CEO Roundtable: The Economy

For this CEO Roundtable podcast, local economists sat down with Springfield Business Journal Executive Editor Christine Temple on March 3 to discuss the impact of tariffs, consumer and business confidence, workforce trends, and inflation predictions for 2025. This month’s guests are Jason Flores, executive vice president and chief investment officer at Central Trust; and David Mitchell, Missouri State University professor of economics and director of the Bureau of Economic Research and Center for Economic Education.

Here is an excerpt from the start of the conversation:

Christine Temple: I want to start by talking about probably what's top of mind today, which would be tariffs. President Donald Trump said just at the end of last month that he would impose 25% tariffs on imports from Canada and Mexico and increase tariffs on China to 20%. That's expected to start tomorrow, March 4. What impact will tariffs have on American businesses and consumers?
Jason Flores: One thing you left off there was potentially 25% on Europe, as well. So, you're looking at a big chunk of the world. The United States is roughly a quarter of the world's GDP. From an investment standpoint, which was what I typically focus on, is the S&P 500 that everybody invests in. Forty percent of the revenue is generated from outside the United States. And so when you look at that GDP outside the United States and when you look at the revenue that comes into the United States from outside of our country, I mean you're seeing the impact on stocks today (March 3) with the S&P down 2% after he talked about tariffs being enforced tomorrow (March 4). It makes it hard to have any certainty in what you can invest in, what kind of cash flows you can expect. And then when you talk about retaliatory tariffs from these countries, I mean just in general, we're not making any economically significant friends in the world. About the only countries we haven't really levied any tariffs on is Australia, New Zealand and Japan. It makes it really difficult from an investment standpoint to feel really good about stocks or equities going forward. Absent tariffs, you probably would be pretty interested in stocks right now.
David Mitchell: Especially when you're looking at this from a consumer standpoint, all these tariffs do is just raise prices. It's essentially a tax that gets passed on to consumers. Like Jason said, it creates huge amounts of uncertainty because Trump will one day say we're going to have the tariff and then two days later he says we're not going to have the tariff. Certain people have this idea that there's only so much to be produced in the world and that when you have trade in order for somebody to win, somebody has to lose. That's not the way trade works at all. When both people trade, both people win. If you have these tariffs, you decrease trade, you take away the value that you get from we make airplanes and China makes T-shirts. It doesn't make sense for us to make T-shirts, it makes sense for us to make aircraft and for other countries to make these other goods and services that we do not have what we call a comparative advantage in. So, his idea is that he wants to bring back industry to the U.S. shores and to have people make T-shirts here, but if the tariff is 25% today and then it's gone a month later, you can't build the T-shirt factory in that time. You have to have the tariffs in place for long periods of time for people to make those types of long-term investments, and it's just not going to happen.
Flores: That's the biggest issue I've had with it. For most people, you're just going to weather the storm and pay high prices for three or four years and see what the next administration is because you're not going to make a 20-, 30-year capital commitment to something that might only last two and a half, three years. From an investment perspective, when they look at us for investment advice, it's really hard to say because as David alluded to, policy could change tomorrow. So, I don't want to tell everybody, "Hey, let's get out of stocks because they're going to fall with tariffs." That policy could literally change in three months, six months, a year and then we're going to miss this huge rebound that would likely happen. The other thing it does is you're going to get some at least short-term inflation. The only way you don't get inflation is if we build the factories here and we can do it cheaper, which is basically nonstarter right now with the majority of products we're looking at. But you get an inflationary bump there and that limits what the Federal Reserve can do as far as cutting rates. I'm going to say the word “stagflation” because we're seeing things with immigration reform and deportations that's taken out the low end of the workforce, meanwhile, we got unemployment with the federal workforce that could impact numbers. So, you've got things like slowing growth from lack of purchasing, you got things like potentially higher unemployment in the months to come, but you also have a price increase. So, it kind of boxes the Fed in. What's going to be important in their dual mandate – is it going to be full employment or is it going to be battling inflation? The tariffs are going to slow down the economy on their own. It's quite a quandary we're getting into going forward.
Temple: I'm failing to see a winner in the tariff equation. Is there a short-term winner in this?
Mitchell: I don't think there is. Economists agree on very little as a general rule, but almost all economists agree that tariffs, they're not good.
Flores: I don't see a winner. I actually just penned my monthly commentary for our clients and I literally wrote, "There's no winners in this." I guess hypothetically the only winner would be the guy that wants to open the T-shirt factory and he's just been waiting for opportunity to do it. But not really a winner in this.
Temple: Even American-made manufacturing? I think about our state, that's been a focus of both the past administration and the current administration in Gov. [Mike] Kehoe reinvesting in manufacturing. Are there winners for manufacturing in our state or in this country?
Flores: The only potential winner is if they're manufacturing and they're only based on domestic consumption. Because if they're shipping overseas, they're probably going to face retaliatory tariffs. And if they're using inputs into their process that come from overseas, which most do, a lot of metal and aluminum and parts and things like that are coming from Southeast Asia and China in particular, they're going to see higher costs from those inputs and they're potentially not going to have as big a market when they export. Unless you're sourcing everything inside the United States and selling everything inside the United States, you're going to be impacted.
Mitchell: I'll give you an example that we always talk about, and that was the George W. Bush tariffs on steel back in the early part of the 21st century. We put the tariffs on there and we economists know that for every single job that was saved in the U.S. steel industry, it costs the U.S. economy about $750,000. That was 20 years ago, so imagine what that number is today, it's probably closer to $1 million, $1.5 million. The thing that we always talk about in economics is you can pass policy that benefits certain people at the expense of others.
Flores: I think what you're going to see too, potentially, as we talk further in the future about tax cuts and tax reforms, what you end up having is if those two things come into place, you have the people that are on the poorer end of the scale, it's going to cost them more to buy everyday goods and they're probably not going to benefit as much from the tax cuts as the wealthy are. So, you kind of got this double whammy for the lower end of the income scale where they're going to pay more and save less on taxes, where the high-income earners and the wealthy are going to be able to benefit from the tax reduction and proportionally not pay quite as much in tariffs or limit their consumption. It's hard to see this not benefiting wealthy folks. We'll have to see what happens with tax reform.