WASHINGTON, Aug 3, 2019 (BSS/AFP) – America’s economy is showing signs of
sagging under the weight of President Donald Trump’s escalating trade war
with China, which is whipsawing industries and financial markets.
Punitive tariffs have stung major trading partners just as those economies
were losing vigor — sapping demand for US goods and services and helping to
send American manufacturing into recession.
Meanwhile, the uncertainty this has created has rocked US businesses,
raising concerns about their supply chains and markets, causing new
investment to flat-line and employers to become cautious.
Caught in the middle, the Federal Reserve finds itself buffeted by the
economic currents and battered by the president’s ceaseless attacks.
Fed chief Jerome Powell struggled to explain this week why the looming
dangers Trump has helped create justify cutting interest rates this week
despite historically low unemployment, and continuing, if slowing, growth and
job creation.
Trump on Thursday announced tariffs starting September 1 on another $300
billion in Chinese goods, more than doubling the volume subject to punitive
US duties. The latest action provoked threats of more retaliation by Beijing.
Gregory Daco, chief US economist at Oxford Economics, told AFP the hit
from Trump’s year of trade skirmishes came just as the limited boost from the
massive tax cuts in late 2017 began to fade out of the economy.
“It’s come off its sugar high to a place where it’s more susceptible,” he
said.
Trade wars and slower growth are not a good combination and pose a risk to
the world economy, but, “Encouragingly, US households are still spending,”
Daco said. “We’re not in a recession by any means.”
The International Monetary Fund has warned the tariffs imposed in the US-
China trade war — including the latest tranche — could shave a half
percentage point off the world economy by next year, an amount larger than
the entire South African economy.
The new tariffs alone could cost individual American households an extra
$200 each next year, according to Oxford Economics.
Meanwhile, there were sobering aspects to US economic data this week.
– ‘Buckle up’ –
US merchandise goods exports in 2019 are on track to fall for the first
time in three years, according to government data published Friday. And the
American surplus in services — like software royalties and intellectual
property licensing — fell in June to its lowest level since 2016.
And with the global economy slowing, foreign buyers took fewer US
vacations in June and bought fewer gems and jewelry, fewer passenger cars,
medications, telecommunications equipment and computer accessories.
Manufacturing activity is contracting in China, Germany, Japan, South
Korea, Britain and Europe as global trade volumes have fallen.
And a survey of the US manufacturing sector showed the fourth consecutive
monthly decline in July, increasing worries about domestic industries.
But US wages continue to rise, which should support consumer spending,
which dominates the American economy and the key source of growth.
A broad measure of unemployment, including people working part time
because they cannot find a full-time gig, fell to its lowest level in nearly
19 years.
But overall job growth, while still respectable, has slowed sharply since
2018, with the average number of new jobs created in the last three months
now just over half the pace seen last year.
Economists warn the impact of Trump’s trade war will start to appear in
key data.
Recent reports suggest growth could be revised down for the second quarter
of the year, while weak construction, factory orders and trade caused IHS
Markit to cut its forecast for the third quarter.
The US has not seen two consecutive quarters with growth below two percent
in four years.
Economist Joel Naroff said Friday Trump’s new tariffs were likely to cause
the Fed to cut interest rates yet again.
“So buckle up,” he wrote in an analysis.
“We have a volatile president and an unanchored Fed and what the means for
the economy is anyone’s guess.”