New Evidence Points to Mounting Trade Policy Effects on U.S. Business Activity

[swag]

https://macroblog.typepad.com/macroblog/2019/11/new-evidence-points-to-mounting-trade-policy-effects-on-us-business-activity.html

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Overall, our results say that the negative effects of trade policy developments on U.S. business activity have grown over time, particularly for firms with an international reach. Trade policy effects on the business sector as a whole remain modest but larger than we saw six or 12 months ago.

Twelve percent of surveyed firms reported cutting or postponing capital expenditures in the first six months of 2019 because of trade tensions and tariff worries (see exhibit 1). That's twice the share when we asked the same question a year earlier. Given the capital-intensive nature of manufacturing, it is perhaps more concerning that one in five manufacturing firms now report cutting or postponing capital expenditures because of trade policy tensions.

We also find that tariff hikes and trade policy tensions now exert a larger negative impact on gross U.S. business investment. Exhibit 2 uses SBU data on whether firms changed their capital expenditures due to trade policy tensions and, if so, by how much and in which direction. Column (1) reports the average percentage impact in the sample, where we weight each firm's response by its capital stock value. To estimate the dollar impact of trade policy developments in column (2), we multiply the weighted-average percent change by actual U.S. business investment in the first half of 2019, which yields an estimated effect on U.S. business investment of about minus $40 billion.

This estimated trade policy hit to aggregate investment is modest but roughly double what we previously found for the second half of 2018. Our results say that investment is hardest hit in manufacturing and construction, though perhaps for different reasons. The larger response for manufacturing is likely due to its higher international exposure, both in direct goods trade and across the supply chain. For construction, the impact is likely due to an increased cost of imported materials and equipment.

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[WhiteTara]

1. What did anyone expect?

[kimbutgar]

2. You see it in the stores

I love going to Ross and Marshalls, there is not much variety now and prices are going up. I see empty shelves in stores of imported goods. I go to this monthly flea market and one vendor told me that they are having trouble importing stuff from China to resell and the prices have cut into their profit margins where they no longer will sell at the flea market.