In ananalysisreleased this past weekend, Torsten Slok, chief economist at Apollo Global Management, warned that the U.S. economy could be just a few months away from a sharp slowdown caused by the trade war initiated by President Donald Trump.
"A trade war is a stagflation shock," Slok wrote, and a recessionary shockwave is already in motion (see his chart below).
Slok said a slowdown in the flow of container ships from China - a reaction to Trump's massive increase in tariffs on goods imported from China - is already evident in shipping data and will result in a huge decrease in activity at U.S. ports. That will cause a sharp reduction in the demand for trucking and delivery services, while producing empty shelves for some items at stores around the country. That in turn will result in layoffs at both trucking firms and retailers by early summer, tipping the economy into recession.
Major corporations are already starting to trim their earnings forecasts, but it's small and medium-sized businesses that will take the brunt of the downturn. "Expect ships to sit offshore, orders to be canceled, and well-run generational retailers to file for bankruptcy," Slok said.
It's not too late to avoid a recession, Slok says, since Trump could reduce tariffs even as he negotiates new trade agreements with China, as well as Canada and Mexico. "But, the bottom line," Slok wrote, is this: "If the current level of tariffs continues, a sharp slowdown in the U.S. economy is coming."
