Three factors hurting the U.S. economy
While the Trump administration has been bullish on the use of tariffs, Cohen is less convinced of their effectiveness.
“Tariffs cannot be positive, I mean it’s a tax,” Cohen said at the summit. Contrary to the narrative of the current administration, foreign companies don’t pay tariffs. They’re paid by the domestic importing companies, and their cost tends to be passed on to consumers.
A study by the Brookings Institute states that unless the U.S. “unwinds tariffs quickly, the economic, diplomatic, and strategic harms will be substantial.”
The Brookings Institute estimates that, with retaliation by Canada and Mexico — which is already occurring — U.S. GDP growth will fall by over 0.3% percentage points or $75 billion. Employment in the U.S. will decline by 0.25% or 400,000 jobs, while wages will drop by 0.5%.
Interestingly, the institute estimates that inflation will increase by more than 1.3 percentage points without retaliation but only by 0.8 percentage points with retaliation, since it will be mitigated by the slowdown in the economy.
However, these numbers don’t take into account the additional retaliation by China and the European Union. On March 10, China retaliated against Trump’s latest tariffs with an additional 15% tax on certain American farm products. And on March 12, the EU also announced duties on American industrial and farm products in response to a 25% tariff on steel and aluminum imports.
Cohen also expressed concern that immigration policies will depress an already-tight job market in the U.S.
Another report by the Brookings Institute states that “research consistently points to deportations hurting the U.S. labor market and leading to worse labor market outcomes for U.S.-born workers.” That’s because unauthorized immigrants work different jobs than U.S.-born workers (often jobs that citizens don’t want to do) and buy goods and services, contributing to a healthier economy.
In addition, Cohen is worried that Elon Musk’s goal of using the Department of Government Efficiency (DOGE) to cut federal spending by $2 trillion could result in the largest job cuts in U.S. history.
“When that money has been coursing through the economy over many years, and now, potentially it will be reduced or stopped in many ways, has got to be negative for the economy,” he said during the summit.
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Learn MorePotential impacts of a market correction
While economists don’t expect job cuts alone to result in a recession — they’re small, when compared to the overall job market — they do have the potential to shave a small amount off GDP growth depending on their scale. They’re also likely to have larger effects in Washington and the surrounding region.
Cohen is not alone among major investors in seeing the potential for market disruption. For instance, Bank of America has warned that some major companies are suffering “stock fragility,” which is defined by Bloomberg as “a measure of a company’s daily share-price move relative to its recent volatility.”
This is an indicator of stock price instability and, when it reaches high levels, the stock in question can be subject to whipsaw patterns. When it affects larger companies or many stocks, it can have implications for the volatility of the broader market.
The Buffet Indicator may also be warning of potential market weakness. The indicator, named after famed investor Warren Buffett, is a tool used to assess whether the market is either overvalued or undervalued compared to a historical average. This figure is found by dividing the stock market cap by the country’s gross domestic product (GDP).
When it’s highly elevated, as it is now, it may mean that stocks are no longer reflecting the economic value that companies are contributing to the economy. Its current levels exceed those seen in March 2000, prior to the bursting of the dot-com bubble.
Beyond investors, corporations such as Walmart, which is seen as a bellwether for the economy, expects sales growth to slow significantly in the coming year, according to the Daily Mail. Other retailers and restaurant chains are also reporting weaker demand.
The signals are mounting for a stock market correction, and this could in turn further weaken the U.S. economy. As share prices fall, people’s investments and retirement accounts may decline in value, which could cause them to pull back on spending.
It could also make it more difficult for companies to engage in long-term planning as they resort to short-term measures to prop their stock prices. In turn, this could lead to such measures as layoffs and reduced investment, which would also hurt the economy.
A falling stock market could also be viewed as a predictor of a recession, which would hurt consumer and business confidence, further dampening economic activity.
For the moment, the administration seems unconcerned with the potential for a stock market correction. But as consumer uncertainty rises and confidence falls, will they be able to maintain this stance?
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