A quarterly drop in GDP from 3.1 percent to 2.1 percent illustrates the growing toll that President Donald Trump’s trade policies are taking on American businesses, economists say.
American consumers proved themselves willing and able to spend in the second quarter, with a 4.3 percent increase in consumption offsetting a 5.5 percent slump in business investment.
“In the second quarter of 2019, we caught the first whiff of damage to the economy caused by Mr. Trump’s trade war,” said RSM chief economist Joseph Brusuelas, characterizing the issue as “an uncertainty tax” that has left corporate America guessing about the potential impact of tariffs on input costs and exports, supply chain disruption and market access.
According to July’s Business Conditions Survey conducted by the National Association for Business Economics, fewer than half of the respondents expect real GDP growth to increase by more than 2 percent over the next year, compared to two-thirds who expressed that view in January.
“On balance, panelists expect slower growth than they were expecting three months ago. After more than a year since the U.S. first imposed new tariffs on its trading partners in 2018, higher tariffs are disrupting business conditions,” Constance Hunter, NABE president and KPMG chief economist, said in the survey report.
In the second quarter, NABE survey respondents reported lower profit margins and, among goods-producing companies, higher input costs. More than three-quarters of respondents in that sectors said tariffs are having a negative impact on business.
In recent earnings calls, Brusuelas said, it was evident that executives are “growing increasingly concerned about the direction of trade,” which hurts investment in everything from factories to intellectual property.
“There’s no question that there was trade-related impact,” said Ernie Cecilia, chief investment officer at Bryn Mawr Trust. “For second-quarter earnings reporting, one of the things that’s mentioned a fair amount is certainly trade and how that impacts capital spending.”
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