The U.S. economy is estimated to grow by 3.1 percent this year, according to the Federal Reserve’s median rate, followed by 2.5 percent next year and 2 percent in 2020. The Wall Street Journal’s Economic Forecasting Survey of more than 60 economists indicates very similar projections.

This year economic momentum is strong. But it’s the uncertainty that is a concern for many, as well as the black swans or highly improbable events that together create severe risks that are nearly impossible to predict and even more difficult to avoid. And sometimes black swans appear out of what seems like manageable situations.

The agreement between the U.S., Mexico and Canada resulting in a modified NAFTA is good news that helps to reduce uncertainty and market volatility. And the likelihood that the U.S. and European Union can get on the same trade page is another step in the right direction.

Market volatility and uncertainty — which is the enemy of prosperity — are likely to continue for some time.

But due to a variety of factors, especially the direction of the U.S.-China trading relationship, the level of uncertainty has risen. And when companies are faced with uncertainty, they spend less and postpone investments — two important factors that put downward pressure on economic growth. Not surprisingly, the IMF has downgraded its economic growth projections for U.S., Chinese and world.

In The Spotlight

Ironing out problems with the Chinese will be considerably more difficult than working out our differences with the Mexicans, Canadians, South Koreans, Japanese, and Europeans. For one, China needs to implement much needed market-based economic reforms if it wishes to sustain higher levels of economic growth in the future. And these reforms would help eliminate many of irritants that have become a focus of President Trump.

But for China to reform its economy, the government would be required to withdraw subsidies and other much needed support from poor performing Chinese industries. And doing this could cause unemployment and social unrest in China to rise.

As a result, Chinese President Xi is walking a tight rope — which is more like a hire wire act. If he doesn’t implement policies to reform the economy, economic growth likely will continue to shrink. If he reforms the economy too quickly, he could have a “Tiananmen Square” situation on his hands.

Many of the demands placed on China by President Trump may be long overdue. But the odds of striking a deal that covers all of them is unlikely at least in the short term. As a result, market volatility and uncertainty — which is the enemy of prosperity — are likely to continue for some time. Let’s hope that a combination of events don’t produce a black swan.

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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, emerging risks, and the latest economic trends. He's also founder of both the ManzellaReport.com and Manzella Trade Communications, Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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