While tariffs should be a “tertiary” worry for LBM business owners, Marissa DiNatale of Moody Analytics outlined three possible tariff scenarios and their respective impacts on the national economy at the ProSales 100 Conference in San Antonio, Texas. The recent escalation in tariffs, particularly between the U.S. and China, have had impacts on the U.S. agricultural and auto industries more than any other, but should the trade war escalate any further, the entire national economy could be impacted.
While there have been threats of a 25% tariff rate on $200 billion in Chinese goods and a possibility of a 25% tariff rate on all Chinese imports, DiNatale said the most likely outcome is neither of those scenarios.
DiNatale said with talks pending between U.S. President Donald Trump and Chinese President Xi Jingping, a resolution to avoid an escalating trade war is the most likely outcome. DiNatale estimated there was around a 70% chance that such a resolution will be reached and tariffs would remain at their current levels. However, she outlined several other more potentially damaging outcomes to Conference attendees.
Should talks break down and the Trump administration follows through with the 25% tariff rate on $200 billion in Chinese goods, DiNatale estimates that employment would decline by around 1 million and the U.S. GDP would decline by 0.8%. However, DiNatale said even in this unlikely scenario, the tariff escalation would not cause a U.S. recession.
A recession could come about, though, if there is a trade conflagration where there are no agreements reached and the U.S. levies tariffs as high as 25% on all Chinese imports. In such a situation, DiNatale said there could be a global recession. In the U.S., the economy would see employment decrease by 4 million and GDP decline by around 3%, entering a recession.
DiNatale said that the multi-family and commercial construction sectors are most likely to be impacted by the situation with China. Construction costs recently have been far more impacted by rising mortgage rates than a decline in Chinese investment or ripple effects from tariffs on Canadian lumber. The most likely outcome over the next several years national is for home sales to steadily increase across all segments of the market, DiNatale said
However, DiNatale stressed there was less than a 5% chance trade conflagration would occur. DiNatale instead said the possibility of a recession should harbor more concern among those in the LBM industry. A potential recession could come as early as 2020, DiNatale said. While many macroeconomic signs are positive, business sentiment has declined in the past year as a result of the possibility of a trade war, stock slides, and the recent government shutdown.
