Quincy News: Trump’s trade war threats triggers recession fears

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Uneasy rider?
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– News about the economy covered by Quincy Quarry News.

Trump’s trade war threats triggers recession fears.

On Monday alone, iconic motorcycle manufacturer Harley-Davidson said it would move some production out of the U.S. in response to Trump’s tariff fight with the European Union while the Dow Jones Industrial Average tumbled over renewed fears from the president’s expected new trade restrictions on China.

It’s all part of a high-risk trade and immigration strategy that has many Republicans, business leaders and even Trump’s former advisers deeply worried about both the politics and the economics of the president’s strategy.

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Wall Street analysts are now ramping up their warnings of a potential recession given Trump’s aggressive trade moves. “Our calculations suggest that a major trade war would lead to a significant reduction in growth,” Bank of America Merrill Lynch economist Ethan Harris wrote in a recent research note.

“A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession.”

Heading south?
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The impact of Trump’s trade moves is starting to show up in economic data. For instance, a survey of manufacturing purchasing managers from IHS Markit – a closely tracked gauge of the factory sector’s health – dipped to a seven-month low of 54.6 last week.

Merrill Lynch economist Ethan Harris wrote in a recent research note. “A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession.”

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“It is striking that the significant tailwind from corporate tax cuts is now being offset by other forces, most likely the uncertainties associated with the ongoing trade war,” said Torsten Slok, chief international economist at Deutsche Bank.

And the market disruption may have much further to run, according to some forecasters. “Markets have not taken trade wars seriously enough, we fear, believing for a long time that President Trump has been bluffing over his intentions as a negotiating tactic, and that other countries would back down,” Paul Mortimer-Lee, chief market economist at BNP Paribas, said in recent note.

“It looks like both assumptions may turn out to be too optimistic.”

All of this comes against a backdrop that should be a dream scenario for Republicans hoping to limit and perhaps even reverse expected Democratic gains in the November midterms.

The U.S. economy has been the envy of the world with strong consumer spending, business confidence, rising wages, low unemployment and low inflation. Many forecasts call for close to 4 percent economic growth in the second quarter and perhaps 3 percent for the full year, a level not hit for a full year since 2005.

Wild hair policies?
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The biggest risk to it, many analysts say, is Trump himself.

“I detest using the words ‘sweet spot,’ but we are in a very good place in that we are generating very strong growth and households have more money from the tax stimulus and are enjoying income gains. It’s about as good as we can hope for,” Ellen Zentner, chief economist at Morgan Stanley, said in an interview.

“The absolute top risk is trade tension and the potential for trade action and really just the lingering uncertainty over trade that can drive businesses down in terms of investment decisions.”

“I always thought the core of Making America Great Again was making the economy great,” said analyst James Pethokoukis of the conservative American Enterprise Institute.

“One of the reasons the growth outlook for the future is so low is because of the slowing in labor force growth. That is just a huge headwind.”

“One way to offset that is to make workers more productive and we haven’t figured out how to do that,” he said.

“The other is to bring in more people and that is something we know how to do. If they have skills and are entrepreneurial, all the better.”