RICHMOND — Dinwiddie County farmer Nick Moody worries about foreign markets for Virginia soybeans and the price of potash fertilizer from Canada.
Andrew Clark, vice president of government affairs at the Virginia Association of Home Builders, worries about the cost of housing for potential home buyers and renters, if the cost of Canadian lumber goes up in a trade war that President Donald Trump is poised to escalate on Wednesday.
And that’s likely to happen “immediately” if Trump carries through on his tariff threats, said Jackie Bates, executive vice president at Annandale Millwork and Allied Systems Corp., a Winchester supplier of framed walls for home construction in the Richmond and Charlottesville areas, as well as Northern Virginia and the Mid-Atlantic region.
“I guess the big picture is, higher costs are coming for lumber,” Bates said Monday.
Economic uncertainty unites farmers, home builders, lumber companies and economists as Trump launches what he calls “Liberation Day” as a reckoning with foreign trading partners in his push toward an economy based on government revenues raised from tariffs instead of taxes.
The challenge is that most economists view tariffs as a tax on consumers whose expectations have plummeted in the first two months of Trump’s presidency.
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Engelke
“I do believe tariffs are inflationary,” said Kent Engelke, chief economic strategist and managing director at Capitol Securities Management Inc., based in Richmond. “No real tariffs have really been implemented, per se. There’s been a lot of noise.”
“You can’t make decisions in a lot of noise,” Engelke said.
‘Economic fog’
Tom Barkin, president of the Federal Reserve Bank of Richmond, likens the uncertainty for businesses and consumers to “driving through economic fog.”
“With all this change, a dense fog has fallen,” Barkin said in a recent speech at Washington & Lee University in Lexington. “It’s not an everyday ‘forecasting is hard’ type of fog. It’s a ‘zero visibility,’ pull over and turn on your hazards type of fog.”
One person who isn’t worried is Gov. Glenn Youngkin, a strong Republican supporter of Trump tariff policies that he expects to boost Virginia’s economy.
“I’m seeing interest from U.S.-based international firms, interested in redomiciling here, and international firms interested in U.S. facilities,” Youngkin told reporters Monday after a groundbreaking for a new Virginia National Guard Army Aviation facility next to Richmond International Airport.
He said one big draw, especially for companies interested in exporting, is the Port of Virginia, which he said handles exports as well as imported goods and supply chain cargo.
“I don’t think the port is necessarily going to be hurt,” Youngkin said.
Bob McNabb, chair of the Department of Economics at Old Dominion University, said: "In the best-case scenario, tariffs do not disrupt supply chains, any inflationary pressures are transitory, and businesses onshore to gain access to U.S. markets.
“In other cases, the disruptions to global supply chains lead firms to shift global supply chains away from the United States and the emergence of new trading alliances that leave the U.S. in the cold.”
Consumers’ outlook
Many consumers are not confident in their economic outlook.
While hard economic data has shown modest increases in inflation and stable growth, surveys show consumer sentiment has fallen.
Last week, both The Conference Board and University of Michigan consumer surveys showed plunges in consumer expectations for the future, potentially signaling the approach of an economic recession.
The Conference Board’s “expectations index” for short-term consumer confident fell to its lowest level in 12 years, based on data collected through March 19. Consumer expectations were “especially gloomy, with pessimism about future business conditions deepening and confidence about future employment prospects falling to a 12-year low,” senior economist Stephanie Guichard, said on March 25.
“Meanwhile, consumers’ optimism about future income - which had held up quite strongly in the past few months - largely vanished, suggesting worries about the economic and labor market have started to spread into consumer assessments of their personal situations,” Guichard said.
The outlook was much the same at the University of Michigan, which said Friday that its national survey showed consumer sentiment falling 12% from February to March, while its index of expectations has dropped by 30% since November. It said consumers expect inflation to rise to 5% in the year ahead, the highest reading since November, 2022, when voters gave Republicans a narrow majority in the U.S. House of Representatives after prices spiked earlier in the year.
Politically, Democrats, independent voters and Republicans share those souring expectations, Michigan survey director Joanne Hsu said. “Long-run inflation expectations surged from 3.5% in February to 4.1% in March, reflecting a large surge among independents plus a sizable rise among Republicans.”
The findings are consistent with the most recent quarterly survey of Virginia consumers in February by the Roanoke College Institute for Policy and Opinion Research. The survey then showed a strong labor market and consumer spending, but falling expectations because of tariff-driven fears of rising inflation and economic uncertainty.
Alice Louise Kassens, a Roanoke College economics professor and senior research analyst at the institute, said the danger increases as consumers pull back on spending that drives the economy.
“The worry is if people start cutting back on consumption because they are worried, this is just pushed into a recession,” Kassens said on Monday.
“Once people start thinking something, it’s hard to change their minds,” she said.
Cost of housing
For Virginia home builders, even the threat of tariffs is a concern to the cost of housing, said Clark at the home builders association.
“Even the threat of tariffs, the idea of tariffs, that’s going to factor into the pricing (of housing),” he said. “People looking for new homes, or renters looking for apartments, that’s going to factor into the price.”
“There are real world consequences for Virginians,” he said.
The U.S. and Canada already are engaged in an escalating trade war that has prompted new Prime Minister Mark Carney to declare that the longstanding mutual relationship between the two counties “is over.”
“It almost gives it a sense of permanency,” Clark said of the prime minister’s publicly televised declaration.
Trump started the war with a 25% tariff that he imposed on goods from Canada, except those that qualify under the United States-Mexico-Canada Agreement signed at the end of his previous presidential term. He’s also imposed a 25% tariff on all foreign-made automobiles and parts, effective on Wednesday.
Canada already has imposed a 25% retaliatory tariff on almost $30 billion in U.S. goods and has threatened to expand it on Wednesday to an additional $30 billion of U.S. exports. Its provincial governments have banned imports of spirits from U.S. distillers, including craft whiskey distillers in Virginia.
Bates, at Annandale Millwork in Winchester, said she’s confident that the industry will survive an increase in lumber costs because costs were four times higher during the COVID 19 pandemic.
“They were able to absorb them and still pass along the costs,” she said.
Her business hasn’t “seen a pullback” by consumers yet, but Bates added, “If interest rates came down, it would help.”
Soybeans, potash
Moody, a Dinwiddie farmer and president of the Virginia Soybean Board, expects the price of potash fertilizer to increase because the U.S. imports more than 80% of the commodity from Canada. But he said he’s more worried about the long-term effect of a tariff war between the U.S., Canada, Mexico and China.
At 36, he’s already lived through the effect of Trump’s tariff war with China during his first term. China, the largest foreign market for Virginia soybeans, began buying the commodity from Brazil and Argentina, and that market hasn’t come back.
Moody said recently: “Tariffs make us a little bit less reliable of a trading partner.”