The
nature of our economy could help it withstand the disruption.
A trade war does seem to be getting
underway. Investors around the world
see headwinds arising from newly enacted and planned tariffs, headwinds that
could potentially exert a drag on global growth (and stock markets). How badly
could these trade disputes hurt the American economy? Perhaps not as dramatically
as some journalists and analysts warn.1,2
Our business sector
may be impacted most.
Undeniably, tariffs on imported goods raise costs for manufacturers. Costlier
imports may reduce business confidence, and less confidence implies less
capital investment. The Federal Reserve Bank of Philadelphia, which regularly
surveys firms to learn their plans for the next six months, learned in July
that businesses anticipate investing less and hiring fewer employees during the
second half of the year. The survey’s index for future activity fell in July
for the fourth month in a row. (Perhaps the outlook is not quite as negative as
the Philadelphia Fed reports: a recent National Federation of Independent
Business survey indicates that most companies have relatively stable spending
plans for the near term.)1,2
Fortunately, the U.S.
economy is domestically driven. Consumer spending is its anchor: household purchases make up about
two-thirds of it. Our economy is fairly “closed” compared to the economies of
some of our key trading partners and rivals. Last year, trade accounted for
just 27% of our gross domestic product. In contrast, it represented 37% of
gross domestic product for China, 64% of growth for Canada, 78% of GDP for
Mexico, and 87% of GDP for Germany.3,4
Our stock markets
have held up well so far. The
trade spat between the U.S. and China cast some gloom over Wall Street during
the second-quarter earnings season, yet the S&P 500 neared an all-time peak
in early August.5
All this tariff talk
has helped the dollar. Between
February 7 and August 7, the U.S. Dollar Index rose 5.4%. A stronger greenback
does potentially hurt U.S. exports and corporate earnings, and in the past, the
impact has been felt notably in the energy, materials, and tech sectors.6,7
As always, the future
comes with question marks. No
one can predict just how severe the impact from tariffs on our economy and
other economies will be or how the narrative will play out. That said, it
appears the U.S. may have a bit more economic insulation in the face of a trade
war than other nations might have.
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
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Citations.
1 - reuters.com/article/us-usa-economy/us-weekly-jobless-claims-hit-more-than-48-and-a-half-year-low-idUSKBN1K91R5
[7/19/18]
2 - nytimes.com/2018/07/24/upshot/trade-war-damage-to-us-economy-how-to-tell.html
[7/24/18]
3 -
money.cnn.com/2018/07/25/news/economy/state-of-the-economy-gdp/index.html
[7/25/18]
4 -
alliancebernstein.com/library/can-the-us-economy-weather-the-trade-wars.htm
[7/17/18]
5 - cnbc.com/2018/08/06/the-sp-500-and-other-indexes-are-again-on-the-verge-of-historic-highs.html
[8/6/18]
6 -
barchart.com/stocks/quotes/$DXY/performance [8/7/18]
7 -
investopedia.com/ask/answers/06/strongweakdollar.asp [3/16/18]
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