It’s no secret that recent trade tensions have taken their toll on markets. One economist says he hopes these issues can be resolved quickly because they are “disruptive and needless.”
According to Vince Malagna president of LaSalle Economics, trade is the issue he’s watching the closest.
“The predominant issue here is the trade tensions that have erupted around the world and how that might impact the economy,” he told AgriTalk host Chip Flory. “You’ve got to be awfully careful here because a slight escalation in this could wreak measurable harm both on the U.S. and the rest of the world.”
Farmers praised President Trump’s tax cuts, but according to Malagna, the strength the tax cuts gave to the economy is the reason Trump is confident taking such an aggressive approach.
“I don’t think it was intentional, but it is interesting that the tax cut imparted a degree of strength to the economy and got the economy rolling, and because the economy on a whole is growing strongly, I think they feel they have an edge on the rest of the world and sort of can take this aggressive stance in trying to correct some of the trade imbalances that have evolved over the past couple of decades,” he said.
That’s a slippery slope, though, according to Malagna.
“It's risky. Tariffs are taxes, and the people that are going to feel the effect of the higher taxes are consumers around the world and exporters of U.S. products, as we're seeing with respect to a lot of agricultural products,” he said. “You can put a short-term band-aid on that, but the real risk is a longer-term loss of market share.”
Malagna would rather see a united response to the Chinese issues but says this administration has taken an adversarial approach both with China and our friends like Canada, Mexico and the EU.
This fall, trade and mother nature will collide, Malagna says.
“The fact is that Mother Nature has been very favorable, and so as a result, we're going to produce record crops that would imply to the degree of downward pressure to price anyway,” he explained. “The worst thing though, is to have a lot of supply and then have a market shut off on you. I don't want to see that happen. I want to see these markets open up and open up fairly quickly. It's disruptive and needless.”