New evidence emerged last week showing how tariffs and the vast uncertainty surrounding the US-China trade war are hurting the economy.
The manufacturing sector suffered its worst month since June 2009. Services, the larger portion of the modern economy, grew at its weakest pace in three years.
And although the unemployment rate tumbled to a 50-year low, a remarkable feat, private payroll growth continues to slow.
Taken together, the latest figures paint the picture of a slowing economy, but not one that’s close to collapsing. Either way, growth could use a jump-start.
While stocks rallied sharply late last week on hopes for a Federal Reserve rate cut, easy money alone won’t solve the underlying problem: trade uncertainty.
“The economy needs a resolution to the trade war. The longer this persists, the greater damage it does to the US economy,” said Kristina Hooper, chief global market strategist at Invesco. The outlook for the economy is dimming.
The New York Federal Reserve’s GDP growth forecasting model was downgraded on Friday to 1.3% for the fourth quarter, compared with an earlier forecast of 1.8%.
The good news is that US and Chinese officials are scheduled to meet this week in Washington to try to make progress towards trade peace.
Expectations are low for a breakthrough, although if one emerged it would immediately boost sagging business spending.
WTO authorize US
the WTO authorized the U.S. to levy tariffs on Airbus planes in response to illegal government subsidies. Soon, it’s expected to offer a similar verdict on Europe’s desire to slap tariffs on Boeing planes.
The tariff announced Wednesday will impose a 10 percent duty on Airbus planes beginning on October 18th. The WTO is supposed to rule on its case regarding the subsidization of Boeing by the U.S. government in the coming months, with similar tariffs expected to stem from that case.
So, with both major aircraft manufacturers facing tariffs due to the over-subsidization of these megacorporations by governments, it’s hard to see who is winning. If the WTO fines imposed on both end up to be fairly weighted based on the value of subsidies received, then neither company is getting an advantage. And for the governments, the tariff income is probably going to be less than the illegal subsidies in the first place.
Trade war with E.U.
A trade war between the United States and European Union would be more damaging than the one raging with China. US President Donald Trump seems oblivious to the implications, though, as he prepares to impose tariffs on US $7.5 billion of imports from Europe.
He has been given the go-ahead after a landmark ruling by the World Trade Organisation on a long-running dispute involving the aircraft manufacturers Airbus and Boeing. With the US pledging to apply levies by October 18, politics is being put before common sense; economies, companies and people will bear the brunt.
Trump is consumed with winning a second presidential term in elections next year. He is looking for distractions from efforts by opposition Democrats to impeach him and trade disputes conveniently serve both purposes; they deflect attention while trying to make economic gains for supporters.
Farmers from American states that helped him win the presidency in 2016 will be the biggest beneficiaries of a recent trade agreement with Japan and agriculture features prominently in the disputes with China and the EU.
But as the tit-for-tat measures taken by Beijing show, such actions can also backfire, to harmful effect.