Trade policy uncertainty, slower global growth, a decrease in energy exploration, and problems at Boeing had a negative impact on business fixed investment in 2019. So what’s different in 2020?

The Phase 1 trade deal was a positive in the sense that it prevented tariffs on the remaining imports from China (mostly consumer goods). However, it left in place most of the earlier tariffs (industrial inputs and intermediate products). The agreement set import goals for China (an additional

$200 billion of U.S. goods over the next two years) which appear unrealistic. The agreement includes strong enforcement mechanisms, but the U.S. response to the likely shortfall in Chinese imports of U.S. goods would come well after this year’s election. In short, while the Phase 1 agreement provides some near-term clarity, longer-term trade policy remains very much uncertain. President Trump has now turned his attention to Europe, threatening tariffs in response to France’s tax on U.S. tech giants. Trump has long threatened tariffs on European motor vehicles. These tariffs would have negative implications for the U.S. economy (think of imported car dealers, wine sellers, etc.). France backed down last week. However, the mere threat of tariffs can be disruptive.

At this point, you’re much more likely to get the regular flu than to succumb to the Wuhan coronavirus, but that’s not the point. The 1918 influenza pandemic infected half a billion people and killed 50-100 million. Pandemics are expected to be a recurring threat to the global economy, spreading more rapidly through international travel. The Severe Acute Respiratory Syndrome (SARS) pandemic of 2002-03 killed 775 people, but had a huge impact on the Southeast Asian economy. Coming just ahead of the extended Lunar New Year celebration, the timing of the Wuhan virus couldn’t be worse. Hundreds of Chinese travel during the holiday. China has restricted travel from Hunan (a city of 11 million) and four nearby towns. These travel restrictions are likely to dampen economic activity in the near term and the huge volume of travel in the rest of China could spread the virus further. Shanghai Disneyland has been closed and movie theaters are being shut down. At the time of this writing, two cases have been reported in the U.S. The U.S. has issued a travel advisory (“exercise increased caution”) for U.S. residents traveling to Wuhan.