| Author | Message | ||
     Sakkineni Kurra Bewarse Username: Sakkineni Post Number: 3021 Registered: 04-2012 Posted From: 153.65.16.10 Rating: N/A |
Trump’s Ace in the Hole in Trade War: A Strong Economy Image Consumer spending has rebounded after a soft start this year. Retail sales jumped 0.8 percent in May, double what analysts had forecast.CreditJeenah Moon for The New York Times By Nelson D. Schwartz June 20, 2018 160 The American economy has picked up speed and is now on course to expand this year at the fastest rate in more than a decade. That acceleration gives President Trump a stronger hand as he contemplates more tariffs and takes an increasingly confrontational approach with China, Canada, Mexico and other trading partners. Economists have raised their growth estimates for the second quarter to an annualized rate of nearly 5 percent, more than double the pace of the previous period. Some economists say the figure could hit 3 percent for the full year, a level last reached in 2005. As growth slows in Europe, China, Japan and elsewhere, the United States finds itself at the top of the global economy. The United States is also less exposed to the fallout from an escalating trade war since it does not rely on exports as much as other countries. It all gives Mr. Trump leverage with world leaders, potentially forcing them to make concessions. But his threats could also backfire. Economists warn that the president’s clout is limited and that his attacks on the trading system could dampen the outlook not just in other countries but also domestically. ADVERTISEMENT “If you have the strongest economy in years, then the trade shock appears manageable,” said Gregory Daco, head of United States economics at Oxford Economics. “However, with growth peaking, the trade shock will become more intense. With a global backdrop that is not improving anymore, we have to be careful about the back half of 2018 and 2019.” In July, the recovery will reach the nine-year mark, making it one of the longest in modern history. But for much of that time, the engines of the economy were rarely synchronized. When consumers were spending at a healthy clip in 2015 and 2016, business investment lagged as energy companies scaled back or abandoned projects in response to a sharp drop in oil prices. All that has changed in recent months. Now, the different parts of the economy appear to be operating as one well-oiled machine. Consumer spending rebounded after a soft start to the year, with retail sales in May rising by a robust 0.8 percent, double what analysts had forecast. “We have a very strong economy, and if the trade negotiations are successful, it’ll be even stronger,” said Kevin Hassett, chairman of the White House Council of Economic Advisers. He added that the president was “impatient to fix broken policies,” with trade at the top of the list after last year’s tax overhaul and deregulation effort. ADVERTISEMENT The trade deficit, often cited by the White House as a vulnerability, narrowed in April, further bolstering economic activity in the second quarter. Strong April orders for fabricated metal, computers and other goods used in production also helped, as did a buildup in inventory as businesses restocked shelves. Such additions to inventory barely had an impact on growth in the first three months of the year, but could contribute nearly a full percentage point in the second quarter. Increased government spending is providing added propulsion. The two-year budget deal reached in Congress in February added $300 billion in new government spending that is starting to flow into the economy. “It’s something of a sugar high, but it feels good,” said Diane Swonk, an economist with Grant Thornton in Chicago. Taken together, these factors have compelled economists to re-evaluate the economy’s tempo. At the beginning of May, Macroeconomic Advisers, a forecasting firm based in St. Louis, estimated growth of 3 percent in the second quarter. By mid-June, it was putting the figure at 4.5 percent. The Federal Reserve Bank of Atlanta’s GDPNow model is even more upbeat at 4.7 percent. But the good news may not last. While Ms. Swonk expects a 3 percent expansion for the full year, she added, “This likely will be the peak growth for this cycle.” EDITORS’ PICKS Thermostats, Locks and Lights: Digital Tools of Domestic Abuse Trump’s Advantage in a Trade War: A Strong Economy You Can’t Hurt Lindsay Lohan Now Image A textile factory in China. As the American economy accelerates, President Trump has more leverage in waging trade wars against China and other countries where growth appears to be slowing.CreditAgence France-Presse — Getty Images Contributing to that view is the rise in interest rates as the Federal Reserve gradually withdraws the easy credit that persisted for much of the recovery. “The headwinds are mounting,” Ms. Swonk said. And then there are fears of an expanding trade war. Tariffs could hurt the American economy by stoking inflation without increasing wages. ADVERTISEMENT Trade wars won’t sharply curtail economic activity, unless they cause businesses to lose confidence, said Spencer Dale, chief economist for BP, the energy giant. The bigger problem, he said, is that trade wars could “eat away at trend growth” by reducing G.D.P. by a fraction of a percent a year. That might not seem meaningful in any given year, but compounded over a decade or two, it could leave the economy noticeably short of what it might otherwise have achieved. The Fed chairman, Jerome H. Powell, has also noted those risks. “Changes in trade policy could cause us to have to question the outlook,” he said on Wednesday at a European Central Bank conference in Portugal. Still, the United States remains more insulated from a trade shock than other countries. Exports account for just 12 percent of American gross domestic product. That’s the lowest share among the 35 members of the Organization for Economic Cooperation and Development, a group of industrialized countries. By contrast, the figure is 31 percent in Canada, 37 percent in Mexico and 44 percent in the European Union. In the United States, consumer spending accounts for nearly 70 percent of G.D.P. And recent surveys and other data show that people are bullish about the economy’s trajectory, according to Ian Shepherdson of Pantheon Macroeconomics. Owners of small businesses are also confident — about their own prospects and about the overall economy. When Mr. Shepherdson put out a note to clients on May 14 highlighting the possibility of 5 percent growth in the quarter, he was quick to add that his forecast looked outlandish. “I was being tongue in cheek, looking at what would happen if everything goes right,” he said. “But it’s become more like the base case.” Despite the improving consensus, Mr. Shepherdson said the quarter’s pace “is not sustainable,” but he does expect consumer spending to be solid in the second half of the year. Sean McCartney, an executive vice president at Radial, a fulfillment and logistics business, agrees, and he’s putting his money to work. Radial will hire about 24,000 temporary workers later this year for the company’s fulfillment centers, call centers and warehouses to prepare for back-to-school demand and the holiday shopping season. That’s up by roughly 1,000 from last year. ADVERTISEMENT “This year is shaping up to be strong, the strongest since the recovery began,” Mr. McCartney said. E-commerce companies represent most of Radial’s business, and the company has expanded its footprint to ensure faster deliveries. Many of its operations are in the middle of the country, in states like Ohio and Kentucky, with plentiful transportation links enabling them to reach both coasts. To attract new workers and keep existing ones, Radial has been offering spot raises of $1 an hour for temporary positions in some cities, on top of the typical $12-an-hour average for Radial’s network of sites. “We have hundreds of open positions,” Mr. McCartney said. “We definitely could hire more than we have.” |