Eight U.S. states, with at least one thing in common, may be hoping President Donald Trump strikes a collegial relationship with Chinese leader Xi Jinping at his Florida resort this week. Top among them could be Louisiana, the state with the largest trade surplus with China, followed by Washington, Oregon, Alabama and Alaska.
While Trump sharply criticized China's unfair trading practices during the election campaign—and threatened to impose tariffs that sparked fears of a damaging trade war—his administration has so far taken a subdued approach. Still, Trump keeps repeating he wants to "level the playing field." What's certain is that altering trade patterns between the world's two biggest economies could have all sorts of unpredictable consequences. This is especially true for trade-surplus states, including the six that voted for Trump such as South Carolina, West Virginia and Montana.
Overall, the U.S. rang up a $347 billion trade deficit with China last year, with California responsible for roughly a third of that amount. About 30 states imported at least $1 billion more in Chinese goods than they exported, according to data from the International Trade Administration, an arm of the U.S. Department of Commerce.
The Gulf Coast state of Louisiana, dotted with refineries and chemical plants, became the biggest beneficiary of trade with China last year, expanding its trade surplus to $6.8 billion, while to the northwest, Washington's surplus was $4.6 billion. Statistics from the U.S.-China Business Council show that most of that state's 2015 total exports worth $15.4 billion fell into the transportation equipment category, suggesting a lot could be at stake for the state's largest private employer: Boeing.
On the deficit end of the spectrum are four of the five most populous U.S. states. None is more significant than tech-centric California, which last year exported $14.4 billion —with computers and electronics among its largest sellers—while importing a staggering $144.1 billion in Chinese goods. Demand for imports in Illinois and New York similarly outstripped those states' major export goods to China: crops and recycled materials, respectively.
Even with a majority of states likely to benefit from a re-balancing of trade with China, Trump should think twice about focusing on trade sanctions as a solution when he meets with Xi on Thursday and Friday, writes Bloomberg Intelligence Chief Economist Michael McDonough. Tough actions could end up harming many American consumers and businesses.
Shoppers at Wal-Mart and Target would see an immediate surge in imported goods costs. U.S. corporations selling into or producing in China would see lower profits. The promised benefits--a return of U.S. manufacturing jobs--appear uncertain. High labor costs, automation and sticky supply chains all make it difficult for firms to relocate back to the U.S. This suggests the Trump administration might be content with symbolic wins, rather than major sanctions.
So unless New York City has a whole lot more cardboard and scrap metal it can ship to China, Trump's road to smaller deficits will likely have to go through Xi and the "difficult" first meeting the president says he expects they'll have this week.
