At a Glance
- For now, economic fundamentals are strong enough to outweigh the uncertainty from protectionism
The history of tariffs is pretty clear. They can create jobs in the protected industries but then destroy lots of jobs elsewhere. To date, U.S. job growth has not been impacted by the trade war and there are little signs that this growth is coming to a halt. So far, the stimulus to the economy and the tax cuts have accelerated corporate investment and consumer spending and that has been the cause of sustained job growth.
Labor market holds firm
Recent Fed minutes have expressed concern that uncertainty over tariffs could have negative effects on business sentiment and investment spending, but so far those concerns have not led to a decrease in hiring. Though U.S. job growth slowed more than expected in July, likely due to companies’ struggles to find qualified workers, the overall unemployment rate declined yet again, pointing to tightening labor market conditions. The slowdown in hiring in July likely was not the result of trade tensions, but rather a shortage of workers. In fact, the number of Americans filing for unemployment keeps declining, a sign that the labor market is holding firm despite tensions between the United States and its trading partners. The August jobs report beat job growth expectations.
The U.S. has now added jobs every month for 94 months in a row – the longest such stretch since records began, and for now, the underlying fundamentals are strong enough and the stimulus to the economy from fiscal policy is large enough to outweigh the uncertainty from protectionism. In addition, the Fed is also expecting better economic growth and projecting consumer price inflation (CPI) to run a little higher in the second half of 2018 due to energy price gains, which should keep the job market robust.
A bumpier ride ahead?
Business’ number one problem is finding qualified workers. If the current pace of job growth is sustained, this problem is set to get much worse. These labor shortages will only intensify across all industries and company sizes. Economists say the second half of 2018 is likely to be a bumpier ride for the labor market if the administration’s trade policy remains on its current trajectory.
The question now is whether the trade war which officially began just a few months ago might start to weigh on growth moving forward, but that remains to be seen. Jobless claims data is being closely monitored for signs of layoffs as a result of the Trump administration’s protectionist trade policy, which has led to an escalating trade war with China and tit-for-tat import tariffs with trading partners, including Canada, Mexico and the European Union. While there have been reports of some companies either laying off workers or planning to as a result of the import duties, that is not yet evident in the claims data. But, this could undo the tax cuts benefits and derail a solid economic environment.