Tariffs and the next economic downturn

May 15, 2019
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Written by Rose Gundersen, VP of Operations & Retail Services
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How can you prepare and take actions?

Trade talks with China have been the leading topic of global news; even the taxi driver in Hong Kong asked me for my insight on this topic when I was there visiting my family last month. We want to settle your jitters in this article.

First, I will share some key insights gained from attending “The US Economic Outlook and its Impact on Small Business” webinar during last week’s Small Business Week organized by the Small Business Administration. We will also provide suggestions for you to take action.

Are tariffs an economic downturn trigger?

A downturn is inevitable because of the nature of economic cycles, though the imminent trade war could pull the trigger sooner than later. Relevant questions are how bad will it be, and how should you prepare?

The economists offered data-informed insights into the depth and duration of the downturn.

  • The current relatively healthy household debt level and the recent steady housing price correction are the leading reasons that economists predict a 2001-style balance sheet recession instead of the 2008 Great Recession.
  • In other words, this downturn will affect the equity market, corporate debt and business investment more than consumer spending.
  • Metro areas with a higher percentage of an educated population will be more resilient than those with a high manufacturing workforce.

Impacts on retail spending – Throughout the 2001 recession, only 7 out of 25 categories of retail and food sales declined. Data from that period shows that sales growth continued for automobile dealers; electronics and appliances; building materials and supplies; sporting goods; hobby and musical; furniture; health & personal care and even clothing stores.  This pattern of prediction is reasonable because an equity market downturn affects wealthy households more than the average consumer. Retirement investment in the equity market is long-term so volatility on these investors does not usually affect most of consumer spending. High-end consumer products and durable goods will feel the stress, however.

How do small businesses prepare for it?

Two practical comments made during the webinar’s Q&A are relevant to small businesses:

  • Prepare your business for your local market’s vulnerabilities and refocus your marketing strategy based on this prediction.
  • Build margins in your business credit to invest in capital during the downturn. This will increase your ability to negotiate for favorable financing terms.

Key is to shorten the downturn and the trade war

A prolonged trade war with China, however, could trigger a worse downtown than the current prediction. As a trade association, Washington Retail is working closely with the National Retail Federation, Retail Industry Leaders Association, U.S. Chamber, Americans For Free Trade, and Tariffs Hurt the Heartland to amplify your voice at the national level.

We encourage you to click here to contact the President and your Congressional Representatives. If you want to keep updated on future developments or join our coalition, please contact me at 360-200-6452 or rgundersen@waretailservices.com.