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The stakes are raised this week for resumed U.S. and Chinese trade talks as mounting concern from the American business community paralyzes domestic investment.
A new survey from the National Association for Business Economics published Monday found that roughly 85 of those surveyed have lowered their growth expectations in response to the Trump administration’s trade policies, with respondents predicting that median GDP growth will fall to 1.8 percent, year over year, in the fourth quarter of 2020.
"Trade is the main issue that’s on people’s minds, so that makes this week’s negotiations especially important," said David Dollar, a senior fellow at the Brookings Institution. "There’s a lot of confusion on the part of business. That leads to hesitation."
American companies and investors initially were sanguine about the trade war, even as tit-for-tat tariffs cut into economic growth both in the U.S. and in China, because most viewed the administration’s protectionist stance as a negotiating ploy. Over the summer, though, that assumption began to fall out of favor, edged out by a worrisome realization that this stalemate might drag on indefinitely.
Last week, the Conference Board’s CEO confidence index plummeted by nine percentage points to a third-quarter reading of 34, the lowest it has reached since the first quarter of 2009, when the United States was still in recession.
The Conference Board’s senior director of economic indicators, Lynn Franco, cited "tariffs and trade issues” as a top fear factor for corporate leaders. In a separate recent poll, Franco said, "We found that a large majority believe the recent trade disputes will have a lasting impact on their business.”
Hamstrung business investment strategy puts the U.S. at a disadvantage in this week’s trade talks, experts warn. Rather than being tough on China, Trump’s tariffs could boost Beijing’s negotiating position.
“It unquestionably strengthens China, because the reality is the Chinese economy is much better able to withstand the negative impact of trade,” said Jacob Kirkegaard, a senior fellow at the Peterson Institute of International Economics. “The persistent weakness of U.S. corporate investment is clearly playing into the hands of the Chinese,” he said.
“Most of the uncertainty, in our opinion, is based on the global growth and trade negotiations,” said Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute. Usually when you’re late in the cycle, the baton is passed from the consumer to corporations and this just hasn’t happened this time around,” he said.
Now business leaders are worried the trade war could escalate.
“What we saw as short-term uncertainties about U.S.-China negotiations only a few months ago, we now see as long-run issues about the decoupling of the Chinese and U.S. economies,” said Peter Petri, a professor of international finance at the Brandeis International Business School.
Even if a breakthrough this week leads to a small deal, market observers said much of the damage that already has been done can’t be unwound.
“Firms will be postponing investments not just until we find out what the next deal is, but much longer than that, until future policies become clearer,” Petri said. “That will hurt the outlook for investment and growth well beyond the next few months.”
“You can’t expect a big pickup in [capital expenditures] until we get more certainty. It’s going to take some time for these companies to feel good,” Wren said. “It’s going to take some time to get up and running after we see some resolution to these uncertainties — if we see a resolution.”