CHICAGO, May 24 (Reuters) - Increased trade tensions pose a risk for some U.S. states and cities where manufacturing, shipping and agriculture are highly dependent on international trade, Moody's Investors Service said on Thursday.
Concerns over the possibility of widespread trade wars have heightened due to the United States' withdrawal from the Trans-Pacific Partnership, its recent imposition of tariffs on imported steel, aluminum and other goods, and the ongoing renegotiation of the North American Free Trade Agreement with Canada and Mexico.
As a result, credit rating agencies have been examining the potential impact on issuers of debt in the $3.8 trillion U.S. municipal bond market.
"Trade measures and their effects on companies, consumer prices and regional economies would impact state and local government income tax revenues, sales tax revenues and property tax revenues, and over the long term social spending and taxing capacity," Moody's said in a report.
Michigan, Kentucky and Louisiana, which rely on trade with China, Canada and Mexico, have the greatest exposure, according to the credit rating agency.
Agriculture economies in North Dakota, South Dakota, Illinois and Iowa could also be hurt if trade tensions escalate with China. States with big trading volumes like California, Texas and New York, benefit from big and diverse economies that diminish their vulnerability to trade wars. On the local level, manufacturing hubs such as Detroit, Greenville, South Carolina; and Peoria, Illinois, and cities with big port operations like Laredo, Texas; Longview, Washington, and New Orleans have exposure to significant trade changes.
Moody's said states and cities with hefty reserves and the ability to raise revenue and cut spending would be in a better position to deal with severe trade disruptions.
(Reporting by Karen Pierog in Chicago Editing by Matthew Lewis)