Hello and welcome to the February 2025 episode of Economy Watch. My name is Eric Lund. I am Senior Global Economist at the Conference Board and thank you for joining us. Welcome to the program of this month. We have a pretty good line up, some great speakers and a lot to talk about. There's been a lot happening over the last month or so, especially on the policy front. So we're going to spend a little bit of the time sort of digging into that all today. Specifically, we're going to talk about, as we do every month, the latest forecasts for the US and the global economy from the Conference Board. Talk a little bit about any changes that we've made. And then we're going to dive into what sort of tariff actions have been proposed by the new administration. And there have been a number of them. And then we're going to sort of take a look at some of the modelling that we've been doing and examine the potential macroeconomic implications of some of these these tariffs and some of the other policies as well. And then finally, we'll we'll of course, talk about what all this means for businesses. So in terms of guests today, we have Erin McLaughlin joining us. Erin, senior economist here at TCB. Welcome to the program. Thank you, Eric. Looking forward to it. And I'm very excited to introduce our brand new. We're not so brand new at this point, but our our new senior US economist, Yelena, she'll let you give up. Welcome. Welcome. To the program. Thank you so much. I'm so excited to be here. OK. So welcome to both of you. Also, before we kind of dig into the the content, I want to just remind the audience that we offer credits for watching the program. So make sure to take advantage of those if it's something that your company also offers. Also, please feel free to put your questions in the Q&A box on your screen. We'll try to weave them into the conversation. Or if we have some extra time at the end of the program, we'll circle back on on those questions as well. And then also you have the ability to react to some of the the material that we'll be showing on the slides. You can use these little emotion, emotion icons, which actually helps us so, so make sure to to, to use those over the course of the next hour. So we're going to go straight into the content. Elena is going to walk us through updates for the US forecast for February. So, Elena, why don't you take us, take us through what you're thinking? Thank you so much, Eric. So let's talk about the US forecast right now and let's just get it straight from the beginning. We haven't changed the forecast that much since the last round in January, just simply because uncertainty that we continue to see in the US economy about policy changes and everything else, it's still looming large. So we were thinking, OK, the US election that has ended, we know the results, right? We have a new president, but the uncertainty is still very large. So like you have a lot of uncertainty about what tariffs will be implemented, if any. You have a lot of uncertainty about the immigration policy and a lot of uncertainty about fiscal outlook and what happens next, you know, on that front. So we haven't changed the forecast for the years a whole, but we did change the contour of the forecast a little bit. So we see a lot of momentum, strong momentum in the economy over the turn of the year. So Q4 was very strong. So Q1 is probably going to be strong as well. Consumers are still spending. You see that in the data and we upgraded Q1 forecast a little bit. But at the same time we think that this uncertainty that I just mentioned is going to weigh heavily on growth in the economy as the year progresses. So we downgraded the our growth projections for the remainder of the year. So, but still we think overall the economy will continue to grow around potential at the year end and that should continue to put some downward pressure on inflation as the year progresses. It's hard to imagine that happening, you know, particularly given today's numbers. But we think that the sum of temporary factors affected CPI reading in January and that should debate as the year progresses. So here in the presentation, we have our projections for the year on GDP and the chart on the right hand side of the presentation shows a significant increase in uncertainty and that should probably, as I said continue to weigh on growth this year. So if we move forward, this slide is a very interesting 1 so and I would like to spend some time talking about it. So given the recent news on tariffs front, right, So here at the Conference Board, we ran a large economic model and that is showing us some scenarios. So what happens to growth and inflation if China tariffs stay 10% tariff on Chinese goods? What happens if the administration goes ahead with 25% tariffs on Canada and Mexico? And what happens if these tariffs will be imposed all together at the same time? So what this chart show is that actually if in case of a combined impact, so 10% in China, 25% on both Canada and Mexico GDP growth at the year end or four quarters after the imposition. So maybe going slightly into the first quarter of next year, GDP growth will slow down by almost one percentage point relative to our baseline scenario or in other words could actually go down to as low as 1% year over year. Inflation at the same time will pick up in our projection and will be something like 0.6 percentage point higher than our baseline. So that creates a lot of difficulties for the Fed. So what will they do? What will they continue to cut rates or not? So our baseline projection is that they will stay on hold until the second-half of the year and as the economy slows and hopefully inflation subsides, they will cut rates three times in the second-half of the year. And so you later these scenarios that we're that we're showing here, these actually don't even include retaliatory tariffs that that other countries could potentially respond with which could even introduce additional downside risk to the to the US forecast. And if they continue to to go back and forth with this tariff for us scenarios that will continue to increase uncertainty and that by itself could weigh on growth as well. So there are so many different scenarios. This is just simple ones that probably you and Aaron can also talk about. So it's the end of the webinar, but let's, yeah, let's just move. On. And