The U.S. economy would likely have been continuing to hum right along despite the long growth period we’ve seen if it weren’t for that darn trade war between the U.S. and China, according to economists at JPMorgan, KPMG and UBS.
The U.S. economy is “at this crossroads” now due to the trends that are being seen, coupled with the trade dispute, Constance Hunter, KPMG chief economist, said Wednesday during the Fall Economic Outlook Forum held at New York University’s Stern School of Business.
“For us, the story really is tariffs,” according to Seth Carpenter, chief U.S. economist at UBS, who pointed to the theme of his presentation being those tariffs “take us to the brink of recession.” The U.S. economy has been “strong but for the trade war” for the past year and a half, he says. But he jokingly warned that, at some future point, “that’s going to be like being in the middle of the winter in Michigan and saying that it’s really, really warm except for the frigidity.”
He predicted the U.S. GDP will grow this year to about 2% or more but slow in 2020 to about 1.1%, with growth slowing “very, very sharply” in the first half of the year. UBS expects unemployment will grow over the next year to 4.3%, a percentage that “used to be a good number” when it came to unemployment, he pointed out.
UBS attributed most of the “massive slowdown” in the U.S. economy seen during the fourth quarter of 2018 and first quarter of 2019 to the tariffs, he noted, saying those tariffs took a toll on economic activity and unemployment by disrupting manufacturers’ supply chains.
The unemployment rate, which had been falling for a while, “started to rise” in Q4 2018 and Q1 2019, he said, chalking that at least partially up to the fact that manufacturers often lay workers off when they suspend production while searching for alternative sources for their supplies.
Imports of tariffed goods have tumbled more than 40%, and that fall doesn’t seem to have been fully made up by increased imports from countries outside of China, according to UBS. Although the disruption from tariffs ended in Q2, there was “another wave of tariffs” implemented by the Trump administration after that, and another wave — this time on many finished consumer goods from China — started on Sunday, with more drastic tariff policies scheduled for Q4 this year, Carpenter pointed out. “That is a problem … because this type of disruption is going to happen again and again and again,” and that’s why UBS expects the economy to further slow, he said.
The economy could have continued to grow for “quite a long ways further” if it wasn’t for the trade war “pounding the economy,” he told attendees, who were mostly NYU students.