Trump's China trade war may hit California tax revenues

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The Trump administration’s trade war with China is likely to affect businesses in all 53 California congressional districts, which would have a cascading effect on state and local tax revenues, according to the California Budget & Policy Center.

President Donald Trump has threatened to impose tariffs on all remaining Chinese imports. representing an estimated $257 billion in goods, by early December if upcoming trade discussions are not successful.

“Tariffs imposed by China in response to the Trump Administration’s actions are likely to affect businesses in every part of California, because China is a major export market for goods produced in every California congressional district,” said Sara Kimberlin, a senior policy analyst center, which describes itself as an organization "with the goal of improving the economic and social well-being of low- and middle-income Californians."

The impact on California’s overall economy from the trade tension has yet to be felt, with the state government logging multi-billion-dollar surpluses and exceeding revenue expectations on a monthly basis nearly every month this year.

The state’s overall economy may be less dependent on exports than some other states, but Kimberlin said the California counties most likely to be harmed by the potential emerging trade war with China include many that are already struggling economically. Those include agriculture-heavy districts and those with less diverse economies, she said.

The administration’s "tit-for-tat tariff war with China, with no end in sight, can be expected to disrupt operations and revenues of businesses throughout California that produce agricultural, industrial, and manufactured goods for export — with cascading effects on jobs, business profits, and state and local tax revenues,” she wrote.

When business profits decline, so do state and local revenues, she said. Plus, it results in lower wages for workers, which hits income taxes, she said.

China was one of the top five export destinations for goods produced in every one of California’s 53 congressional districts as of 2016, according to Kimberlin’s report.

Annual exports to China were valued at more than $100 million in more than 90% of districts, according to figures produced by The Trade Partnership for the US-China Business Council that were highlighted in the her report.

The tariffs “appear unlikely to lead to desired reforms in China or significantly more jobs in the U.S., while they cause U.S. businesses and consumers to face higher prices as a result of both, tariffs imposed by the U.S. on Chinese goods, and retaliatory tariffs imposed by China on U.S.-produced goods,” Kimberlin wrote.

Economists have divergent opinions on whether the trade deficit with China causes harm but all oppose the “untargeted, broad-based tariffs that the Trump Administration has imposed on China," Kimberlin said.

“California workers and businesses need a different federal approach to trade policy with China — one that addresses legitimate concerns about unfair competition and the negative effects of trade on workers and communities, without punishing US workers, companies, and consumers through direct and retaliatory tariffs that do not lead to meaningful trade reform,” she said.

Trump proposed $12 billion in aid in August to help American farmers to make up for losses resulting from the tariffs. The U.S. Chamber of Commerce estimated that the cost to bail out all the companies harmed by a trade war with China including the $12 billion for farmers could top $39 billion.

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