talk about like why it is so important. So if growth slows down to something like 1% year over year, that is usually if you look at the history of GDP growth, that means growth could go into the negative territory following that. So this is kind of a stall speed the economy gets into at 1% and that is usually followed by a recession. I don't want to really stress the R word here. This is not our projection, but this is a major risk in case if like a large swaths of terrorists is imposed on the economy. All right, so let's move on and talk about the immigration, right? So that's another policy lever. This is another complication that we have to talk about at this time. So mind you that even before the new administration, you know, started talking about this and imposed stricter rules in terms of crossing the border and, you know, basically curbing immigration further. The executive order from Biden, from the Biden administration back in June significantly slowed down immigration flows through the the southern border. So already we are in a regime when growth will probably slow down, growth in the economy will slow down because there are fewer people entering the labor force and spending on goods and services. So that will put an additional brake on economic growth in our view. And if we continue to see stricter rules and continued restrictions or even like massive deportations, that will significantly weigh on GDP growth this year. So let me just talk a little bit about the two big levers of economic growth, right. So one I mentioned it's population growth. So and we have seen significant increases in population due to foreign born population. So will it continue? Well, given the the new restrictions probably not. So you know, foreign born population growth is already back to trend and the risk is that it will probably sleep below the the recent trend. Another lever is productivity and there has been a lot of talk and a lot of research about productivity growth. So it has been has been a pickup in productivity in recent quarters. And as the chart on the right hand side shows, it has been hovering above its pre COVID trend. The question is whether it continues. And I think the answer here is it depends on the timing. So in the short run, probably not. I think we have exhausted this kind of like post COVID boost to productivity. But over the long run, I think the Conference Board research shows that we will see a lot of pickup in productivity, but that will have to wait, I'm afraid, a little bit. No, especially you know relative to the decade between the the financial crisis and COVID-19 crisis, there was actually very little productivity and growth over that period of time. So relative to that especially, I think you know there is a longer term expectation that we might see a little bit more productivity growth in the future over the next decade or so. But anyway, getting back to our short term projections, so consumers will continue to drive growth in our view, especially in the, you know the first quarter of this year. So if you look at the charts here, you still you still have a strong wealth effect. So both housing prices and equity prices are driving that and households are household balance sheets are very healthy. So we really have a lot of accumulated a lot of equity and that is relatively high relative to our liabilities. So that is helping the consumer in general and allowing them to spend. So these are the two charts also showing the same concept, homeowness, equity is very high at decades high really like in on a relative basis. And the mortgage rates, So even though like new mortgage rates are like hovering around like 77 above 7% right now, the effective mortgage rates we are paying on our mortgages, especially those who were able to get those before COVID crisis, right? It's relatively low by historical standards. And the right hand side chart actually shows that effective payment on your mortgage has not really picked up that much. So that is helping the consumer overall. So consumers are also feeling just fine about spending. So the savings rate in the economy, and that's the right hand side chart here is relatively low. Actually, it's probably as low as just before the financial crisis when we were using our houses as ATM machines and we're spending on goods and services. So we're still doing that. And the left hand side chart chart shows that consumer spending remains above its long term trend, while income growth actually is slightly below. So that means we're feeling optimistic still despite a lot of this uncertainty, so. We had a quick question because we're kind of on the topic of, of income and, and wealth. One of the audience members was wondering how the health of balance sheets differs in terms of income groups. I think you know, there's, there's what the sort of upper quintiles are experiencing and, and quite a different story potentially among lower income households. Absolutely. And the the next slide will actually show that that's a great question and that is totally bifurcated. So higher income households enjoying the benefit of higher housing prices and home equity values. But on the other side of the spectrum, low income households or those who are basically maxed out in terms of the amount of debt they can borrow like on credit cards, they cannot do that anymore. And we have seen quite a significant pick up in delinquency rates which are driving increase in delinquency rates for overall consumer. So yeah, we definitely having this K shaped kind of growth where wealthier households are driving consumption. Nothing much the Fed can do about it because they their goal is to you know, regulate the overall economy. But unfortunately there's a lot of bifurcation happening on that front. So let's move on and talk a little bit about the dual mandate and the Fed itself. So on the labor market goal, right, the Fed is has done a great job. So if we take a look at, you know, the labor market payrolls growth is still solid. The latest, the payrolls report showed a slowdown, but that could have been slightly affected by weather. And given the upward revisions to the previous numbers, the, you know, the labor market is really doing is really on a solid footing. So one may argue that the hiring rate in the economy has slowed down significantly, and that is potentially a risk. But at the same