Iowa, Trump, and Politics of Globalization/Tariffs

(This is the seventh article in a series produced by NDN challenging Trump’s tariffs)

From 2012 to 2016, Iowa shifted a net 15 percentage points from Obama to Trump, the largest such shift of any state in the nation. As we look to the upcoming midterms, however, the politics of the state seem to have changed significantly. Similar to the other Midwestern states, the Republican Party seems to be taking a hit, and the House and Gubernatorial races in Iowa appear to be strong pick-up opportunities for Democrats. We don’t know exactly why this shift has occurred, but part of the reason seems to be trade. And for good reason. NDN sees three major motivations for why Iowans would oppose Trump’s protectionist trade policies.

Globalization has greatly benefited Iowa

The new era of globalization that began in 1989 and saw the US become more economically integrated with China, Mexico, Canada, and the EU (among others) has been very good for Iowans. The state exported $13.2 billion in 2017, or 7% of its GDP, and foreign trade supported 450,000 jobs, equal to 20% of all jobs in the state. Rather than experience a decline, trade-related jobs actually grew 4.5 times faster than total employment in Iowa in 2004-2014. Furthermore, the trade deals that the President has slammed the most, the original NAFTA and agreements with China and the EU, have provided the most jobs in the state. Canada is the market for 31% of Iowa’s exports, while Mexico accounts for 17%, China 4%, and Germany 3%.

The result of this global integration has been a very strong economy. From 2011 to 2017, Iowa’s GDP per capita increased by 11.3%, faster than the 8.3% registered by the country as a whole. Furthermore, the state’s current unemployment rate is 2nd lowest in the nation at 2.5%, significantly lower than the 3.7% national unemployment rate and the 4% rate that economists consider to be full employment. Finally, Iowa continues to be a national leader in poverty reduction, having the 7th lowest poverty rate in the country at 9.4% in 2017, compared to a national average of 12.5%. While Trump constantly speaks of trade creating economic “carnage” across the nation, Iowa instead has developed a prosperous economy on the back of foreign integration. In fact, Iowa has a large trade surplus of $4.2 billion, further illustrating that foreign competitors haven’t overwhelmed Iowan industry but rather have complemented it.

Trump’s trade policy has damaged the state’s economy

Trump’s trade wars have caused serious disruption to Iowa’s economy, and risk causing an outright recession in the state if continued. Retaliatory tariffs on Iowa’s major exports, in response to Trump’s imposition of wide-ranging tariffs, have significantly reduced demand for those exports, resulting in large declines in the prices received by farmers and workers throughout the state. Soybeans, responsible for 24% of Iowa’s exports, have seen their price decline by 16% in 2018 alone. Pork and corn, responsible for 15% and 13% of total exports, have seen their prices decline by 15%. The overall result has been a large decline in income earned by exporters throughout the state. A new study from Iowa State University estimates that the trade wars could cause an overall income decline of $2.2 billion in Iowa, equal to 1.2% of the state’s GDP. Even the Trump administration has admitted its policies are harming incomes across the state, as it has already provided almost $550 million in bailouts to farmers hurt by the tariffs.

While Trump has touted the new NAFTA agreement as a breakthrough for Iowa’s farmers, new market access to the Canadian dairy market totals only $70 million for all US exporters, an insignificant amount given losses of up to $40 billion to American exporters as a whole. Furthermore, the loss of foreign market access by Iowan workers is not likely to be short-term in nature, regardless of when the trade war is ended. Major competitors to Iowan farmers, predominately Brazil and Canada, are taking advantage of tariffs on US exports to take market share from Iowans. Brazilian soybean exports to China have jumped 22% in 2018 alone, as exports from Iowa dry up. As a result, even if the tariffs are rescinded, supply chains will have refocused to exclude American, and Iowan, exporters for the long run.

Iowans recognize these facts and strongly oppose Trump’s tariffs

Iowans heavily oppose Trump’s trade policy in state-wide polling, and have punished Republican incumbents running in the state. Republican incumbents in the 1st and 3rd House Districts are trailing their Democratic opponents while running 22 and 15 points behind their own 2016 performances, while the incumbent Republican Governor is also losing while running 26 points behind the GOP’s performance in the 2014 governor’s race. This follows a clear trend, previously discussed by my colleague Simon Rosenberg, of Trump significantly underperforming his 2016 numbers throughout the Midwest.

While we don’t know the exact causal effect of the tariffs on this shift, it has to be noted that Trump’s trade policy is significantly underwater in the state. Across Iowa as a whole in September, 52% of likely voters thought that Trump’s tariffs would be bad for Iowa’s economy while only 24% said they would be good.  In the key battleground district of Iowa 1, meanwhile, likely voters opposed Trump’s tariffs on steel and aluminum by a 55-36 margin. This follows other polling in the region that found Trump’s tariffs opposed 41-26 in Missouri, 46-28 in Pennsylvania, and 57-31 in Wisconsin. Even though Iowans swung so strongly towards Trump in 2016, they realize the positive impact of foreign trade on the state, and are unwilling to support Trump’s reckless trade policies.

Looking ahead to the 2020 Democratic primary in Iowa

The economic and political realities described here raise some interesting questions about how the Democratic presidential candidates are going to address these issues in the coming months. The state’s direct ties to foreign trade, the significant decline in Iowan agricultural exports as a result of Trump’s tariffs, and their unpopularity will make it very difficult for Democrats to embrace Trump’s tariff and trade policies, something Democrats have done in some states this year. In fact, it would be appear, based on this analysis, that it would benefit Democrats to clearly attack the tariffs as policies hurting everyday Iowans. 

How Democrats play the trade issue in the Presidential race next year will be fascinating to watch. Democratic voters overwhelmingly support free trade. Trump’s economic policies, including his tariff policies, are weakening both the US and global economies. His protectionist policies are deeply unpopular, and his party is about to suffer huge losses in the Rustbelt and Midwest. Given all this, the Democratic presidential candidates would be smart to study these issues hard, and make sure they don’t somehow align themselves with policies which are contributing to the unraveling of the strong recovery Trump inherited and which are doing direct harm to American businesses and workers across the country.