As the Trump administration’s trade battle escalated this past week, experts scrambled to forecast the impact.
But at least for now, the effect of new tariffs against Mexico is mostly a matter of speculation: will it end up a trivial footnote or the trigger to global recession?
The latest round was announced Thursday in a tweet.
President Donald Trump said he would impose a 5% tariff on Mexican goods coming into the United States. And he threatened to raise that tariff steadily to 25% in October unless Mexico resolves the immigration issue at the U.S. border.
Earlier, the U.S. had slapped a 10% tariff on billions of dollars in Chinese imports. In May, the president announced that tariff will rise to 25% this month.
The stakes for Atlanta and Georgia are high, starting with the hundreds of thousands of jobs at ports, warehouses and in transportation.
The state imports nearly $7 billion in goods from Mexico — the list includes food, computers, oil, auto parts and completed vehicles, according to Commerce Department figures.
The Mexican tariff isn’t very large, at least not yet. Moreover, a 5% tariff likely won’t break too many households.
"It's there," said economist Raymond Hill, senior lecturer at Emory University's Goizueta Business School. "You just may not notice it.
And it may not have a huge impact either: The $20 trillion-a-year U.S. economy is mostly domestic and it has been growing steadily since the recession ended in 2009.
Predictions of imminent doom have often been wrong: In the first quarter of this year, the nation’s gross domestic product expanded at a healthy 3.1%.
Still, economic bruises can hurt, even if they are invisible, Hill said. “It is not like I can draw a clear, direct line from the trade war to a slowdown, but it’s there.”
With the United States importing $346.5 billion worth of goods from Mexico, that 5% ain't nothin'. So, if tariffs do hamper the economy, there won't likely be a dramatic and sudden spate of layoffs.
But if it causes companies and investors to worry — or just adds to concerns — the new tariffs might slowly start to chill the investment that drives economic growth.
Growth depends on risk-taking and — more than any direct assault — tariffs spark the kind of worry that can scare people away from taking chances.
“People are worried about uncertainty,” Hill said. The real risk to the average guy is going to be that all the uncertainty about the trade war damages growth in the economy.”
That can make it seem like there’s no significant injury.
“The reason that politicians like tariffs and economists don’t is that the pain is spread very widely,” he said. “You might get a business gain for someone, but the pain is spread across the whole economy.”
That means that it will be harder to know over the next few months if the tariffs are undermining the economy. But for Atlantans who want to know, there will be clues.
1. Check your bank account at month's end.
Tariffs are paid by the buyers. But when it comes to basic materials, consumers generally don’t make the purchase.
So, when the U.S slapped a tariff on steel, consumers didn’t see the full effect with any one item. Instead they paid as they bought items like soda cans, cars, hinges and forks, Hill said. “If you are a consumer, you are buying the steel that goes into a thousand different things.”
When it comes to the tariffs on Mexican goods, pay an extra 5% here, an extra 5% there — at the end of the month, the household bill will be higher. If you are one of those fastidious people who keeps track of your spending, you’ll start to see you are saving less and spending more.
2. Watch those avocados.
Instead of tracking household spending overall, a consumer could just pay attention to one item that is affected by the tariffs.
Analysts say the vast majority of our avocados come from Mexico.
Maybe you’d rather track some Mexican made beer? Same idea. If your go-to brew each week is say, Tecate or Corona, your tab will tell you whether the tariffs are taking a slug from consumer incomes.
And then, if the answer is discouraging, well ...
3. Go car shopping.
Tens of thousands of U.S. cars are assembled in Mexico — many by U.S.-based carmakers like Ford and General Motors.
Among vehicles put together in Mexico are GM's Silverado pickup truck and the Blazer SUV. Mexican plants also churn out Volkswagens and Nissans.
But it's not just where the assembly lines are. Auto parts are shipped back and forth across the border with some U.S. parts in Mexico-made cars and vice versa.
If the tariffs stay in effect, the result will likely be more expensive price tags.
“If in six months the price of GM pickups or Chevy Blazers increases by $5,000 to 10,000, you are seeing the impact of tariffs on Mexico,” said Jon Gabrielson, an auto analyst who has lived in both Atlanta and Mexico.
4. Follow the ticker.
Economist Paul Samuelson famously said that the stock market had predicted nine of the previous five recessions. So, it’s wrong a lot, but predict it does — the market offers a daily snapshot of investment attitude about the next couple of quarters.
Moreover, the buying and selling on Wall Street has a particular kind of sincerity: with the prospect of profit or loss, investors are motivated to get their economic analysis right.
And the market had been signaling optimism — at least until this past week.
The Dow Jones Industrial Average climbed about 6.3% from the start of 2019 through Friday's close. But that includes the roughly 866-point slide last week, a 3.4% drop that was accelerated by trade worries.
If the big money on Wall Street sees no real economic danger in the tariffs, then stocks might return to the high road. But if the investors sense trouble, expect a longer, deeper decline.
5. Read the data.
Can’t keep track of avocado prices? Not sure if uncertainty is shaking the confidence of your CEO?
Have a look at some hard numbers.
Data tends to be slow, coming in a month or more after events. Data is also sometimes wrong — the government, for example, takes a few weeks every winter to fine-tune the previous year’s job numbers.
But data has weight, bearing the economic actions of tens of millions of Americans. And while sometimes off a bit, it doesn’t usually head off in the opposite direction of reality.
So, if the trade imbroglio does injure the economy, eventually the numbers will show it. Which numbers?
For starters, there's the overall share of people in the labor force who are looking for work. When hiring is robust, that number tends to rise. When hiring is slow, people get discouraged and drop out of the search.
But more often, the general health of the economy emerges with reports on unemployment, job creation and income growth.
Last year, for example, the Georgia economy added 92,500 jobs.
The state’s economy also gained jobs in the first two months of this year, but then lost jobs in the next two. The last time Georgia jobs were down three months in a row was the recession-tainted year of 2009.
BY THE NUMBERS
Imports from Mexico, 2018 (billions of dollars)
UNITED STATES: $346.5
Texas: $107.1
Michigan: $56.3
California: $44.1
Illinois: $13.2
Ohio:$9.2
Arizona: $9.0
Tennessee: $8.4
North Carolina: $7.7
Florida: $7.5
Georgia: $6.9
Source: U.S. Chamber of Commerce
Changes in number of Georgia jobs
November: up 7,400
December: up 10,700
January: up 10,300
February: up 5,300
March: down 700
April: down 14,900
Source: Bureau of Labor Statistics, Georgia Department of Labor
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