time, you know, the layoffs rate is very low as well. So we're at kind of like a point where, you know, it could go better or it could go worse. Right now it's a Goldilocks scenario for the labor market. So I think that's probably the best place we could be at this point. In terms of the in terms of inflation. Unfortunately, we are not at the 2% target. And Chair Powell yesterday in his semiannial monetary policy testimony reiterated that they really want to get to the 2% inflation target, and they're not planning to change that target at all. So that means policy rates will probably stay on hold for the in the coming months. And yeah, the fail. the Fed will remain patient. We did have another quick question that that actually relates to inflation. So I'm going to try to slip it in here quickly before we talk about monetary policy and some and some of the confidence surveys that are out there. We're seeing some data about inflation expectations and that's starting to change a little bit. You talk a little bit about how those expectations are evolving. Is it something that we should worry about quite yet or not? Not yet. That is an amazing question indeed. And this is a very, very front and Center for the Fed as well. So the inflation expectations have been anchored and they are still anchored in our view. So if you look at the Conference Board measure, if you look at the New York Fed measure, they're pretty stable even over the short run and over the longer run for the New York Fed survey, the University of Michigan survey, we, we did see a a significant pick up over the last months, but it's just one month of data. So for now, I would say inflation expectations remain anchored, but it's a great risk, you know, if we continue to see this price increases and you know, the the price increases we're talking about may not be something the Fed has, you know, control over price effects, for example, right, That's surged back in January due to like supply side factors. But, you know, consumers see that and consumers are really worried about inflation because wage increases that they can ask for, it's not automatic. They have to be asked for. And you know, it's sometimes very feels very uncomfortable to do so. Consumers really worry about inflation and they may adjust their spending based on what is happening in the economy. For now, though, they remain anchored. So just to end my part here is here is the summary of our projections. There are a lot of upside and downside risks to that, particularly with respect to inflation and given what is going on with the data right now. But yeah, we still think that the economy will stay in a good shape this year and slow but slows down from a significant growth, significant post COVID era growth. OK. Thank you, Elena. There are a couple of questions and I'm going to try to, you know, bring up before we move into Aaron's section. One has to do with some of the tariffs that have been imposed. We've already seen like for instance the Chinese, the 10% China tariffs, those have already been imposed. The 25% Mexico tariffs, they postpone those by a month. So March 1 I think is when they're supposed to come online. And the same with the 25% on Canada. So the question is, you know, are we surprised that that our. Our forecasting model didn't change more given that some tariffs have already been implemented. I have some ideas about that. I don't know if you want to jump into it first. I would just say like with the 10% on China, this was kind of expected that the administration would go ahead with terrorists against China. The model shows only 0.2 percentage points decline in GDP. If only that. And the model also assumes that those tariffs are implemented for four consecutive quarters. So we've seen a week of 10% sheriffs on China. We haven't seen any impact on Canada or we haven't seen any tariffs on Canada or Mexico yet. So, you know, I guess you could say that it is our expectation that we at this point probably don't expect to see, you know, 10% tariffs on Chinese imports for a full calendar year at at at present, but that evolves over. Time, well, it's better than 60% that they discussed previously, right. So that's that's another thing. So there are a lot of different scenarios and it's very difficult to just keep up with the news here. But so far we don't see a significant impact of tariffs on growth so far. But if it's more broad based and particularly effects our major trading partners such as Mexico and Canada, that could have a much stronger impact. But I will let Erin talk about specific industries and goods affected. OK. And there's we did have a couple questions on Doge as well, but we can we can circle back on that. I don't want to want to, you know, get too distracted quite yet. So Aaron, let's maybe let's move over into, into your content a little bit because some of these questions I think are going to be answered in your section. So, but before we do really dig into the nuts and bolts of some of the, the proposals, we are going to do a quick audience poll question. So we're we're hoping to get your thoughts on some of this. You're from from sort of business leadership side, we're curious if the US it does implement 25% tariffs on Mexico and Canada in addition again that 10% that's already been implemented on on China and how is that going to affect your business? And there are three options. Could your benefit potentially, could your business potentially benefit from from these these kinds of tariffs? Would it not be impacted at all or potentially would your business be hurt by, by the implementation of, of these sets of tariffs? So I'm going to give you a minute or two to reflect on that. I really try to encourage everyone to, to participate and I usually won't move forward until we get to at least 50%. So take a second, hit the button and and then we can, we can talk a little, a little bit about your responses and, and, and get into Aaron's analysis on, on some of these tariffs as well. So we're at 38%. Can I encourage a couple more of you 41, I'll do a countdown 5432 and 1:00. So we got to 4246%. That's good enough. All right. So interesting or maybe not interesting. I think potentially it makes sense given, given our, our thinking at least 7% of you said benefit. So perhaps maybe there's foreign imports that you have to compete against. So that could certainly be