Drag from Trump's trade wars continues to ripple through U.S. economy
By David Lawder WASHINGTON (Reuters) - As U.S. President Donald Trump and Chinese Vice Premier Liu He prepare to sign a 'Phase 1' trade deal, new data show that the costs of Trump's trade wars are proving more widespread, deeper and longer-lasting than previously believed. Research from the U.S
By David Lawder
WASHINGTON (Reuters) - As U.S. President Donald Trump and Chinese Vice Premier Liu He prepare to sign a "Phase 1" trade deal, new data show that the costs of Trump's trade wars are proving more widespread, deeper and longer-lasting than previously believed.
Research from the U.S. Federal Reserve and other top economists shows that U.S. tariffs on Chinese industrial components and materials, which largely won't be lifted by the deal, are proving especially damaging to American manufacturing competitiveness and jobs.
The White House has scheduled a signing ceremony on Wednesday for what Trump is touting as "the greatest and biggest" trade deal ever made, with China expected to pledge to boost purchases of American exports by $200 billion (154 billion pounds) over two years, including $80 billion more in manufactured goods, $32 billion more in farm products and $50 billion more in energy.
China also has promised to open its financial services market, improve protections for intellectual property and forbid the forced transfer of technology to Chinese companies. But Beijing has a history of pledging reforms that don't happen, and many consider the purchase targets unrealistic.
The deal caps years of U.S. tensions with China that boiled over into a trade war 18 months ago, as Trump slapped new duties on $370 billion worth of goods from China. Beijing hit back with retaliatory tariffs on over $100 billion worth of U.S. exports.
The trade war's most immediate effect has been a drag on global economic output. The World Bank last week marked down its global growth forecasts https://openknowledge.worldbank.org/bitstream/handle/10986/33044/9781464814693.pdf for 2020 and 2021 because of a slower-than-expected recovery in trade.
Early predictions that Trump's tariffs could spark a U.S. recession have proven unfounded, in part because of the consumer-driven nature of the American economy. The Trump administration's 2017 tax cut package and three Fed interest rate cuts in 2019 also helped stimulate activity.
The U.S. tariffs on China targeted industrial goods, components, semiconductors and machinery. Major tariffs on consumer goods such as cellphones, laptop computers and toys were scheduled to go into effect last month, but the Phase 1 deal suspended them indefinitely.
Trade wars were a key factor in a broad slowdown of U.S. manufacturing activity last year. U.S. manufacturing output fell in seven of 11 months, with an annualised 3.3% drop in the second quarter, the largest since the second quarter of 2009, when the economy was in recession, according to data compiled by the U.S. central bank.
Aluminium, electric lighting, furniture, semiconductors and steel mills saw the most benefit from tariff protections, while companies that stamp, forge and otherwise process steel and aluminium into components and end-products suffered the most from higher input costs.
U.S. companies have paid $46 billion in tariffs since Trump, who has adopted an "America First" trade policy to revitalise the manufacturing sector, started restructuring relationships with Washington's major trading partners.
Tariffs that will remain on goods from China after the Phase 1 trade deal are a big problem for the U.S. economy going forward, said Mary Lovely, a trade economist at Syracuse University in New York state.
"You're taxing things that our businesses need to be competitive, and yet you're saying the point of this is to support manufacturing," Lovely said of Trump's tariff actions. "But it does seem very clear now that the data is pointing in that direction, that these (tariffs) are having a negative effect on manufacturing."
NET JOB LOSS
A new Fed paper https://www.federalreserve.gov/econres/feds/files/2019086pap.pdf released on Dec. 23 analyses the effect of all new tariffs imposed in 2018 and 2019, including global steel and aluminium duties, on the industries that are most exposed to the tariffs and those that benefit the most from them. It estimates that the tariffs caused more manufacturing job losses than were gained during those years.
"For manufacturing employment, a small boost from the import protection effects of tariffs is more than offset by larger drags from the effects of rising input costs and retaliatory tariffs," Fed researchers Aaron Flaaen and Justin Pierce wrote.
