Rick Newman: It's a great question.
Alexis C.: ... to an inferior deal by China? I have to think that's what China is banking on.
Rick Newman: The reason I think this study interests me so much is because it basically draws a direct line between the trade war, which seems abstract to most people... I mean, you know, a new tariff of 10% goes into effect on some class of products, nobody knows well do I buy that product or is that somebody else? Does that matter?
Alexis C.: And that really hasn't happened in a large way yet for us as American consumers.
Rick Newman: Well, the tariffs have happened in a large way. What has not happened is... I think what you're saying is that has not led to-
Alexis C.: Higher prices for you and me yet at the store.
Rick Newman: For consumers.
Alexis C.: They will I guess if those December 15th tariffs go into effect?
Rick Newman: Right. Right. So this is why this is all happening... I mean this is all important stuff happening in real time.
Alexis C.: It's hitting and hurting right now the folks who actually meant the most to him getting elected in 2016 and that he needs to secure to keep the White House in 2020.
Rick Newman: I think you're right when you say most consumers have not seen price hikes, but we just talked about the slowdown in manufacturing. That is partly related to the trade war I think in at least two ways, because manufacturers are paying more for the supplies that go into the stuff they build, so those manufacturers are taking a hit, and for the most part they're taking it out of profits.
They can't really raise their prices. We've learned this. People really are not willing to pay more, so manufacturers are... Their profitability is going down-
Alexis C.: They're squeezed. They're squeezed.
Rick Newman: ... and their outlook is dimming. So they're looking around like when is this trade war going to end? In the manufacturing sector they're just investing less in new facilities, new equipment, new hires. We've seen employment has basically stagnated in manufacturing now. So the trade war is having a direct effect on these voters who are going to decide whether to give Trump another term in office.
Alexis C.: At least for now, anecdotally again, it looks as though they're standing by their man. But, again, a lot can happen in really the next year.
Rick Newman: And obviously one of the most important things that's going to happen is we will actually have a Democratic nominee when people go to vote, so Trump's approval rating when we're talking about these statewide approval ratings, that's just based on Trump, and Trump alone. It's not based on Trump versus Joe Biden or Trump versus Elizabeth Warren.
Alexis C.: And how much of an ability that person has to truly beat and unseat President Trump.
Rick Newman: Yeah. So this will all look different when we know who the Democratic nominee is and what message that person takes to these voters, if anything.
One thing I think Trump has going for him here is Democrats are actually very bad at talking to rural voters and they seem to have kind of lost their way with manufacturing workers as well. I mean these are the people who put Trump over the top in 2016 because they thought Hillary Clinton is not listening to us. She's just giving us slogans and bromides. Hillary Clinton famously did not even go to Wisconsin. She thought I have this in the bag. She was wrong. They lost there.
I interviewed Montana Governor Steve Bullock recently. Now he's a Democrat running for president. Most people probably don't know that he's running for president.
Alexis C.: It's such a crowded field, you really can get lost.
Rick Newman: Not one of the more prominent candidates, but he's a very thoughtful guy. He's a Democratic governor of a Republican state, Montana. So Montana went for Trump in 2016. I think Trump had 56% of the vote there. That's a pretty solid margin. But they also at the same time elected this guy as a Democrat.
I asked him about how do... Have Democrats just lost all rural voters? I mean is there just no way rural voters will ever vote for a Democrat? Like how did this happen? He said, "Well, part of the problem is Democrats just stopped showing up."
Alexis C.: Like visiting, truly just physically visiting?
Rick Newman: Showing up. Literally showing up. He said that's how he got elected and then he got reelected, by going all around Montana. So a Democratic presidential candidate is not going to go all around Montana, but showing up in the state couldn't hurt.
He actually talked about Obama, I think it was Obama's reelection, which would have been 2012. He said Obama was never going to win Montana, but he did show up.
Alexis C.: Unlike Clinton, who just gave up on certain states?
Rick Newman: That's right. And Obama showing up in Montana, that gets around to rural voters elsewhere. It also is a matter of how good is the campaign of actually here's our guy in Montana. He knows they're not going to... The state won't go for him, but he cares about Montanans anyway, and here he is out at some little league ballpark or something.
