Trade tariffs between China and the U.S. are set for Friday, and economists are already predicting what the effect will be on the U.S. and global economy.
A new report from Oxford Economics shows the growing trade war between the U.S., Europe, China and other countries could reduce world trade by 4%, and decrease global gross domestic product by 0.4 percentage points, according to an article by Jim Edwards for Business Insider.
From the article:
It would be especially bad for the global economy because it would come right as oil prices and interest rates are both rising globally. "The threat to world growth is significant," Oxford lead economist Adam Slater wrote in a recent note to clients.
On Friday, the U.S. and China will each impose tariffs on $34 billion of each other’s exports. While the U.S. will target more than 800 items such as machinery, medical devices and auto parts, China announced tariffs against 545 U.S. products such as SUVs, meat and seafood.
Within the U.S., GDP could fall by 0.1 percentage point, and the economy is currently at risk of losing about 100,000 American jobs.
But a decreasing GDP isn’t the only affect the trade war might have on the U.S. economy. One expert explained trade war uncertainties could continue to keep mortgage rates lower. However, if economic growth continues at its current rate, this expert explained tariffs’ influence on interest rates could be more muted.
“Uncertainty over tariffs had bond and mortgage rates treading water this week, slipping only three basis points this week and landing at 4.52%,” realtor.com Chief Economist Danielle Hale said. “This is still 56 basis points higher than one year ago.”
“Coupled with price growth, this rate increase means principal and interest payments on the typical listing cost nearly $170 more per month, up 16% from last year,” Hale said. “How tariffs will ultimately impact the mortgage market comes down to whether or not they impact economic growth, which has thus far proved resilient.”
Over the past few weeks, mortgage rates have been decreasing, and now rest at a three-month low.
Many experts have been more bullish in their approach to increases to the federal funds rate in 2018, forecasting a total of four rate hikes for the year. The Federal Reserve also continues to forecast another one or two rate hikes this year, but May’s meeting minutes did reveal a more dovish approach as the FOMC continues to watch the economy’s reaction to Trump’s tariffs.
Experts from Capital Economics explained that even the quintessentially American Ford F-150 truck, for example, contains 35% of parts from outside of the U.S. A 25% tariff on those parts would add at least $2,300 to the final cost of a $27,000 entry level truck.
And as the price of servicing and owning autos increases, so will loan growth, giving the average American less money to put toward homeownership.
Already, the latest Consumer Confidence survey from the University of Michigan shows Americans are beginning to lose confidence in the economy due to their fear of the escalating trade war.
Currently imposed tariffs total just $60 billion, however as threats escalate, this is expected to increase. Proposed and threatened tariffs across the globe total about $800 billion.