Need more evidence that we’re all just a little bit poorer than we need to be? This week’s disappointing news on U.S. production of long-lasting capital goods was another reminder that trade wars and the resulting slower world economy are eating away at our prosperity.
The sharp decline in durable goods output (the largest drop in four months) confirmed what the International Monetary Fund had earlier reported when it reduced its estimate for world GDP growth. Much of the weaker growth was attributed to weaker world trade growth.
Now, according to the IMF’s most recent data, growth in world trade has fallen to 1%, which is the weakest level since 2012. Indeed, the IMF estimates that this year’s loss in this prosperity-forming activity has reduced world GDP growth by 0.8%, which is the size of Switzerland’s economy.
To think that this was done deliberately by world politicians who believe we will be more prosperous when trade follows the pathways they prefer and not the ones that were already taking us where we wanted to go.
The U.S. imprint on all this was made clear recently when the Federal Reserve Bank of Philadelphia produced its latest map showing the three-month growth in its 50-state coincident economic indicators, always a useful collection of data.
A quick glance at the map identifies the states that are hurting most from the trade war-induced slowdown: Delaware, Kentucky, North Dakota, Ohio, Pennsylvania, West Virginia, Wisconsin, and Wyoming, which reflect a combination of manufacturing and coal and grain specialization.
Our Washington trade-war enthusiasts apparently have their own agenda, and cannot be too surprised to see that much of the U.S. industrial heartland is bearing the burden of their policy plan. In some cases, these states are home territory for the forgotten men and women referred to in President Trump’s inaugural address who looked forward to a better dose of prosperity.
You might eye the map and counter the ugly evidence with the happier observation that yes, there are slowing state economies, but the U.S. economy is performing with some of the lowest unemployment rates in recent history. And you would be correct. But the occurrence of high employment in the face of a slowing economy can be the result of putting tariff-made rocks in our own harbors to keep out lower-cost foreign goods. When cheaper goods can no longer be imported, we have to work longer and harder to maintain the same level of consumption.
Low unemployment is something to celebrate but let’s at least note that there are some people who might (quite reasonably) prefer to work a little less with more leisure time and cheaper cars, clothes, and tools, which are some of the goods that have been hit with tariffs.
And let’s all hope that we will see some meaningful progress in the U.S.-China trade negotiations. If we are lucky, we may be able to enjoy the same level of prosperity that we celebrated before all this started.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
