Higher tariffs on Chinese goods could slow down economic growth in the U.S., but will not cause an outright downturn.
That was the forecast of Mike Schenk, chief economist of the Credit Union National Association. Schenk made the comments in a video of the May edition of the CUNA Economic Update.
China and President Donald Trump have engaged in a tit-for-tat tariff war since last July, when the U.S. imposed a 25% tariff on $34 billion of Chinese goods due to Beijing’s alleged unfair trade practices. China retaliated by imposing an equal 25% tariff on U.S. products also valued at $34 billion.
In late August 2018, the U.S. imposed a 25% tariff on an additional $16 billion in Chinese goods. Again, China retaliated with tariffs on U.S. goods of same value.
In the following month, September 2018, the U.S. made an even bigger strike – imposing a 10% tariff on an additional $200 billion of Chinese goods, and increasing that figure to 25% by year-end, though in December the U.S. agreed to delay its tariff hike.
However, by May 2019, Trump said the previous 10% tariff applied to $200 billion in Chinese goods would indeed be raised to 25%.
All told, the US has imposed higher tariffs on $250 billion of Chinese goods – while Trump has threatened to impose 25 percent tariff on an additional $325 billion of Chinese goods.
“This had the effect basically of pouring gasoline on a smoldering house fire,” Schenk said, noting the constant exchange of tariff increases has hurt Chinese exporters, damaged parts of the U.S. economy and slowed global growth.
“At the moment we believe that cooler heads will prevail,” he said. “But even if we’re wrong and the administration does impose more sanctions, the effects should not be enough, we don’t think, to push the current recovery off the tracks.”
Schenk also noted that, broadly speaking, the U.S. economy is in good shape -- indeed, GDP grew by 3.2% in the first quarter of 2019, up from 2.2% in the fourth quarter of 2018, according to the Bureau of Economic Analysis.
“The [Consumer Confidence Board’s Consumer Confidence Index] is almost certainly going to decline further if the trade picture continues to deteriorate,” Schenk warned. “But the current reading is fairly high from a broad historical perspective.”
Schenk further cited that the economy added 2.62 million jobs in the 12-month period through April 2019, while the jobless rate fell to 3.6% in April, a 50-year low.
Strong labor markets are also good for workers’ pay, he concluded. Hourly wages have increased by 3.2% over the past year through April, well above the 2% inflation rate.
