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Auto sales are healthy, but politics a wild card: economist

April 6, 2018
It should be relatively smooth sailing for the U.S. economy in general and for U.S. auto sales in particular the next couple of years, "unless the politicians mess it up," said Nariman Behravesh, chief economist for IHS Markit.
"Left to its own devices, the U.S. economy and the global economy can go on at least another two years" before any serious worry about a recession, Behravesh said at a March forum at the New York Auto Show.
Behravesh said U.S. auto sales should stay in the neighborhood of a healthy 17 million new vehicles annually. He predicted sales of 16.9 million in 2018 and 2019, and 17.1 million in 2020. New-vehicle sales in 2017 were 17.2 million.
However, those numbers are down from the all-time high of almost 17.6 million in 2016, following a record-breaking seven years of year-over-year sales increases. The decline has created some concern on Wall Street that U.S. auto sales could be headed for a more serious cyclical downturn.
 
At the forum, Behravesh and other speakers were more upbeat, but there was that "unless." Specifically, Behravesh said he’s keeping an eye on two areas where "the policiticians" could "mess it up."
 
The first was that if inflation rises faster than many analysts including Behravesh expect, the Federal Reserve could "step on the brakes too hard" and raise interest rates so high, it could lead to a recession in a couple years. Behravesh said he gives that scenario a 1-in-3 likelihood, "so it’s not a small probability."
 
The second is a potential trade war between the United States and key trading partners, including China.
 
In the short term, Behravesh said he’s not too concerned about the recent tariffs on imported steel and aluminum, partly because there seem to be a lot of exceptions. In the longer term, Behravesh said he’s more worried about unintended consequences. For instance he said a steel tariff could kill more U.S. jobs in other industries than it saves in the U.S. steel industry, because the tariff would raise steel prices.
 
"If we raise tariffs, we do more harm to ourselves than to the trading partners. This is even before retaliation," he said. "Trade wars are bad. Trade is a positive-sum game; there are more winners than losers. A trade war is negative-sum; there are more losers than winners."
 
 

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