Donald Trump is waking up to the fact that ending the trade war with China will help him win in 2020

The US president has figured he needs a deal with China to soften the economic impact the trade war is having on his voter base, particularly in the key swing states that helped propel him to power in 2016

Neal Kimberley

Published: 1:00am, 18 Sep 2019

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The rekindled hopes of a resolution to the trade war may be a reflection of a shift in attitude in the United States: a political calculation in the White House that some form of deal, whether interim or final, needs to be agreed with China to further the prospects of President Donald Trump’s re-election in 2020.

This may seem an odd contention, given that Trump has asserted it is China that needs a deal. But, as economic headwinds related to the trade war increase potential political damage in key states that voted for Trump in 2016, minds may be more focused in Washington.

Meanwhile, Beijing is taking a cautious but constructive approach. “We hope that China and the US can continue to meet each other halfway and take practical steps to create a good environment for talks,” Gao Feng, spokesman for China’s Ministry of Commerce, said last week.

Back in 2016, Democrat Hillary Clinton won 2.9 million more votes than Trump but lost the election as her support was more geographically concentrated. Trump won more states, which was critical for prevailing in the Electoral College and sealing his victory.

Under the US electoral system, voters send 538 representatives from the 50 states plus the District of Columbia to the Electoral College, the meeting where the representatives then pick the president. So the key to taking the White House is securing 270 votes in the Electoral College, rather than winning the popular vote.

In 2016, Trump captured more than 300 votes in the Electoral College. Three states that had gone with Democrat Barack Obama in 2012 swung narrowly to Republican nominee Trump four years later: Michigan by 0.2 per cent, Pennsylvania by 0.7 per cent and Wisconsin by 0.8 per cent.

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To secure the necessary 270 electoral votes in 2020, Trump would want to carry some or all of these three states. Here, he might have a problem though. There are signs that the economies of Michigan and Wisconsin are facing a few challenges, in part because of the US-China trade war.

Chinese tariffs on American-made cars are not helping Michigan, home to the traditional centre of automobile production in Detroit.

General Motors and Ford both posted a fall in sales in China in the second quarter of the year. In the three months ending June 30, GM’s vehicle sales in China dropped 12.2 per cent and Ford’s sales were down 21.7 per cent. This followed first-quarter declines of 17.5 per cent for GM and 35.8 per cent for Ford.

Michigan voters might be less inclined to stick with Trump in the next election if this situation persists.

Meanwhile in Wisconsin, a state often referred to as “America’s Dairyland”, the farming community – a key constituency – is feeling the pinch of the trade tensions.

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When Washington imposed tariffs on Chinese imports in the middle of last year, Beijing retaliated by setting its own tariffs on US dairy products, among other commodities. With Chinese tariffs in place on American milk, cream, yogurt, whey, butter, cheese, lactose and even infant formula, Wisconsin farmers are hurting.

Farm loan delinquencies have been rising across the US, and to a record high in Wisconsin, according to a Reuters analysis of data from the Federal Deposit Insurance Corporation.

At the end of June, 1.5 per cent of farm loans at FDIC-insured banks nationwide were at least 90 days past due or no longer accruing interest due to repayment doubts, the data showed. But the figure for farm loans in Wisconsin alone, as of June 30, was almost double that: 2.9 per cent.

A soybean field in Bristol, Wisconsin. Farm loan delinquencies have been rising in Wisconsin, perhaps as a result of the US-China trade war. Photo: EPA-EFE

There must surely be some connection between China’s retaliatory tariffs on US dairy products and the uptick in farm loan delinquencies in America’s Dairyland.

Trump may well conclude that his best hope of holding Wisconsin in 2020 lies in agreeing a deal to end his trade war with China, thereby taking some of the economic pressure off farmers in the state.

He should know his re-election in 2020 is not a given. The road to 270 votes in the Electoral College will not be an easy one.

With the trade war making an economic impact on the swing states Trump needs to win in 2020, he and his team may be doing their sums and realising the political necessity of securing a trade settlement with Beijing.

Neal Kimberley is a commentator on macroeconomics and financial markets

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