China is imposing 25 percent tariffs on more than 100 U.S. goods, such as wine, fruit, nuts and frozen pork, to retaliate against the U.S. tariffs of 25 percent on all imported steel.
“China is our largest trading partner and these tariffs will have significant consequences,” Indiana University Northwest assistant professor of economics Micah Pollak said. “While all of these tariffs are bad news for the United States, two that are especially likely to affect Northwest Indiana are on soybeans and automobiles.”
The United States exported $15 billion worth of soybeans to China in 2016, accounting for 13 percent of the country’s exports to China. Roughly a fourth of soybeans raised in Illinois are sold to China, according to the Illinois Soybean Association.
“China is also the single largest buyer of American soybeans,” Pollak said. “While Northwest Indiana has a long history in manufacturing, agriculture continues to be an important industry for the region, and this tariff is likely to significantly reduce demand for soybeans and force prices lower, creating new challenges for farmers.”
Cars rank as the fifth largest U.S. export to China, accounting for about $11 billion worth of trade.
“This tariff will likely decrease demand at U.S. automakers, which in turn, will cause a decrease in demand for steel produced in Northwest Indiana,” Pollak said. “Besides automobiles, there are also new tariffs on machinery and other goods for which steel is a major input. These tariffs are likely to erase any gains for the steel industry that resulted from the recent U.S. tariffs imposed on steel and aluminum by President Trump.”
A trade war looms on the horizon, Pollak said.
“Such a trade war is likely to hurt the citizens of Northwest Indiana simultaneously from two sides, decreasing income while increasing the cost of goods,” he said. “Tariffs imposed by China will reduce the demand for products manufactured in the United States, putting pressure on firms which may lead to layoffs, while tariffs imposed by the United States cause an increase in the price of goods typically imported from other counties, making these goods more expensive for our citizens.”
And the United States may face more tariffs from the European Union, a major trade partner that is one of the biggest importers of U.S. steel.
“If we continue to see escalating tariffs and this becomes a full-scale trade war, there are few scenarios in which U.S. workers and companies will benefit,” Pollak said.