Tennessee in the Trade War 2019

Tables and Graphs



How much of Tennessee's exports are caught in the cross hairs?

A trade war appears to be in progress, the first in many decades. China, Canada, Mexico, and the EU have all announced lists of American exports to be targeted with substantial tariffs. Japan is also indicating it is compiling a list, though it has not published one yet.

How much of Tennessee's exports are caught in the cross hairs? Which products are most affected? Let's look, based on this first wave of tariff announcements from these US trade partners.

The first thing to say, luckily, is that the percentage of state exports that are being targeted is still relatively low. About $1.38 billion of Tennessee's exports are included in the lists of retaliatory tariffs. This amounts to just over 4% of total 2017 exports ($33.25 billion). Of course, $1.38 billion is still a considerable amount! A number of industries and firms are going to face a rough trading environment.

Tennessee actually fared better than most of the US. The state's exposure on the Chinese, Canadian, and Mexican lists is less than America's exposure overall. The EU list, on the other hand, is quite the reverse. In percentage terms, that list focuses on almost eight times as much Tennessee trade as US trade. This is all because of one industry, whiskey.

Not surprisingly, the steel and aluminum industries, where the US first imposed its tariffs, are heavily targeted. Over $75 million in steel wire exports, for example, will face steep tariffs, as will Tennessee's $44 million in aluminum alloy plating exports. Beyond that, it's a bit hard to understand which products were singled out.

The biggest Tennessee target is whiskey. Whiskey is on all target lists except that of China. This one we understand: it's to strike at Senate Majority Leader McConnell. Unfortunately for Tennessee, that ploy means that three-quarters of Tennessee's $700 million in whiskey exports will now face increased tariffs.

Trade War

Paper products are also heavily affected. There is a claim that this is because Wisconsin, the home of Speaker Ryan, is a pulp and paper state. Regardless of whether this is true, about $28 million of Tennessee pulp and paper products will be impacted. Some of these paper products, such as toilet paper, will see almost 100% of their global exports targeted. Pleasure boats are on all lists except China's. Tennessee exports over $110 million of these craft. This industry faces a double whammy. These boats are constructed using aluminum and steel that now face sizable US tariffs. Thus, they will both have to pay more for that aluminum and steel and then deal with substantial new duties on their exports. Our new trade war may hit Tennessee's boat makers harder than any other industry, if we include this double whammy.

Canada is also targeting lawn mowers ($55 million in state exports), solar heaters ($43 million), and bakery snack products ($51 million). All three of these industries heavily rely on the Canadian market.

The Canadian, Mexican, and EU lists bear a lot of similarities. China's is quite different, because it is reacting to a much larger range of new American tariffs that have been imposed on it. For Tennessee, two exports stand out. First is hybrid cars. The state sent over $202 million of these vehicles to China last year, and they will now face retaliatory tariffs. This is almost 90% of the state's total exports of these cars. China is also targeting cotton, a second large Tennessee export. Overall more than 10% of Tennessee’s exports to China will now confront new tariffs.

At this stage there is still so much we don't know. Can a deal be struck before all these come into force? Or, to the contrary, will things get worse and the retaliation lists grow? Assuming the tariffs stick, it is hard to believe Tennessee's exports will not decline substantially. A loss in the range of $400 to $600 million in exports would not be surprising. An unknown is the degree to which state industries can or will attempt to defray the tariffs by lowering prices. Most of the industries in this current list are already highly competitive, and it seems unlikely they will be able to reduce their prices by anything like 15 or 25%.

Stay tuned!