Arkansas has been the hardest hit state, damaged by President Trump's trade war with China, according to a new report from JP Morgan.

JPM's report measured impact as a percentage of GDP. Arkansas, California, Illinois, and Tennessee were among the top four states that had the most negative economic impact because of trade disputes.

And while California being hit hard would seem obvious to most, Illinois and Tennessee seem unusual at first glance. Brusuelas explained that it all comes down to cheap consumer goods. "I would assume it's going to be a range around exposure to Walmart supply chains and Target supply chains," he said. Doug Barry, a spokesman for the U.S.-China Business Council, noted that the possibility of long-term damage to state economies depends on how long the new layer of tariffs continues.

About $250 billion worth of US exports from China now faces a 25% duty. China retaliated last month with a 10% to 25% tariff increase on about $60 billion worth of imports from the US, mainly targeting farmers in the Midwest.

The problems in farm country have forced many farmers to leverage their farms with more debt. One-fifth of farm borrowers increased the amount of debt they hold in 1Q19 on a YoY basis, reported Politico.

"Thousands of banks are in what you'd call rural areas," said Mark Scanlan, senior vice president of agriculture and rural policy at the Independent Community Bankers of America. "When the ag economy starts taking a downturn, it affects them because it's not only farm loans, it's also those businesses that sell to farmers" that get hurt.

Farm bank lenders who specialize in agriculture have been tightening credit standards as a farm bust could be nearing.

"We are monitoring farm banks' concentration risk, which continues to rise, particularly in counties where economic risk associated with agriculture is high," said FDIC General Counsel Nick Podsiadly in a June 13 speech. "These institutions include a number of farm banks whose agricultural loans exceed 300% of total capital."

Large inventories of crops that farmers are struggling to sell, due to the trade war and low prices, are partly to blame for the growing number of producers unable to pay their debt on time, said John Newton, chief economist at the American Farm Bureau Federation.

"We definitely have observed a pretty significant pullback in terms of exports of ag products" to China, said Nathan Kauffman, vice president and Omaha Branch executive at the Kansas City Federal Reserve. He said the numbers of farm bankruptcies seemed to have increased, "albeit modestly," in the dairy, corn and soybean sectors.

Newton said, "We've heard reports of farmers taking their short-term debt and rolling it into their long-term debt, and that's certainly not a recipe for success either."

President Trump has supported farmers with several government bailouts. Another $16 billion bailout was issued last month, as the first $11 billion bailout from last year wasn't enough to cushion farmers.

And with an overall slowdown in the global economy, commodity prices depressed, and a trade war that continues to escalate, it seems that financial headwinds for Midwest states and their rural communities could soon translate into a farm crisis.