By Robert Dieli
A very long time ago, when I was working for a bank, I had occasion to deliver an interest rate forecast at a meeting held at one of the large hotels near O’Hare International Airport in Chicago. The message of the forecast was that the Federal Reserve was not going to raise interest rates in the immediate future.
As I left the meeting I walked by the newsstand (they had those then) in the lobby of the hotel where I saw the clerk stacking the evening edition of the newspaper (they had those then, too). The headline read: Federal Reserve Raises Interest Rates.
Why am I telling you this? Because there is a chance that some of what you are going to read here will have been rendered obsolete by events that occur between the time this is written and when it appears before you. That said, I would like to offer a few observations about the origins and progress of the current trade and tariff dispute.
Multiple fronts of the dispute
The first thing we need to recall is that the trade and tariff dispute has multiple fronts. While our differences with China receive most of the headlines, we should not forget that we also have pending issues with Canada, Mexico, and the European Union.
The second thing we need to recall is that each side of each of the disputes has its own set of economic and political factors to consider. The final resolution of the disputes will have to include outcomes that are politically and economically acceptable to both parties. Reaching such agreements is rarely done quickly.
The third thing we need to recall is that there is a supply chain involved with each and every good that is traded. Changes in the volume of trade affect how, when, and why goods are shipped. And this aspect of the trade war is already affecting you and your customers even if you don’t use the goods being shipped yourself. A full 25 percent of truckable economic activity (TEA), which is the MacKay & Co. proprietary measure of the trucking economy, consists of imports and exports. The trade war affects both of those activities.
Over the past year we have seen the effects of the tariffs manifest themselves in several different ways. One of the first was the acceleration in exports immediately after China announced a tariff on U.S. soybeans in response to our tariff on Chinese steel. Purchases of soybeans that would normally have taken place in the third quarter of 2018, took place in the second quarter to beat the July 1 tariff deadline.
Similar effects have been noted on the import side, where purchases of consumer goods have been pulled into 2018 to beat an anticipated tariff increase in 2019. The question now is how, when, and at what levels these trade flows stabilize.
The last thing is that tariffs function in exactly the same way as a tax increase and a new set of regulations. This fact is especially puzzling since the current administration opened its tenure with a tax cut and significant red-tape cutting.
Changes in tariffs are like dropping a rock into a pond. There are many ripples, and it will be some time before the waters are still again.
With a long career managing portfolios and coordinating domestic economic forecasting programs, Robert Dieli began RDLB, Inc. in 2001. In this role, Dieli serves as an advisor to many firms in the truck, consulting, and financial services sectors. He is also an economist with MacKay & Company.