The Trade Numerologist: Who gets hurt in a US-China trade war

As we’ve been documenting in this space, the prospect of a US-China trade war has rattled world markets, shipping lines and commerce officials from Geneva to Brussels to Moscow.

Both sides have been exchanging proposals for additional tariffs. President Trump last week ordered his trade economists to identify additional categories of goods made in China, possibly worth as much as $100 billion, on which to impose tariffs.

If the US “announces an additional $100 billion list of tariffs, China has already fully prepared, and will not hesitate to immediately make a fierce counter strike,” Chinese Commerce Ministry spokesman Gao Feng told reporters.

But beneath all the fireworks, it’s worth taking a more detailed look at the detail of the US-China trading relationship, the richest the world has ever seen, and maybe the most important. The risks to headline industries like steel and Aluminium have been well documented, but what other sectors could be impacted? Which geographical areas in each country would be hurt the most?

Other casualties of a US-China trade war include US car makers, and coastal areas in both countries, such as California, Washington, Shenzhen and Nanjing, according to an analysis of the IHS Markit Global Trade Atlas, which includes valuable breakdowns of trade by political subdivisions like states and, for China, the districts reported by Chinese customs.

On the US side, by state, the top two exporters to China are on the West Coast. Oregon, not known for its industrial might, makes a surprise appearance in the top ten, thanks to its niche production of circuit boards, semiconductors and other parts of the electronics supply chain.

Top US exporters to China, by state, 2017

• Washington $18.3 billion
• California $16.4 billion
• Texas $16.3 billion
• Louisiana $8 billion
• South Carolina $6.2 billion
• Illinois $5.3 billion
• Oregon $3.93 billion
• Ohio $3.89 billion
• Michigan $3.7 billion
• Alabama $3.6 billion

Washington is, by state, the US’s top exporter to China thanks in large part to Boeing’s massive production facilities around Seattle, and the abundant large-scale farms located in the eastern part of the state.

Washington exports to China, 2017

• Aircraft, aircraft parts $10.4 billion
• Soybeans, other ag, grain products $3.8 billion
• Vehicles, vehicles parts $960.5 million
• Wood $483.9 million
• Medical equipment $451.4 million
• Cereals $420.98 million
• Wood pulp $213.5 million
• Scrap paper $182.8 million
• Electronics $154.5 million
• Fish $149.5 million
• Copper, other metals $148.2 million

California is a key part of the world’s most important global electronics supply chains, which include China and generates smart phones, computers and other electronics. Growers of walnuts, pistachios and almonds in California, and winemakers, have expressed their concern about a trade war with China.

California exports to China, 2017

• Semiconductors $2.9 billion
• Cars, car parts $2.8 billion
• Electronics $2.7 billion
• Medical equipment $1.8 billion
• Wood pulp $936.4 million
• Oil, gas $404.8 million
• Aircraft, parts $379.9 million
• Aluminium $331.4 million
• Plastics $316.4 million
• Fruits, nuts $312.5 million

US car exports to China have boomed in the last ten years, and are a significant carrot Beijing could try to take away. China has said it could double tariffs, to 50%, on imports of cars and other US made products.

The Chinese appetite for US cars, especially luxury vehicles like the Tesla, and the Ford Lincoln, are a big part of why California, South Carolina, Michigan and Alabama, all with car factories, are in the top ten of US exporters to China by state. China is the now the third biggest buyer of US cars, after only Canada and Mexico, and ahead of Germany.

US vehicle exports to China

• 2008: $1.9 billion
• 2009: $1.9 billion
• 2010: $4.5 billion
• 2011: $6.8 billion
• 2012: 7.1 billion
• 2013: $10.3 billion
• 2014: 13.3 billion
• 2015: $10.9 billion
• 2016: $11 billion
• 2017: $13.2 billion

On the Chinese side, the top exporting districts reported by Chinese customs, like Shanghai, Shenzhen and Nanjing, are all clustered around China’s east coast, the foundational parts of the special economic zones the Chinese government set up starting in 1980's to build a manufacturing base capable of making mass-scale Western consumer goods at low costs.

Top Chinese exporters to US by district, 2017

• Shanghai $119.6 billion
• Shenzhen $80.2 billion
• Nanjing $39.9 billion
• Ningbo $29.1 billion
• Qingdao $25.9 billion
• Huangpu $18.2 billion
• Xiamen $16.3 billion
• Zhenzhou $14.6 billion
• Guangzhou $13.9 billion
• Tianjin $12.8 billion

Shanghai still possesses China’s largest free trade zone, and it houses China’s largest steelmaker and shipbuilders, car factories and a cluster of economic zones pumping out electronics, toys, clothes and other consumer durables. Shenzhen, once a market town with a population in the tens of thousands, was designated as China’s first special economic zone in 1980.

Top Shanghai exports to US, 2017

• Electronics $27.9 billion
• TV, sound equipment $25.8 billion
• Clothing accessories, bedding $9.2 billion
• Lights, neon, etc. $7.3 billion
• Clothing $7.2 billion
• Cars, trucks, parts $4.3 billion
• Plastics $4.3 billion
• Used clothing $3.9 billion
• Organic chemicals $3.9 billion
• Medical, photo equipment $3.7 billion

It’s likely that places like Shanghai and Shenzhen could likely withstand a trade war better than the main US states doing business with China.

Their production and capacity are at peak levels, and they have other promising markets to chase.

There’s no substitute China market for Tesla. Which is why Chinese Commerce Ministry spokesman Gao Feng could have been making a valid point when he warned the US: “The result of this behavior is to smash your own foot with a stone.”