beneficial. About 20% said not impacted. So maybe you're, you work in a sector that has nothing to do with with competition from, from in foreign goods, but 73% said it would hurt you. That's a pretty, pretty strong indication that that the business community is concerned about this. Aaron, you know you're going to talk a little bit about this. Does this surprise you or is this sort of as expected? This is as expected. Maybe we have some steel and aluminum folks on the on the webinar. They voted within the 7% which we'll talk about you know, shortly. So no, I think this is definitely in line with with what I would expect our our attendees are operating in reality. I think so. Well, why don't you walk us through some of the the recent work that you've been doing and you've been doing quite a bit. So please share with us your insights. This is. It's such an interesting time for those of us that look at trade and tariffs and supply chain items. So for the first couple slides, we're going to do a little bit of just sort of like a refresher on who do we trade with, how does this all work? So when we look at our top five trading partners by value, by what we're taking in China, Mexico and Canada are by far our top three trading partners. So there's a reason that they are sort of the countries that are being targeted with tariffs on their imports. And interestingly enough, Mexico surpassed China as our largest trading partner in 2023. And last year, I often remark, was the first year that Modelo became the most popular beer sold in America. So but it's not just beer. It's not just beer. One thing when you look at this chart that might come to mind is, you know, aside from our homes, which are obviously we're going to get to the construction stuff in a minute, but the largest ticket item that most, most of us purchase are automobiles. So, you know, obviously we've had a conversation about how a lot of our automobiles that are, you know, sort of American branded are made in Mexico and Canada. So that's also one of the reasons. And as you'll notice, our 4th and 5th trading partners are Germany and Japan, which is where a lot of the other automobiles that we buy come from. So that does sort of definitely weigh in. Now when we look total all goods that are imported and exported out of the United States, we our latest data is from January through November of this past year. The by value top goods that we import are actually before passenger cars are pharmaceutical preparations. So this includes generic drugs, over the counter drugs. And it's very, very interesting because in the last 10 years, China and India are the world's largest exporters of things like ibuprofen and other and generic prescription drugs. So that is something for us just to keep an eye on. I'm not going to go super deep into that today. Secondly, for goods imported passenger cars followed by crude oil, Canada is our largest trading partner, the largest amount of crude oil we get in and then it follows follows on down. As far as exporting goods, we are a net energy exporter. We have been I believe since 2019. We also export pharmaceutical goods and other industrial machinery etcetera. So just very interesting for us to sort of have that in mind as we sort of are in this new environment that we're in now. I did this chart last week and as you all can imagine, we're working on short time frames here because we never know if a policy is going to stick or not. So when this chart was done, we had those proposed tariffs on Canada and Mexico of 25%, which are now postponed a month. So I believe March 4th is the new date and 10% on China which stuck. So what we're looking at what what I did here is looking at all three countries, which are our three largest trading partners, what do we import the most that we don't produce in the United States. So the first category for us to look at is what I've, you know, grouped as grocery items. So vegetables, live animals that are used for our meat production preparations for cereals, flours, that kind of thing, animal feed and other products. So more than 50% of what we import in the US and all those categories come from those three countries and we're going to talk dive in a little bit more in the food in just a second. And then the second category after toys, which mostly come from China that I think we will see you know quick impacts in our building and consumer packaging materials. So in that category we have critical minerals and other sort of metals and alloys. So we have zinc, we have wood, iron and steel, plastics, aluminum and glass and just announced over the weekend and in effect right now is a 25% tariff with no country exceptions on iron and aluminum. So that is also very, very interesting and that's really impacting very strongly our neighbors to the north. So first we're going to go back and talk about those food supply impacts because I believe that if we do have tariffs against Canada and Mexico right now, it's postponed potentially until March. Our we have not had tariffs in any way regarding these two countries because we have been operating under what is called NAFTA 2 point O, which is essentially a free trade zone between all three countries. We're often even within manufacturing, imports and goods are going back and forth across our borders all of the time. So if we do have tariffs against Mexico and Canada, I believe the 1st place that we're going to see it, consumers are going to see it is within our food supply. So the US imports 59% of its fresh fruit sold in stores, 35% of fresh vegetables. Mexico is the source of 69% of the imports, 20% from Canada for vegetables and then fruit. Obviously, Canada's not a very tropical place, so they're only contributing 2% of the fruit, but Mexico 51%. And then they also add in live animals that are used for meat production, protein production. And then just something to keep in mind, supply chains for perishable goods and for live animals are obviously the importance of those kind of supply chains is that they are geographically close to the US. So these are not necessarily things that are going to be just put on big cargo ships. A lot of our transport between Mexico and Canada is happens much faster and happens via majority via truck and freight rail with a small percentage coming from cargo ships. So something to keep in mind that I will think we will see the