With that in mind, Deutsche Bank economists Zhiwei Zhang and Li Zeng took a look at how a trade war (think tariffs and quotas) between the US and China might play out. In a note published November 28, the duo ranked the industries by the ratio between domestic production and domestic demand.
The chart below shows the extent to which domestic demand could be met by domestic production, assuming US made goods weren’t exported. In other words, if there was demand for 100 leather belts in the US in 2015, and the US produced 80 leather belts that year, the ratio would be 80%.
The lower the ratio in the chart below, “the stronger is the indication that a sector was hurt badly by imports.”
The most extreme example here is “textile, apparel and leather products,” where domestic production in 2015 only met a 36.6% of domestic demand. That is down sharply from 1997, when the percentage was more than 60%.
There is a similar story in the “computer and electronics” industry, though US production there is much higher, meeting 60.5% of domestic demand.
At the other end of the chart, US domestic production of goods like “paper products,” “food, beverage & tobacco,” “chemicals” and “fabricated metal products” all come in at above 90% of domestic demand. In addition, for many of these industries, the ratios really haven’t changed.
“This suggests that these industries are not being hurt so badly by imports,” the note said.
Here’s Deutsche Bank on the findings:
“Among industries with low domestic production to demand ratios in 2015, there seem to be three groups: (i) Those whose situations had worsened over time, including “computer and electronics”, “electrical equipments and parts” and “furniture”. For instance, in 1997, the US’s domestic production of “computer and electronics” could meet 92 per cent of its domestic demand. It dropped to 72 per cent in 2006, and was only 61 in 2015. (ii) Those where most “damages” by imports seemed to have taken place prior to 2006. This includes “textile, apparel and products” and “automobiles, trailers and parts”. (iii) The last group is “oil and gas extraction” and “miscellaneous manufacturing”. Although their domestic production to demand ratios were low in 2015, they had been stable or even improved compared with early periods.”
Zhang and Zeng focuses in on the first and second group, or those industries where the situation has worsened over time or where the damage was done prior to 2006. They looked at how a 10% reduction in the trade deficit in each sector would impact gross-domestic product, and found that the industries that deliver growth would not necessarily bring back jobs to the US, and vice versa.
Focusing on “computers & electronics” would add $18 billion to US GDP, and add a lot of jobs too. But focusing on “oil and gas extraction,” while adding a lot in US GDP, would have less of an impact on the labour market than focusing on the “textiles, apparel & leather good” industry.
The report said:
“The analysis suggests that the US should probably have different top priorities in a trade war, depending on whether it wants growth or jobs most. If the US wants the biggest boost to growth, industries with high value-added should be its top priorities, such as “computer and electronics” and “automobiles, trailers and parts”. Figure 6 shows that a 10 per cent deficit reduction in “computer and electronics” would raise the US’s domestic value-added by some USD18 billion. On the other hand, if what the US wants most is to “bring jobs back”, especially to lower income areas, it should place its top priority on “textile, apparel and leather products”. While this sector only ranks 4th in terms of additional domestic value-added, the extra labour compensation it would bring is the second highest. Considering the low labour cost in this industry, it probably means most job increase among all industries.”