With 4% GDP, what could possibly bring the economy down?

Anyone with a price book will agree that the cost of nearly everything has been steadily going up. Unfortunately, wages are not increasing at the same rate. And to quote Bachman-Turner Overdrive, you ain’t seen nothin’ yet. There are three events happening in the economy right now that could, alone, cause the prices of everything from food to the materials to make replacement parts for your vehicle to skyrocket.

But if you combine them all together?

We could be facing a perfect storm of economic havoc. Iran is blocking oil exports from Saudi Arabia Yesterday, Saudi Arabia announced that they were halting oil exports through a specific lane in the Red Sea due to attacks by “Yemen’s Iran-aligned rebels.”

Reuters reported: Saudi Arabia and arch-foe Iran have been locked in a three-year proxy war in Yemen, which lies on one side of the Bab al-Mandeb strait at the southern mouth of the sea, one of the most important trade routes for oil tankers heading from the Middle East to Europe.

The Houthis, who have previously threatened to block the strait, said on Thursday that they had the naval capability to hit Saudi ports and other Red Sea targets. Iran has threatened to block another strategic shipping route, the Strait of Hormuz. Saudi Energy Minister Khalid al-Falih said the Houthis attacked two Saudi oil tankers in the Red Sea on Wednesday, one of which sustained minimal damage.

“Saudi Arabia is temporarily halting all oil shipments through Bab al-Mandeb strait immediately until the situation becomes clearer and the maritime transit through Bab al-Mandeb is safe,” he said. (source) According to the US Energy Information website, the United States imports 904,000 barrels of oil per day from Saudi Arabia. 

Prices of fuel would almost certainly go up, which, of course, affects the price of everything that is transported, which is, of course, everything.

Should we suddenly see a shortfall of nearly a million barrels per day, we’d have to get that oil from somewhere else. Most of the other oil we do not produce ourselves comes from Canada, from whom we currently import 120.000-140,000 barrels of oil per day.

Which leads us right to the next financial catastrophe that is looming.

The trade war is getting more heated every day As soon as President Trump slapped tariffs on products from China, the EU, and even Canada, he opened the door to our exports also being subject to tariffs.

While I think the intentions were good – to bring production back to the United States – the whole thing could turn out to be very, very bad for many Americans. We are going to see the prices of almost everything we buy increasing.

Of course, that’s ALMOST everything, The prices of some things are going to plummet, which may seem good for many of us initially. But for businesses that rely on being able to export their goods, they could face utter devastation.

Take, for example, the farmers. 2.5 BILLION pounds of meat are taking up space in cold storage right now, and the pile just keeps growing as exports slow down due to the trade war. U.S. consumers’ demand is increasing, but not at levels that are in pace with record production of chickens and hogs.

The excess supply is generally exported to Mexico and China—among the biggest foreign buyers of U.S. meat — have both recently slapped tariffs on U.S. hog productsin response to President Trump’s tariffs on steel, aluminum, and other items. Industry officials told the WSJ that U.S. hams, chops and livers have become more expensive in international markets, coupled with a strong dollar weighing on local currencies, which has dramatically reduced demand for U.S. meats.

America’s meat industry production is rapidly filling up the specialized warehouses built to store meat… …Thanks to President Trump, Canada implemented a 10 percent retaliatory tariff on U.S. beef starting July 01, and China increased its tax on U.S. beef to 37 percent on July 06.

Mexico, the largest export market for U.S. pork, in June ordered a 10 percent tariff that soared to 20 percent this month.

The USDA indicated that overall exports to Mexico are slightly higher than 2017, however, new weekly export data reported for the week of July 05 came in at their lowest levels in more than a year… …

Scott VanderWal, a farmer from South Dakota, said the uncertainty of a trade war disrupts entire supply chains and will be chaotic to rural America: “We’ve got a decreasing population in our rural areas already. If we lose any more population in the state in these rural areas, not only does it make the young farmers and ranchers leave, or the retiring or about to retire people…it also takes out the people who supply those farmers and ranchers.

The feed store, the fertilizer people, those that supply the things that we need to raise the products that we do. It has a tremendously long tail.”

Rapidly increasing meat stockpiles could force prices into a continued downward trend, which could be beneficial for meat-hungry U.S. consumers, along with restaurants and food retailers.

While what is good for the consumer is usually bad for businesses, deflationary prices are quickly eroding margins for meat processors. (source) Weather conditions are dealing another blow to farmers Nobody in the Western half of the United States can deny that this summer has been hot, dry, and […]

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