University of Arkansas Walton College of Business economist Mervin Jebaraj said that the lack of global coordination among world leaders isn’t helping efforts to avoid a U.S. or worldwide recession. He also contends that it is nearly impossible for U.S. business interests to quickly find new suppliers outside of China after decades of building long-term relationships.
Appearing on this week’s edition of Talk Business & Politics, Jebaraj said that the current climate of world leaders acting independently is different than in recent recessions.
“If you look at our major trading partners, people that matter in the global economy, a lot of these different countries are headed for a recession,” he said. “What is different now than previous recessions, I think you have far less global coordination as a response to these recessions. There are fewer and fewer leaders in several of these countries that believe in globalism, that believe in working together to address this recession so you’re going to see a lot of isolationists trying to look after their own country.”
“That doesn’t really work when all of our trading partners in several countries around the world are headed for a recession. There is a need for some coordinated responses. Just reading between the lines from the G7 meetings that recently finished up, we’re not seeing a whole lot of global coordination there, so it looks like we could try to avoid this recession by scaling back on those trade wars, but that doesn’t seem to be in the cards right now,” Jebaraj added.
He said there has been a shift in the conversation about economic health since the tariff wars began 18 months ago. Previously, economists and business leaders were focused on extending the long-running expansion, but trade battles have changed the narrative to avoiding a recession.
“I think what you’re looking at here in the domestic economy a lot of people are talking about a recession happening next year. If you poll various economists, about 60% of them think that there will be a recession either in 2020 or 2021, and the proximate cause for all these recessions and talk of recessions here in the United States and in other countries tends to emanate from the trade war that was started in the beginning of 2018,” he said. “Before that, we didn’t really have any talk of recession. We were talking about how long we can keep this economic expansion going. But since the trade wars have started, both the U.S. economy looks like it’s slowing down and might be heading to a recession next year or the year after, but around us when we look at the global economy you see several countries where their economies have slowed down drastically.”
Jebaraj noted slow economic growth or contraction in Canada, Mexico, Germany, Italy, Brazil, Argentina, Singapore, South Korea, and Russia.
As for President Donald Trump’s “ordering” American businesses to leave China, Jebaraj said it’s a near impossibility.
“It’s not very easy, it’s not like you can flip a switch and find new suppliers for $500 billion worth of goods coming into the United States,” he said.
Many of the tariffs on Chinese imports have risen from 10% to 25% in the past year, with the threat of 30% still a possibility. They are mostly on “intermediate goods,” which are defined as somewhere between raw materials and goods-in-process, meaning they come to the U.S. from China for manufacturers to add value to them.
“[These] are not goods that you and I necessarily go out and buy directly at the store. These are things that manufacturers in the United States import from China and use to make other goods that are then sold on to consumers here in the United States or exported elsewhere in the world,” Jebaraj said.
“It’s not like you could go to the local hardware store and buy a replacement part that you can then put in your machines or in your cars or whatever else you’re making here in the United States,” he said. “Oftentimes manufacturers in the United States set up long-term supply chains, long-term agreements with manufacturers in other countries to give them a very specific part to very specific dimensions, specifications, quality constraints, etc., and those very specific parts go into whatever’s being manufactured in the United States. It’s very hard to actually find a new supplier that can produce the exact same thing at the exact specification at the exact quality level and ramp up production so as not to affect production here in the United States…it’s very hard to do that in the short run.”
You can watch Jebaraj’s full interview in the video below.