Fannie Mae downgrades economic forecast citing "ratcheting up of trade tensions"

Lending

Fannie Mae downgraded its forecast for U.S. economic growth, citing a “ratcheting up of trade tensions,” and said 2020 will see the worst economy in more than a decade.

The mortgage giant revised its projection for GDP growth to 1.5% for next year, which would be the worst performance since a 2.5% contraction in 2009, according to data from the Bureau of Economic Analysis. Last month, Fannie Mae was forecasting next year would see a 1.8% gain in GDP, which would have made it the slowest growth since 2016.

“The ratcheting up of international trade tensions, including tariffs applied by the U.S. and China, as well as the threat to impose tariffs on Mexico, could lead to higher prices and a possible reduction in consumer and business confidence,” according to the forecast released Monday. “This same uncertainty could also impact the previously invulnerable job market, which reported only 75,000 new nonfarm payroll jobs in May and downward revisions to its March and April numbers.”

Last month, President Donald Trump hiked tariffs to 25% from 10% on $200 billion worth of Chinese goods. In retaliation, China raised tariffs to 25% on $60 billion worth of U.S. products starting June 1. President Trump has threatened to expand tariffs to a further $300 billion of Chinese imports.

The existing tariffs will cost the average U.S. household $831 a year through higher prices and reduced economic efficiency, according to a paper published by the Federal Reserve Bank of New York last month. In addition, the U.S. economy will suffer as companies buy more from suppliers outside China at prices higher than they paid before the tariffs. That shift means U.S. importers are paying more, but the additional money isn’t going into the U.S. Treasury, the report said.

Tariffs, also known as duties or levies, are collected by U.S. Customs and Border Patrol agents from importers – U.S. businesses – as goods enter the country. In other words, no one is handing China a bill. Typically, those American importers pass the added cost to their distributors who eventually pass it on to the consumer at the end of the line. 

“To be clear, tariffs are taxes paid by American businesses and consumers, not by China,” David French, senior vice president of government relations at the National Retail Federation, said on a conference call with journalists last month.

Leave a Reply