So Democrats... You know, they can't just say we hope this all hinges on... You know, one of the sort of cliches of the campaign so far is it's all about women in the suburbs who maybe went for Trump by some margin and are now going to flip back to Democrats. That's what you're hearing everybody talk about. They need to get some rural voters also.
Alexis C.: Which state... When you look at all of the data that we've flushed out during this podcast, is there one state in particular that is really on the edge, quite precarious, that Trump really would need but may look like it's going the other way, and we're still 12 months out?
Rick Newman: Yeah. I think you can point to a couple. You know for decades the old slogan was, "As goes Ohio, so goes the nation." But Ohio has gotten a little more conservative. I'm not sure it is like the benchmark swing state anymore. I think it's possible that a Democrat could lose Ohio but still win the election, but in order to do that... I mean Pennsylvania, really important. And Pennsylvania... Some of these... By the way, not every state is either an urban state or a farm state.
Alexis C.: That's true, a little bit of both. Pennsylvania is a good example of that.
Rick Newman: Yeah. Most states actually have some mix of both. Pennsylvania has Philadelphia, actually a big city, and my hometown, Pittsburgh, but in between tons of farmland.
Alexis C.: You and the Steelers, right?
Rick Newman: Yeah, me and the Steelers, except this year. I have a beef with them this year because they're underperforming badly.
Alexis C.: Well, I've got a beef with my New York Giants, but that's another podcast at another time.
Rick Newman: So Ohio may be less of a swing state than it used to be, but maybe Pennsylvania is where the action is. I mean Democrats have to win back Wisconsin. Now that's a big dairy state and I think also some soybean farming sensitive to the China problem. They have to win Michigan. I guess the Democrats probably don't have to win Iowa, but if you don't get Iowa then you have to get... You got to get North Carolina and Florida. There's also talk about the Democrats possibly being able to win... You won't believe this, Texas.
Alexis C.: Got to see it to believe it Rick.
Rick Newman: I can't remember if I mentioned this before, but where Trump's approval is just a positive by two points-
Alexis C.: I mean that really... That seems quite [inaudible].
Rick Newman: Now this one totally depends on the nominee.
Alexis C.: The Democratic nominee for sure.
Rick Newman: That's right, because Elizabeth Warren wants to ban fracking, okay? And if she's the nominee, kiss Texas goodbye. There's no chance. But could Joe Biden do it? You know, one-third to a one-fourth chance.
Alexis C.: Now it is a super long shot, but you don't normally see this when you deal with an incumbent. Trump is actually going to have some people run against him for the nomination in his party. You already spoke to one of them recently?
Rick Newman: Yeah. They're known as the Three Stooges, and I think they even refer to themselves this way. That is Bill Weld, who was the governor of Massachusets in the 1990s, and Mark Sanford, who's a member of the House of Representatives, and Joe Walsh, a former member of Congress.
Bill Weld is... Socially he's a centrist. He's socially liberal, but he's a Republican because he's fiscally a conservative. He's a sensible kind of like business friendly guy. Then Sanford might of had a better chance had he not had that weird setback where he disappeared with his girlfriend in South America and said he was hiking on the Appalachian Trail.
Alexis C.: Well that's never good.
Rick Newman: So he kind of became damaged goods. And Joe Walsh is just a bomb thrower. So these are all obviously long shot candidates, but this picture would change if Trump were not the nominee, and it's not 100% sure he will be nominee, given what's going on with the impeachment process. He is probably going to be impeached.
The House is probably going to impeach him and the Senate probably then will not convict him, so Trump probably will remain in office, but this whole thing has been so unpredictable, there is some chance that even though they would never say this publicly until it was a fait accompli, there is some chance that there could be 20 Republican senators who vote to convict Trump, and therefore boot him from office. It's possible.
Alexis C.: Wow. Well a lot... We're going to get a lot of clarity-
Rick Newman: Not likely.
Alexis C.: ... a lot of clarity as we move closer to the November elections. I think we're all yearning for that. I want to thank everybody for listening to Ballots and Dollars from Yahoo Finance this week. You can always follow us on Twitter. I'm at Alexis TV News.
Rick Newman: I'm at Rick J. Newman.
Alexis C.: All right. We'll be back next week with a fresh podcast for you. In the meantime be sure to rate and review what you just heard.
Rick Newman: Bye you all.