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Mark Zandi: Trade War Hurts the US Economy!

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On August 15, in an interview with CNBC, Mark Zandi said that the trade war hurts the US economy.

Mark Zandi discussed the trade war

He also said that the trade war has a negative impact on sectors like manufacturing, transportation, and distribution. Barclays already announced an “industrial recession.” In the last quarter, sales of 33% of the industrial stocks tracked by Barclays declined. Barclays’ industrial analyst warned investors with the “buy on dip” strategy in companies like Samsung, Honeywell, and Caterpillar. Rising costs and supply disruption could be behind the decline.

According to President Trump, the trade war has a very small impact on the US economy. Mark Zandi is the chief economist at Moody Analytics. He’s also a critic of President Trump.
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Is the yield curve right?

In the interview, Zandi said that the yield curve inversion increased the chances of a recession. If there isn’t a recession, then the yield curve might point to slower growth in the future. Apart from the trade war, Brexit, unrest in Hong Kong, and Japan’s rising debt could be dragging the global economic growth rate. Historically, the yield curve indicates a recession. According to the IMF, the world’s GDP growth rate could be between 3.6% and 3.7% annually until 2025.

Trade war and US economy

According to Zandi, capital expenditure across the globe hasn’t risen since the beginning of the trade war. Jobs might take a hit in the coming days. He said that jobs grew by nearly 2.25 lakh per month in 2018. In the past three to six months, the job growth fell to 1.4 lakh per month. If the growth rate falls below 1 lakh per month, the unemployment rate would rise. Zandi said that the US economy might push the unemployment rate higher.

China was either the largest or second-largest market for US agricultural product exports between 2008 and 2017. In 2018, China fell to the fifth position. Agriculture contributes 5.4% to the US GDP. On August 1, President Trump slapped a 10% tariff on $300 billion Chinese imports. In retaliation, China stopped purchasing US agricultural products and the yuan fell. On August 5, the S&P 500 (SPY) had the worst trading session in 2019. Notably, SPY fell 3%. Later, the US delayed tariffs on certain items. If the items are on the tariff list, it might cost $100 billion for US business and consumers in the next year, according to Zandi.

In June last year, President Trump imposed a 25% tariff on $50 billion Chinese imports. Since then, SPY has risen 5.6% and outperformed other major equity indexes worldwide. The four largest economies, the equity index fell by double-digits during this period in terms of the US dollar. Currency depreciation might have impacted the fall.

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