first impact. Now secondly, we are now as of this week under 25% tariffs for steel and aluminum coming into the US. So this is essentially an elevation and and an elimination of the exceptions on similar tariffs that were put in place in 2018. I'm sorry. They go into effect on March 12th. The US imports about 1/4 of its steel and about half the aluminum that it uses. The largest exporter of steel from the US is come from Canada, which is about in total 29.2 billion and also 40% of our aluminum. So we do have a foreign reliance on these materials. They are essential construction materials. They are also essential in many areas of manufacturing and consumer packaging. So I see those as the three industries that will be impacted the most. First is construction, commercial and and residential. Second would be manufacturing machinery and components and thirdly consumer packaging. If you drank an espresso pod this morning, that was an aluminum little cup in your Nespresso pod, which I think are do come from recycled aluminum as well. So yeah, actually. I read this morning, Aaron, that there's a soft drink maker that just sort of made an announcement about this thing that they're going to potentially pivot towards plastic bottles more and get away from the aluminum cans. To. Sticks. So we'll see. We'll see. So very, very interesting now since steel and aluminum, but especially steel is a major component in construction. So the construction of all, you know, multi story residential buildings, office buildings, manufacturing buildings as well as infrastructure, bridges, guardrails, rail lines are made of steel. We've actually seen non residential construction spending increase quite a bit. In the largest category within non residential construction has been manufacturing and we've seen that take off since 2021 in most in large part due to industrial policy. So as you all will remember the the Infrastructure Investment in JOBS Act was passed back in the fall of 2021 followed by the CHIPS Act, which due to grant programs and other things encourage reshoring of semiconductors and chips. And so because of these industrial policies, we have seen commercial construction be very weighted towards manufacturing and public infrastructure since then. A reminder once these bills are passed and these efforts take hold to start to rebuild manufacturing and other public or private infrastructure. It does take a couple years for construction to start because you have to permit a project and you have to design a project and it has to go out forbid and then it has to be built. So, you know, that is something to think of. A lot of the policies that we are seeing from the current administration are essentially to realign the goods that we manufacture in this country. It is to encourage reshoring. We'd already seen that encouragement from the previous administration, although it was very targeted towards semiconductors, clean energy and a few other, you know, sort of industries. But if we see it overall, I do believe that's going to accelerate demand, which we haven't seen that, you know, we've seen pretty flat demand for steel because although we have had robust manufacturing and public spending on infrastructure and buildings because of high interest rates, you know, that came about in 2022. We've seen pretty flat demand for steel from the private sector and from, you know, more traditional buildings. And so if we see an acceleration in demand for these materials due to tariffs and due to encouragement of restoring, I do think that we're going to see an inflationary environment obviously for steel and aluminum. So besides talking about commercial construction, I did also want to hit on residential as well. So you later referred to, you know, our interest rates regarding mortgages and how overall many folks are still enjoying a very low mortgage rate because perhaps they got it, you know, into their house obviously before 2022 and they have a 30 year fixed and they're not moving around. So, but we have not seen sales volumes at the level that we need. The fact that we have a domestic housing shortage was a topic of conversation during our elections last year. And at the same time, we've seen home prices stay elevated. I think again with building materials perhaps being under pressure due to tariffs and due to an accelerated demand on the commercial side that we may also see an impact on the residential side which would further tighten and raise prices for home building. Aluminum steel is used in multi family construction. It is used in beams for some single family residences, but aluminum is used in almost all window casings and other thing in appliances, highly common. And so that is also something to keep in mind. As far as if these tariffs go into place, where are we going to see evidence of it first? And with that, that's sort of a summary of of our trade and tariff industry focus. Well, Aaron, you're not off the hook quite yet because we do have some audience questions. So I'm going to, I'm going to keep you on for a little longer. And this actually might be a question for all three of us, but maybe you can respond first, Aaron and then Elena and I can can weigh in if we have anything to add. And it has to do with the tariffs that the current administration is using tariffs as a negotiation tool as opposed to sort of a policy that's going to be implemented for a long period of time. They're curious how likely is it that the tariffs will be imposed on Mexico and Canada? Is this going to be a short, you know, tactic to achieve an objective or are we looking, you know, are we, are we thinking this is going to be a big structural shift in terms of in terms of the actual tariffs that we have on these two trade partners? Aaron, any ideas? Is this a tactic or is this something that we're going to see and and last for years and years? Well, when the tariffs were initially announced, there were two standards that the administration said they were going to measure that they were imposing the tariffs for. It was because of, you know, undocumented folks crossing these borders and it was because of drug drugs crossing the borders, particularly fentanyl. So I think that, you know, us, our audience, the public, we have to say we have to take some of these things at face value. So if those are the barometers by which the administration is going to