Trade uncertainty to cut 1% from US GDP: Fed research

Trade uncertainty to cut 1% from US GDP: Fed research

The uncertainty created by President Donald Trump’s global trade offensive should shave about one percent off the US economy through early next year, according to research from the Federal Reserve.

Economists have warned since last year that Trump’s trade battles with China and Europe threaten global economic growth, which has begun to slow.

Businesses complain that in addition to the trade war’s tariffs, companies’ investment and hiring decisions are stymied by uncertainty — not knowing when, if or by how much prices will rise or which foreign buyers they may suddenly lose.

The sharp jump in uncertainty since last year “has gone hand-in-hand with a slowdown in world industrial production and global trade,” the Fed researchers wrote in an analytical note on Wednesday.

As a result of the repeated escalations, uncertainty’s drag on GDP “is expected to increase through early 2020, culminating in an impact of just above one percent.”

The study — which measured uncertainty by tracking references to tariffs and trade in corporate earnings calls and in the news media — found similar decreases in GDP across advanced and emerging economies.

The Fed researchers also said had the trade war escalations in May and June of this year been avoided, then the negative effects of uncertainty might have already begun to ease.

“However, renewed uncertainty since May of 2019 points to additional knock-on effects that may push down GDP further in the second half of 2019 and in 2020,” they said.

Trump in recent months has lashed out at “badly run and weak companies” as well as the Fed itself, saying it, and not the trade conflict, was constraining US growth by failing to cut interest rates fast enough.

“We don’t have a tariff problem,” Trump said last week on Twitter. “We have a Fed problem.”

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