(MUNCIE) – The national and Midwest economies will slow dramatically next year as gross domestic product (GDP) growth remains sluggish due to the Trump administration trade wars with trading partners around the globe, warns a Ball State University economist.
Employment growth in several Midwestern states turned negative in the first quarter of 2019, and the decline in total employment, especially manufacturing, will continue through the first half of 2020, said Michael Hicks, director of the Center for Business and Economic Research (CBER) at Ball State.
He will present his analysis at noon today during the 24th annual Indiana Economic Outlook luncheon, hosted by First Merchants, at the Muncie Horizon Convention Center.
“We project significant slowing of the domestic economy and Midwest economy through 2020,” said Hicks, the George and Frances Ball Distinguished Professor of Economics in the Miller College of Business. “We anticipate declines in aggregate and manufacturing employment to continue through the second quarter of next year, which would result in five quarters of negative employment growth in Indiana.”
Hicks blames the manufacturing slowdown on tariffs levied under the current U.S. administration’s application of the Trade Promotion Act, which targets manufactured goods with rates ranging from 10 to 25% on several hundred manufactured goods and supplies.
Separate tariffs on solar panels and some home appliances ranging from 30-50% led to tax revenues for the United States that could generate an estimated $80 billion a year, he said.
“Tariff increases are a small overall share of U.S. tax receipts but are levied on goods-producing sectors that sell both domestically and internationally. The shocks of the tariffs are small overall but concentrated geographically—focusing on the manufacturing heavy Midwest—and within industrial sectors,” he said. “Every discussion about recent economic developments and projections must include a review of tariff effects. We are simply feeling it here more deeply in the Midwest than the rest of the nation.”
Hicks also believes that east-central Indiana (ECI) will continue to experience declining demand for workers without a college education.
“The great period of stagnation for ECI extended from the late 1950s until about 2000,” he said. “A period of economic decline is now nearing its second decade. Population decline will continue for at least two more generations. The forces that generate lower standards of living, lower levels of employment, and labor markets more steeply divided into high skills and limited skills are likely to affect ECI more than most places in the United States.”
Hicks noted the decline in this region represents the response of households and businesses to conditions that have been largely self-imposed on this region.
“Dramatically lower levels of educational attainment, home vacancy rates approaching those of Detroit, and low-quality public services have been a feature of this region for decades,” he said. “Their importance in migration decisions for households and businesses is far greater than in times past, and these facts suggest a lengthy period of decline for most of the region will continue.”
For more information about CBER, visit bsu.edu/cber.