measure whether or not they want to have tariffs against Canada and Mexico, I think that that needs to be measured and we need to keep an eye on it. However, if that is not what's really happening and it is a negotiation tactic, I think this will be more revealed as we get closer to renegotiation of the US, Mexico, Canada trade agreement, which is set to sort of expire in the summer of 2026. So, you know, you could take it both ways. I think that if there is a genuine desire with this administration and with the business community and the American public to reassure our manufacturing and to alter our supply chains away from countries that are not our allies, that are not the way that we see Canada and Mexico, that is a different path. That should involve Canada and Mexico in friend shoring and near shoring along with the shoring. That makes a lot more sense. So if diverting supply chains away from China, for example, or from other countries, does America, does the US have the capacity and the labor to fully build out and produce a lot of these goods that we import around the world? Or is it beneficial for us to, for example, rely on Canada that does have the labor where labor costs are lower? To help us not just re shore, but friend shore. So I I think a lot is sort of to be determined with regards to this. But in my mind, I think that it may be a negotiation tactic. And I think that a long term strategy of of treating Canada and Mexico as we have in the past might benefit, you know, the the greater plan. Elena, anything to add? Just to add to that, I think what we have seen over the last months is telling us it may be a negotiating tactic, particularly like with what happened to Colombia tariffs and and just Mexico and Canada being postponed as well. So I think it tells us it's a little bit of a negotiating tactic, although I would say that, you know, during the previous Trump administration, they didn't post tariffs. They were serious about it and whatever he said they did. So that kind of like a counter argument to that. But I think at the end of the day we will see tariffs imposed, but probably not as broad or as high as they were they have been talking about. So it's it's my understanding, I was talking to some of our colleagues at the Committee for Economic Development, CED, that's our public policy arm at the Conference Board. And it's my understanding that that the tariffs on on Canada, Mexico and China, as Aaron pointed out, are in response to some of these immigration challenges and some of the narcotics challenges, and that these tariffs were legally implemented using something called the International Emergency Economic Powers Act. OK, That these were national security threats and that the US is using tariffs in response to that. But traditionally if you're trying to use tariffs to defend the economy against tariffs that other countries have, this isn't sort of the legal sort of vessel that you use to do that. There are other sort of channels of of accomplishing that. Presently there is a review taking place at the White House of various sort of competitive issue, competitiveness issues for US exports and other economies. And that that report will be made available on April the 1st of this year. Once it's available, that essentially creates a new option for legally implementing these tariffs, which is a little bit more traditional in terms of while you're doing this to our, our grain exports. So we're going to counter it with a 50% tariff on your, you know, XYZ tariff. So I think that there's a real potential to see a whole another volume wave of of tariffs going out coming out of Washington after that April 1 deadline for that report. And as Elena brought up, you know, go ahead, please. I think one of the things that's that's very interesting is when there has been discussion against tariffs, particularly not in the case such as with steel and aluminum, which is really about industry and frankly trying to encourage and protect the steel industry in the US. But when it's discussed per particular country, it's often posed that we have a deficit with one country, that it's like US versus country X and there's a deficit and we need to straighten out that deficit. That is not necessarily a philosophy that most economists would agree with. You know, we operate in a global economy. So looking at things country by country with regards to whom do we have regardless of whether they're allies are not and looking at if there's a deficit in how it can be corrected is a very different way of looking at things than we have experienced in the past. And that is sort of the some of the messaging that we are hearing that I think, you know, it's to have a lot of a higher level philosophical conversation about that may not be that goal, may not be a goal that should be a goal, if that makes sense. Yeah. I mean, there's a lot of different perspectives in terms of, you know, the the, the trade imbalance, but and the relation that it has to things like this sort of savings to investment imbalance that we have. I mean it's all sort of this is all sort of balance of payments topics. But you know, in general, the US economy under saves and so we have to import capital to make up the difference to bridge sort of what we're investing. And as a function of that sort of almost by definition, you create an environment where you work, you're going to have a deficit in terms of trade flows. So, you know, whether it's a holistic sort of approach to the, you know, the chronic and, you know, long term a trade imbalance that we've had or what they're trying to tackle it on the country to country basis. It's, you know, these maybe aren't the best ways of approaching these these topics in a, in a meaningful way if you're really trying to effect change in that, in that trade imbalance. And I think we got a little bit sidetracked here, which is great. The audience is asking quite a few questions. So what I'm going to do quickly, I'm just going to really quickly get through the global update because I have two slides on that. And then we'll circle back and use the rest of our time to talk about some of the questions that we're getting from the audience. So Elena presented the US forecast. Here is just a snapshot of the global forecast. We are seeing sort of mixed growth rates over the next one to two years, depending on where you are in