Tariffs will lead to negotiation, not trade wars: Natixis economist

  • Joe LaVorgna, chief economist at Natixis CIB Americas, says trade wars are "unusual."
  • "The economics community has gotten itself all up in a tizzy over prospects of trade wars," he says.
  • But Diane Swonk, chief economist at Grant Thornton, says "retaliation is real."

The chances of a trade war over PresidentDonald Trump's tariffs are slim, Joe LaVorgna, chief economist at Natixis CIB Americas, told CNBC on Thursday.

"The economics community has gotten itself all up in a tizzy over prospects of trade wars," LaVorgna said on "Power Lunch." "I think we're making a bigger deal out of this than it's worth."

Trade wars are "very unusual," he said, calling the subject of Trump's tariffs "a point of negotiation and engagement with our trading partners."

"Not to say there won't be a battle here or there," he added.

The president's tariffs — which impose a sizable levy on imported steel and aluminum products, with exemptions for Canada and Mexico — have been presented as a means to correct unfair trading practices.

China, the most notable among the countries with trade imbalances, is "low-hanging political fruit," said Diane Swonk, chief economist at Grant Thornton. She said "everyone knows" about the country's unfair trade practices.

But fears of trade wars quickly sent market watchers into a panic after last week's news, sparking sell-offs.

LaVorgna argued that the recent volatility in the market is more likely a fear of the Fed and the possibility of four or more rate hikes this year.

Still, Swonk said, "retaliation is real."

"The politics are one thing; the economics are another," Swonk said.

The possibility of a trade war, she said, creates uncertainty and undermines the incentive for corporations to invest, which was the original intent of the new tax policy.

Swonk said many of her commercial real estate clients have expressed concern over the tariffs. Caps on investments from Chinese investors would have dramatic "ripple effects" in regional economies such as San Francisco, Atlanta and New York. Other sectors that could be affected include consumer goods, retail and higher education, she said.

"I don't think we're going to see China stand idly by and deal with this," Swonk said.