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Carlyle’s Rubenstein sees U.S.-China trade ‘dispute,’ government shutdown ending soon

Emily McCormick

David Rubenstein, co-founder of global investment firm The Carlyle Group, sees two looming concerns for the U.S. economy resolving in the near-term.

The first is trade tensions between the U.S. and China, which Rubenstein characterizes as a “dispute between people that have to live together” rather than an all-out trade war.

“President Trump realizes that tariffs are probably not a great thing for the U.S. economy, and the farm belt is not happy with it because of the inability to export certain products to China,” Rubenstein said in an interview with Yahoo Finance Editor-in-Chief Andy Serwer at the World Economic Forum in Davos, Switzerland. “So there is some unrest in his core constituency. So I do think that he realizes he will be better off – and business people have told him this – to get something done sooner rather than later, and the Chinese want to get something done. So actually it’s going to get done, I think, in the next couple months.”

Rubenstein noted that the marked slowdown in the Chinese economy has put additional pressure on Beijing to come to an agreement. China’s economy grew at a pace of 6.6% in 2018, the slowest rate of increase since 1990. The International Monetary Fund foresees China’s growth decelerating further to 6.2% in 2019 and 2020 as growth in the broader global economy also cools.

“Generally around the world there’s a slowdown in the economy, and the uncertainty with the U.S. is giving a psychological problem to people in the Chinese economy,” Rubenstein said. “They’re not sure what the future is. So I do think they want to get something done and I do think it will get done.”

Government shutdown

Rubenstein also foresees a speedy end to the current government shutdown, which has now lasted for more than a month.

“It will end relatively soon, and the reason is this: The business community, the labor community, labor unions, Democrats, Republicans, realize this is killing our economy,” Rubenstein said. “We have a pretty good economy and we’re not going into any recession any time soon. But this is going to lower growth by a fair bit.”

For instance, small businesses are unable to get loans from the U.S. Small Business Administration, and some companies seeking approval for infrastructure like new pipelines have been blocked from filing with U.S. regulators due to the shutdown, Rubenstein noted.

“People are beginning to say to members of Congress, you’ve got to do something,” he said. “So something will get done relatively quickly.”

Leaders in the private sector have also called on the government to reopen, citing economic damage caused by some of the government closures and furloughed workers.

“The longer it goes, you’re not going to make that up in the economy,” JPMorgan Asset & Wealth Management CEO Mary Callahan Erdoes told Yahoo Finance in Davos . Likewise, JPMorgan CEO Jamie Dimon previously said he believed that a protracted shutdown “can reduce growth to zero.” And Morgan Stanley CEO James Gorman said in an interview with CNBC in Davos that a lengthy shutdown is “going to have an extremely damaging effect” on the U.S. economy.

The White House earlier this morning released a statement estimating that the cost to output due to the government shutdown is a reduction of 0.13 percentage points for each week of the closure.

Rubenstein acknowledged concerns to the U.S. economy as a result of the government shutdown, but he does not necessary see a full-blown recession on the horizon.

“Who would have thought nine months ago or six months ago that a potential problem that we would have in our economy was a government shutdown? Nobody would have predicted that,” Rubenstein said. He likened this in part to the subprime mortgage crisis that sparked the last recession – “you can’t predict it,” he said.

“What we can predict is that a government shutdown with a few other things – Brexit, the Chinese uncertainty – can lower economic growth, and if something else comes on top of it, it could be unfortunately not good for our economy,” Rubenstein said. “But right now…I see lower growth, but not recession-level.”

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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