Trade Tensions Dent Business Confidence in the U.S.
Background on Key Figures:
The article discusses the impact of U.S. President Donald Trump’s trade policies on global business confidence, as reported by a Reuters survey of over 300 economists from various countries.
Economist Consensus: High Risk of Global Recession
A recent Reuters survey revealed that the majority of economists believe there’s a high risk of a global recession this year. This pessimistic outlook is largely attributed to the trade tensions initiated by President Trump.
Trade Policies and Their Impact
Trump’s strategy to reshape global trade through the imposition of tariffs on almost all U.S. imports has caused significant repercussions in financial markets, eroding trillions of dollars in market value. The uncertainty surrounding these tariffs has also shaken investor confidence in U.S. assets, including the dollar as a safe-haven currency.
Although Trump has temporarily suspended the highest tariffs on most trading partners, a general 10% tariff and a steep 145% tariff on China—the U.S.’s largest trading partner—remain in place.
Business Confidence Plummets
Unprecedented Unity Among Economists:
In an unusual display of consensus, none of the over 300 economists surveyed between April 1 and 28 believed that the tariffs would positively impact business confidence, with 92% stating a negative effect. Only 8% were neutral, mostly from emerging economies like India.
Faced with heightened uncertainty and tariffs on goods at multi-decade highs, numerous global companies have withdrawn or downgraded their revenue forecasts.
Global Growth Projections Downgraded
Three-quarters of the economists reduced their global growth projections for 2019, setting the average at 2.7% from January’s 3.0%. The International Monetary Fund forecasts a 2.8% growth rate.
Individual economies surveyed followed a similar trend, with the median forecast being cut for 28 out of 48 economies.
China and Russia are projected to grow at 4.5% and 1.7%, respectively, outpacing the U.S., while Mexico and Canada’s growth forecasts were downgraded significantly from January, falling to 0.2% and 1.2%, respectively.
The downward trend in growth expectations, initiated by Trump’s tariff impositions, appears deep-rooted and challenging to reverse.
Recession Risk and Inflation Concerns
Recession Risk and Inflation Concerns:
When asked about the likelihood of a global recession this year, 60% (101 out of 167) of the economists responded that it was high or very high. Sixty-six said it was low, including four who believed it was very low.
“It’s a challenging environment to be optimistic about growth,” said Timothy Graf, head of macro strategy for Europe, the Middle East, and Africa at State Street.
Even if tariffs were removed today, Graf believes significant damage has already been done to the U.S.’s reliability as a bilateral and multilateral partner in areas ranging from trade to common defense.
Moreover, the progress made by central banks in recent years to curb a worldwide inflation surge by raising interest rates is expected to stall due to the tariffs, which economists agree are inflationary.
“Cutting off your largest trading partner (…) will create all sorts of weird and not-so-great price effects, leading to negative impacts on real incomes and, ultimately, demand,” added Graf from State Street.
“The possibility of entering a stagflation environment, which was always low, now seems more likely.”
Stagflation is characterized by prolonged periods of low or no growth, high inflation, and rising unemployment.
Over 65% (19 out of 29) of the major central banks surveyed do not anticipate meeting their inflation targets this year. This figure slightly decreases to 15 for the following year.
