The latest announcements by the US and China to slap trade tariffs on each other could take a bite out of economic growth. But at this stage it’s just talk. The potential for trouble in the months ahead can’t be dismissed. Meantime, the current estimates for first-quarter GDP growth in the US point to a continuation of the moderate expansion that prevailed in the final three months of 2017.
The risk is that the trade skirmish escalates into an all-out economic war between the world’s largest economies and spills over into other nations. Yet some analysts say such a deterioration in trade relations is unlikely because the US threats to impose tariffs is just a negotiating tactic. The Trump administration’s new economic adviser, Larry Kudlow, said on Wednesday that “there’s no trade war here” and that the announced tariffs are “just the first proposal” in what’s expected to be a series of discussions.
Kathy Bostjancic, head of US macro investor services for Oxford Economics, estimates that the proposed tariffs would have minimal impact on consumer spending in America — less than a tenth of a percentage point. The reason, she explains: the new US tariffs on imports of goods from China, if implemented, would affect less than 3% of total imports.
Meantime, the latest estimates of the US Q1 GDP report that’s due from the Bureau of Economic Analysis later this month are signaling that output will rise close to 3%, according to data compiled by The Capital Spectator. The median 2.7% projection for growth in 2017’s first three months reflects a slightly firmer Q1 reading vs. the 2.5% estimate published on March 20. The current Q1 forecast is below the 2.9% gain posted in last year’s Q4, but the deceleration at this point is expected to be trivial.
Supporting expectations for another round of moderate growth in Q1: this week’s update on auto sales for March. Purchases last month increased more than forecast, boosting confidence that economic activity in this year’s first three months will rise at a rate that approaches 3%. Auto sales last month were “quite a bit stronger than the market estimated,” says Sal Guatieri, senior economist at BMO Capital Markets. “It does raise hopes that the consumer is responding to the tax windfall.”