Latest tariff threats could lead to recession

The dangers of a full-on trade war for U.S. economy The Layered, Complex, and Dangerous Game of Mexico Tariffs The global stock market had a challenging May, and news last week that the Trump Administration was planning fresh tariffs on Mexico didn't help. The plan: Impose a 5% tariff on all Mexican imports starting June 10 and ratchet up the tariffs by 5% each month until reaching 25% by October.1 I'm an avid believer in the resiliency of the U.S. economy, with all of our diversity of production and diversity of goods and services. But 25% tariffs on all Mexican imports, in my view, might be enough to hamper growth down to zero. If we got to 25%, Zacks Investment Management would strongly re-assess the likelihood of a recession in the next six months, which as of today we continue to believe is relatively low. 25% tariffs on Mexico and China would amount to a full-on trade war, in my view, and it's difficult to assess what exactly that would mean in terms of effect on the U.S. economy. The U.S. hasn't been in a full-on trade war since the 1930's, and our economy is much different today than it was then. More... --------------------------------------------------------------- [Are You Prepared for a Potential Recession?]( There is no way to predict exactly how these tariffs will pan out or how this could impact the economy, but investors can prepare for what's to come and that means a potential recession. When preparing your investments for a potential recession, it is important to keep an eye on key economic indicators like the yield curve. To help you do this, we are offering all readers a first-look into our just-released June 2019 Stock Market Outlook report. This report will provide you with our forecasts along with additional factors to consider: • What about yield curve inversion? • Get more details on our bullish outlook • What sectors show the best opportunity? • What industries within those sectors most merit your attention? • What do we see for leading U.S. economic indicators (LEIs)? • Small-cap vs. large-cap returns • And much more. If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! [IT'S FREE. Download the Just-Released June 2019 Stock Market Outlook2]( --------------------------------------------------------------- The 1973 Arab oil embargo may offer some clues, given the parallels we may end up seeing in terms of supply disruptions3 - since China and Mexico provide a great deal of the raw materials and low skilled labor needed to produce goods. The cost of producing goods would rise, cutting into margins and essentially forcing businesses to raise prices. Higher prices would mean hitting consumer spending and consumer confidence, and perhaps even purchasing power with higher inflation. This chain reaction could weigh on growth in the short to medium term, in my view. The United States imported $346.5 billion of Mexican goods last year, which napkin math tells us amounts to over $86 billion of tariffs at the 25% rate.4 The tug-of-war between Mexican producers needing to lower prices and U.S. corporations needing to pass on higher costs to consumers would eventually make its way into higher end prices at the register, in my opinion. By some estimates, the current U.S. tariffs on steel, aluminum, solar panels, washing machines, and on China at-large amount to around a $200 billion annual hit on GDP, and 25% tariffs on Mexico by this fall could add another $86 billion (by my estimate above).4 Those numbers start to drift into flat growth territory, and they also don't yet account for retaliatory actions. In a sign of the market's disdain for the newly proposed tariffs, automakers got pummeled on the news, with shares of Mazda Motor, Honda Motor, and Toyota Motor all falling at least 2% on the news.4 Mazda assembles passenger cars in Mexico for sale in the U.S. market. The agricultural sector also appears nervous about the prospect of higher tariffs. The sector has been under pressure over the last year due to unfavorable weather patterns and volatile price swings for crops largely driven by trade disputes. According to the American Farm Bureau Federation, American farmers had largely been holding out hope that the new trade deal between the U.S. and Mexico, dubbed the USMCA, would bring certainty and stability to crop prices. But a new trade dispute with Mexico could place the deal's ratification in jeopardy - or at least on hold.5 Where the Tariff Issue Stands Now, and What to Watch For For Mexico's part, the Economy Minister Graciela Márquez and other officials appear intent on reaching a deal to avoid tariffs, but have also said the Mexican government could take the issue to the World Trade Organization or impose retaliatory tariffs themselves, as China did. Market-watchers should pay close attention to these talks this week, as President Trump has said that tariffs would likely be implemented next week even if talks are ongoing, unless a major breakthrough is reached. Bottom Line for Investors To date, the Trump administration has had a mixed track record following through on tariff threats. Some, like steel and aluminum levies and tariffs on China, have been implemented and remain in effect to this day. Others, like auto tariffs and tariffs on the European Union have been floated but not acted upon, used instead as a negotiating tactic. Here's to hoping tariffs on Mexican imports fall into the latter category. Either way, I suggest investors hope for the best but prepare for the worst, and that means ensuring your portfolio can ride-out any potential economic slow-down. To help you do this, I invite you to download our[Just-Released June 2019 Stock Market Outlook Report.]( This Special Report is packed with our newly revised predictions for 2019. For example, you'll discover Zacks' view on: • What about yield curve inversion? • Get more details on our bullish outlook • What sectors show the best opportunity? • What industries within those sectors most merit your attention? • What do we see for leading U.S. economic indicators (LEIs)? • Small-cap vs. large-cap returns • And much more. If you have $500,000 or more to invest, learn how you may be able to prepare your portfolio for changes in the economy by reading this new report today. [FREE Download - Zacks' June 2019 Stock Market Outlook7]( ------------------------------------------------------------------ 1 The Wall Street Journal, May 30, 2019. 2 Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion. 3 The Wall Street Journal, June 5, 2019. 4 The Wall Street Journal, May 30, 2019. 5 The Wall Street Journal, May 31, 2019. 6 The Wall Street Journal, June 4, 2019. 7 Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion. 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