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7/2/2018 6:39:00 PM
Ball State economist: Tariffs to hit Howard County industry hard

George Myers, Kokomo Tribune

One of Indiana’s leading economists says tariffs caused by President Donald Trump could have an acutely negative effect on industries that dominate Howard County’s economy.

Michael Hicks, director of the Center for Business and Economic Research at Ball State University, released a policy brief in late June that estimates the state could lose around 6,000 jobs this year and hundreds of millions of dollars in Gross Domestic Product.

And the industries under the most pressure – steel, soybeans, corn and auto manufacturing – all play prominent roles in Howard County and the surrounding areas. 

"The retaliatory tariffs are going to target the things we're really good at. So we're going to see automobiles, automobile parts, anything that's steel-using, steel producing, anything that's agriculture is going to get clobbered," Hicks told Inside INdiana Business.

"Indiana depends so heavily on manufacturing and agriculture that even a very modest trade war would be recessionary for much of the Midwest.”

Notably, the European Union warned the Trump administration Monday it might slap tariffs on $300 billion of U.S. exports in retaliation for Trump's threatened tariffs on European cars.

And on Sunday, Canada started imposing tariffs on billions of dollars of U.S. goods in response to the Trump administration's duties on Canada steel and aluminum.

Meanwhile, the U.S. is set to impose a 25 percent tariff on up to $50 billion of Chinese products starting this Friday. In response, China has said it will raise import duties on $34 billion worth of American goods.

“The changing landscape of tariff threats suggests that at least some tariffs and retaliation will affect the domestic economy in 2018 and beyond,” wrote Hicks.

“Indiana may be the single most tariff-exposed state with regard to the current round of tariffs,” he added in the policy statement.

Indiana, he wrote, “employs roughly 22 percent of all steel workers in the United States, perhaps 13 percent of all automobile-related employment and produced $6.2 billion in soybean and corn last year.”

Each of those also plays a prominent role in Kokomo and Howard County’s economy.

“If I lived in Kokomo, I would be very unhappy with these tariffs,” said Andreas Hauskrecht, a clinical professor of business economics and public policy at Indiana University’s Kelley School of Business, in a previous interview.

“I’d take it as a slap in the face. … These tariffs look to protect our old steel industry and risk our automotive industry, which isn’t a wise decision.”

Hauskrecht later said a potential trade war “isn’t what Kokomo wants.”

“If it really came to a trade-war-like scenario, then places that rely on manufacturing and exports – places like Kokomo – would be exactly the kind of place that would lose. It would cost production and cost jobs,” he noted.

As Hicks explained, the threat over tariffs is “more than sufficient to threaten the U.S. economic recovery, which began in summer 2009.”

Using an economic model, Hicks estimated initial job losses in Indiana of roughly 6,000 jobs in 2018; within that could be the loss of more than 1,600 manufacturing jobs. That would jump to 14,000 in 2019 and decline through 2025 to just under 11,000 jobs. 

He also estimated GDP losses ranging from $668 million in 2019 to $560 million by 2025. Notably, he called his estimates “very conservative,” meaning the effects could be worse than predicted.

“The full tariff regime threatened by the U.S., the EU, China and Canada are sufficient to move the economy into recession in late 2018 or 2019,” wrote Hicks. 

Specifically, the White House last month announced plans to slap 25 percent tariffs on roughly 1,100 goods imported from China, worth $50 billion a year. It had originally proposed the tariffs in April, starting with 1,333 Chinese products. After receiving public feedback, the administration cut 515 imports from the blacklist and added 284 others.

Starting Friday, the U.S. will tax 818 Chinese products, worth $34 billion a year, from the original list. It won't target the 284 additions, worth $16 billion, until it gathers further public comments.

But China has warned it won't yield to Trump's pressure. If the U.S. starts taxing Chinese imports Friday, Beijing plans to impose 25 percent tariffs on 545 U.S. products worth $34 billion a year — from soybeans and lobsters to sport-utility vehicles and whiskey. China is considering a follow-up tariff on an additional 114 U.S. goods, worth $16 billion a year.

Beijing's target list of U.S. goods to penalize is heavy on agriculture. That's hardly a coincidence. Its tariffs are meant to deliver pain to American farmers, who overwhelmingly backed Trump in the 2016 election and whose interests are represented by powerful lobbyists and members of Congress.

In the meantime, Trump has told his U.S. trade representative, Robert Lighthizer, to identify an additional $200 billion in Chinese goods for 10 percent tariffs. These penalties would take effect, Trump has said, if Beijing fails to reform its trade practices and proceeds with retaliatory tariffs.

The stakes could rise further yet: Trump has threatened tariffs on still another $200 billion in Chinese products if Beijing continues to retaliate.

The Associated Press contributed to this story.

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