the world. As Elena mentioned, for the US, we're expecting things to cool down a little bit, but we're not forecasting, you know a recession or anything too dramatic, more of a convergence towards potential growth, which is right around 1.71 point 8% in the US. In other parts of the world for for instance, in Europe, we are expecting to see things moderately improve in 2025 versus 2024. There was a very difficult sort of environment in Europe over the course of 24 Germany while it was in technical recession. So we are expecting to see additional progress being made on on some of the inflation in Europe or expecting the ECB to continue to lower interest rates. And so that should gradually improve sort of the the environment, business environment across the Atlantic and see a little bit of improvement in growth over the course again of the next one to two years. In terms of of China, we haven't made any changes to our forecast this cycle for China. We did actually get Q4 GDP data out of Beijing about two or three weeks ago, which actually pushed the full year 2024 GDP growth rate up to 5%, which is interesting because that was the growth target that they had for last year. It's our expectation, however, that we're going to see a little bit of cooling in in in the GDP numbers over the course of 2024-2025 and 2026 in China. There are still a variety of structural issues that they're grappling with from demographics to, you know, pretty severe imbalances in the residential property market there. Consumer confidence also is something that they've been struggling with. So, but that having been said, Beijing has already implemented a couple of different tools on the monetary policy and the fiscal policy front. I think we think we'll take some of the bite out of out of those those headwinds over the course of the next one to two years. Other changes, you know nothing too too dramatic. We are expecting India to cool off a little bit. We think it's sort of been growing a little bit, you know over potential over the last year or so. So we think that growth rate will moderate in 25 and 26. And then I might just also there something that I'm interested in this watching what's happening in Argentina. We have seen some improvements in Argentine growth. Inflation continues to come down South, which is a great thing for the people there and for Latin America in general. So that's sort of just a snapshot of what we're looking at globally. I do want to touch on one other topic and this kind of circles back to what Elena was talking about earlier in terms of these different scenarios that we've modeled. So we use a, a pretty large general equilibrium model, which is like a giant economic model that you can poke with a stick and see sort of how that propagates throughout the entire, you know, economy. And so that's what we did. We, we, we implemented a couple of different tariff scenarios and looked at what, what are the GDP implications. Elena talked about the impact on the US, but we also have an impact of course on Canada and Mexico and and China and then the global economy at large. And so that's what we're looking at here in the scenario where we have a 25% tariff on Canadian imports that acts as a drag to USGDP. So we can see that there's a bar here that says -0.4. That represents a headwind of about 0.4 percentage points relative to our baseline forecast. So our baseline forecast for 2024 is 2.3%. So in this scenario, if we had four full quarters of 25% tariffs on Canada, it wouldn't be 2.3%, but it would be one or 1.9%. And so goes for the for the the scenario on Mexico, we see a hit both to US, but especially to Mexican GDP, we see 9/10 of a hit to their growth for the year. The hit on China isn't quite as severe, only about a 10th of a percentage point with that 10% tariff. But when you stagger all these together, they have a sort of almost a self amplifying effect. And so when you have, you know, Mexican, Canadian and Chinese tariffs, the impact is seen on the right hand side. It's a 9/10 of a hit to GDP for Canada, 1.2 percentage point for Mexico and about 0.2 for China. For the global economy at large, that produces the the global GDP forecast, which is 3% for this year, down by about 3/10. So. So the the bottom line is actually that the impact is much larger for other economies than for the. US, that's true. That's true. One of the reasons for that is because a lot of these economies are are more exposed to, to, to that trade and than the US economy is. So it's, that's something to watch. We haven't fully implemented all of these on our, our forecast for Canada and for Mexico, because again, they haven't been implemented yet. We don't know if they're going to and if they are, we don't know how long they're going to last for. But it is something clearly that we're watching pretty closely. So that's sort of just the, the end of of the prepared material. But as I mentioned, we do have a lot of questions and so one that I've one common one that I've seen come up a couple times is this this campaign that we're seeing the Doge sort of review group that's going allow around and trying to find cost savings in the US economy. Is that something that in the US government spending, is that something that that we're seeing reflected in our forecast quite yet? Are we going to sort of watch and see what happens? We absolutely incorporated the slowdown in government spending into our projections. So we we already did it in the previous round of forecast updates. But so if you look at the government consumption expenditures and gross investment contribution to growth in 2024, it contributed this sector contributed almost 0.6 percentage points to growth to GDP growth, right? So it's significant, but it's not like it's not overwhelming. So still consumers are consumers remain the biggest driver of economic growth. So, you know, if we see a significant reduction in the contribution from the government sector, the economy can still do OK. The the problem here is that those who work for the government, they are consumers as well. And that kind of thing creates a lot of uncertainty. And again, uncertainty is very detrimental to growth. And that could really weigh on consumer optimism in general. So we'll see. But at this point, I don't think the macroeconomic impact of this latest initiatives is significant, not just yet, but at least in