Could Trade Wars Cause the Next Recession?
Could Trade Wars Cause the Next Recession


According to the People’s of Republic of China Ministry of Commerce, China and the U.S. have agreed to roll back tariffs on each other’s goods in phases as they work toward a deal between the two sides, Bloomberg reports. Bloomberg stated that an anonymous U.S. official confirmed Thursday that an agreement to roll back tariffs would be part of phase-one deal.

“The question right now is what the two sides have actually agreed on. The market’s focus has shifted to how the U.S. may react to China’s tariff remarks tonight or in coming days,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. “Investors are still cautious.”

In housing, the ongoing trade war between China and the U.S. is “kicking the tires” of growth, according to a forecast from Goldman Sachs, adding insight as to what that could mean for a recession.

A report by the Council of Foreign Relations projects that a recession could occur as soon as the 2020 Presidential Election. The report references the years preceding the 2008 financial crisis, which saw a rising gap in the growth in home prices and household income, and a “parallel dynamic is playing out” today.

“In 2018, as in 2005, housing-price growth began falling rapidly, with significant price drops occurring in several major markets … The trend-line in existing-home sales growth has also been down since 2015, tipping into negative territory at the start of last year. Similar drops have preceded nearly every recession since 1970,” the report states.

Earlier this year as tariffs were being discussed, industry economists discussed the direct impact tariffs have on housing.

According to Tendayi Kapfidze, LendingTree’s Chief Economist, tariffs on Chinese goods will be passed through the cost of new construction and renovations. He added the sector that could be hit the hardest are lower-priced homes, as “thin margins on lower-priced homes will shrink further.”

“This will exacerbate the inventory challenge at the lower end of the housing market, accelerating prices here beyond the added tariff expense, and worsening the affordability and availability problems in this part of the market,” Kapfidze said.

Danielle Hale, Chief Economist of realtor.com, said the biggest victims of the market’s decline are luxury homes, since they have “considerably more exposure to stock investments.”

Bloomberg reports that Trump administration officials in recent days have expressed optimism that phase one of a comprehensive trade deal might come together this month. Meanwhile, investors are waiting for further confirmation of progress between the two sides.

“I am skeptical on how fast the progress will be,” Iris Pang, Economist with ING Bank NV in Hong Kong, told Bloomberg. “How fast the roll back will be is critical to get material and long lasting positive sentiment for the market as well as for both economies.”





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