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News | Question of the Week, WC 23rd July
Pantheon Macroeconomics aims to be the premier provider of unbiased, independent macroeconomic intelligence to financial market professionals around the world.

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Question of the Week, WC 23rd July

Q. Has the expanding trade war, initiated by the U.S. administration, started to depress U.S. business investment decisions?

A. No clear hit to business capex is visible in the hard data or the surveys yet, though anecdotal tales of cancelled or deferred investment plans are easy to find in the (few) sectors affected so far.  In due course, though, and especially if the tariffs are expanded to hit another $200B or more Chinese imports, and cars from Europe, capital spending will be weaker than otherwise would have been the case.  Capex isn’t going to fall outright in the foreseeable future, because earnings growth is so strong, and businesses operating in competitive environments have to re-invest much of their profits in order to prevent losing market share to more efficient competitors.  

It’s very hard to quantify the potential hit, especially because we don’t yet know how much of the latest list of items ultimately will be subject to tariffs, or what might then happen after that.  It’s also possible that businesses right now are suffering from something of a failure of imagination, and can’t bring themselves to believe the administration could be so dumb as to impose tariffs on a wide range of industrial materials, capital equipment and, perhaps, consumer goods.  We think that judgment is premature, and that the risks are very real.  Most of the subsequent capex damage, however, will come in 2019, not this year.  For now, the trend in capital goods orders is strong.

Posted: 26th Jul 2018

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