terms of payrolls growth. I don't think that would really impact overall numbers too much. But you know, it could be self fulfilling and it could be could really be detrimental from the standpoint of and creating a lot of incidents. Thank you, Elena. We have another question here about the likelihood that Canada and Mexico seek different long term trading partners such as China in this kind of an environment. I don't know, Aaron, any thoughts? And Mexico and and Canada simply pivot and and and go across the Pacific to fill the hole that that the US left behind. Well, it depends on the commodity, right? So are they necessarily going to be selling cattle and perishable goods to distant trading partners? No. Will it be easy to redo Canada's pipelines to flow in different directions instead of flowing into our Midwest? No. However, if we do end up with a highly fractured relationship with our neighbors of Canada and Mexico, yes, they could certainly welcome friendlier relationships with China, particularly Mexico. You know, Mexico has, I mean, China has a history of going into other countries and sort of helping develop their infrastructure, developing their manufacturing base, you know, for mutual benefit. And so we could see that. Certainly I think it would be more likely with Mexico than with Canada, but that could happen. So one thing that I might add is that during the period before the pandemic, you know, at the Conference Board, we did quite a bit of work looking at global value chains and how things sort of were evolving over time, especially on the manufacturing side. And some of the interesting insights that sort of popped out of the data work that we did was sort of these these sort of manufacturing sort of ecosystems. You know, and there are, there are essentially 3 globally, you have sort of a, a series of manufacturing networks in East Asia where you have China that as really sort of the, the central sort of country that that dominates that. But that you know, they're Korea and Japan and Taiwan, they're all kind of feed into one another quite a bit. In Europe, you have a similar sort of ecosystem and network. And Berlin, Germany is at the core of that, that global value chain sort of group. And then in North America, you have one. And of course, the US is at the center of that with Mexico and with China playing very important parts. You know, for instance, in the manufacturing of automobiles, there's all kinds of back and forth that happens with components across, you know, the Canadian US border or the Mexican US border. And so, you know, to pivot away from that I think and to remove Canada and Mexico as sort of these key kind of component suppliers, you know, critical just sort of partners in terms of of this manufacturing network. I don't think you can simply pivot and and push that into the Chinese market across the Pacific or into the the network dominated by Germany on the other side of the Atlantic. So from the perspective of Mexico and China, now there may be quabbles about, you know, grain shipments across the border or energy shipments about across the border. But when it comes to fundamentally reprogramming those, those value chain networks, that's a really, really challenging thing to do. And I don't think there is really any alternative to accomplishing that. So we have time for maybe one more question and I had one in mind and I seem to forgot it because I'm getting a lot of questions from the audience, which is fantastic. Let's see here, why don't we talk about revenue, how much weight to put on tariffs as a revenue source in assessing their longevity? Can we can the? Can we rely on the tariffs revenue? Talked about getting rid of the income tax and just getting using. Tariffs not large enough you can you cannot possibly cover, you know the expenses the you know, the spending part with what we get in terms of the tariffs. Aaron, you. Yeah. We published a paper last week and it has some of this information in it. And it's sort of, I can't remember the exact number off hand, but it is very, very, very minuscule. You know, compared to our federal deficit, the amount of money that we take in from tariffs as the US government takes in would not be able to offset. No, I think the other, you know, sort of interesting thing when we think about federal spending and what the end game here is. You know, a lot of this is, you know, sort of similar to, oh, is this conversation with Canada and Mexico really just a precursor to having more robust trade discussions? Is a lot of what we're seeing about tariff federal revenues or cutting the federal spending really a conversation about extending the Tax Cuts and JOBS Act of 2017, which also expires soon? So that's another way to maybe frame what we're seeing. Aaron, Elena, I don't think we have any more. I think we could probably put it for. Hours. Onto this program and just really dig into these questions and go back and forth. So it's it's a there's a lot happening, there's a lot to talk about and you 2 have done a really fantastic job. Thanks so much for coming on the program. We'll, we'll circle back soon because this is going to be a theme that we're going to probably have to keep our eyes on over the course of at least 2025. Please make sure to join us next month. Economy Watch will be on March the 12th. We don't have a topic quite yet, but as you probably have surmised, there is a lot to choose from. So stay tuned for that. Also, we are putting out a insights on what's happening on our website. We have a dedicated hub called Navigating Washington. I know Aaron, you've worked a lot on this. So as as new policies come out, as the new statements come out, make sure to stop by, you can get our take on what is being said and how potentially as a business you might want to respond as well. And then also, we've recently published our C-Suite Outlook 2025 polled chief executives all around the world, asking them what's happening in their businesses, what are their concerns about this year, what are their hopes? And a lot of really insightful takeaways from that report. So please stop by the website for that as well. Finally, to the audience, thank you for spending a full hour with us. As always, you ask great questions. We hope it was time well spent and we look forward hopefully to seeing you in March. So thanks so much and have a good day. _1740151245417