Via David Grant & Surfsupusa
Written by George Friedman
A domestic political battle is brewing in the United States between Trump’s administration and the Republican Party over the president’s economic plans.
Trump’s key economic positions were opposition to free trade deals, the promise not to cut Social Security and Medicare, and his support of large-scale infrastructure spending. These are all positions that have clashed with general Republican orthodoxy. They were also the reason Bernie Sanders’ voters swung in Trump’s favor.
We can bring one key insight to this debate as the battle lines are being drawn, and that is it’s difficult to speak of the US economy as a whole. The US has varied economic interests at both the regional and state levels. This makes it difficult to find a one-size-fits-all policy that can fix every problem.
That’s not to say that national economic data is useless. It can be used to grasp the overall performance of a national economy.
But too often, talks of the US economy focus on the national level and not enough on the regional.
What Export Patterns Tell Us
One way to show how regions differ from each other is to look deeper at US exports. The US is the largest economy in the world by far, and yet, exports account for just 12.6% of US GDP.
In absolute terms, the US exports more than most countries, totaling $2.2 trillion in 2016. The only other country that comes close to or surpasses the US in this respect is China, which we’ve discussed in the past.
On the whole, the US is a big consumer economy that is not dependent on exports. This is true at the national level, but when US trade data is broken down by state, the situation is more complex.
Only 10 US states get more than 10% of their state GDP from exports: Indiana, Kentucky, Louisiana, Michigan, Mississippi, South Carolina, Tennessee, Texas, Vermont, and Washington.
Eight of these states are located either in the Mideast or the South and voted for Trump. Of these 10 states, four derive more than 4% of their GDP from exports to just one country.
Michigan and North Dakota are highly dependent on exports to Canada. Texas is dependent on exports to Mexico, and Washington is greatly reliant on exports to China.
Views on NAFTA and China
Economic realities will define each state’s approach to trade agreements and negotiations.
For states like Texas and Michigan, NAFTA is going to be a major economic and political issue. A large portion of these states’ economies—and a significant number of jobs—relies on cross-border trade, which we’ve discussed before. These states also view the rise of China’s manufacturing production as a potential threat. They are the manufacturing centers of the US, and China can produce goods at lower costs.
On the other hand, a state like Washington—located on the Pacific coast—will be less worried with NAFTA and more concerned with policies that would affect trade with Asia. For example, stricter trade policies with China could affect Washington’s access to the Chinese market. As such, Pacific-facing states will have different priorities than Atlantic-facing states… and these regions will have different interests than the Heartland.
Even states with economies of similar size can have a different take on trade and economic policy based on their specific economic activities. Take South Carolina and Connecticut as examples. These states have similar GDP totals. However, as a percent of total US exports, South Carolina exports twice as much as Connecticut.
In Connecticut, exports account for about 6% of GDP, and the state’s top trading partner is France. In South Carolina, exports account for over 15% of GDP, and the state’s top trading partner is China.
Such data shows the dependencies each state develops and therefore speaks to the individual states’ policy goals.
A Lesson for Washington
It’s almost impossible for a policymaker in Washington, DC to design a plan that will benefit both South Carolina’s manufacturing industry and Connecticut’s financial services and insurance industry.
And these are just two of 50 states. Any federal official who tries to make plans at the national level must think in terms of 50 different states. Or eight different economic regions, or a number of other divisions that reveal shared interests.
The map below shows the vast differences between regions just in terms of GDP.
This is not a novel insight. The US Civil War was fought, in part, because economic differences in the North and South created economic, social, and cultural gaps so great that the country went to war.
The fault lines may have shifted, but the fundamental issue—the relationship between the federal government and the individual states—has never been settled.
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