U.S. tariffs on bicycles and components from China have prompted Arnold Kamler, chairman and chief executive officer of Kent International, an importer of Chinese-made bicycles sold at Walmart Inc
Trump's tariffs on steel and other goods from China have cost the firm many millions of dollars, Kamler told Reuters, adding that these are not addressed in the Phase 1 deal.
RAIL TRAFFIC, EXPORTS DROP
As 2019 drew to a close, freight rail traffic, a key leading indicator of manufacturing, slowed dramatically. Total car loadings recently hit a record low, and were down by more than 30% from last year's levels for the weeks beginning Dec. 30 and Jan. 6, according to the American Association of Railroads.
(GRAPHIC: Freight rail traffic has plunged in the trade war - https://fingfx.thomsonreuters.com/gfx/mkt/13/884/882/Pasted%20Image.jpg)
The less-volatile three-month average of the annual change is off by nearly 10%, a freight rail slowdown surpassed just one other time since the last financial crisis - during the 2015-2016 shale oil bust.
The manufacturing recession has been accompanied by a slowdown in U.S. goods exports, which have fallen 1% from 2018 levels due in part to retaliatory tariffs on U.S. goods.
Another study https://www.nber.org/papers/w26611 released last week by researchers from the Fed, the U.S. Census Bureau and the University of Michigan found that manufacturing firms paying the tariffs saw a bigger drop in exports, demonstrating that import duties play a role in exports.
Higher supply chain costs have cut exports by about 2% for products greatly exposed to tariffs on inputs, compared to exporters with no such exposure.
The study also found that Trump's tariffs are affecting a wide swath of U.S. companies, with nearly a third now paying them on some 46.5% of their purchases.
These firms employ 32% of all private, non-farm employees in the country. Companies are trying to move supply chains out of China to avoid the tariffs, but this has proven costly, according to a poll taken by Cowen and Co. Doing so "can be complicated, expensive and disruptive to the business," the company's analysts said.
The deal being signed on Wednesday suspends Trump's plans to levy tariffs in December on $156 billion in Chinese consumer goods, including cellphones, laptop computers and toys. It also halves the tariff rate to 7.5% on a $120 billion list of Chinese imports, from Bluetooth headphones and flat panel televisions to footwear.
But it leaves in place 25% tariffs on a $250 billion list of Chinese machinery and industrial components, including auto parts, semiconductors, printed circuit boards, furniture and lighting products.
Even if Trump's remaining China tariffs go away in the coming months with a "Phase 2" agreement, U.S. exports may not recover.
American firms hit with Mexican and Canadian tariffs that ended last year are finding the market for their products doesn’t open back up after the trade war ends, noted Daniel Anthony, vice president of The Trade Partnership, a consultancy that recently crunched the data from the U.S. Commerce Department.
(GRAPHIC: U.S. exports hit with tariffs aren't bouncing back - https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-TRADE-STATS/0H001QXVHBCE/eikon.png)
Mexico and Canada put retaliatory tariffs on more than $15 billion worth of U.S. goods, including bourbon whiskey, ketchup and apples after Trump slapped duties on their steel and aluminium exports.
Buyers of these U.S. goods may have found new suppliers overseas or at home, decided they didn’t need the product, or found demand for their product dried up, Anthony said.
As Trump prepares to sign the long-awaited deal with China, economists are likely to question whether the outcome was worth the cost.
"Was the hammer that was used really worth what we got out of it? Frankly, it looks like pretty small potatoes," said Loverly, of Syracuse.
(Reporting by David Lawder, Andrea Shalal, Howard Schneider and Heather Timmons; Editing by Heather Timmons, Dan Burns and Paul Simao)
This story has not been edited by Firstpost staff and is generated by auto-feed.
Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.
By Carl O'Donnell and Jonathan Allen NEW YORK (Reuters) - The governors of New York and Florida sought to accelerate the slower-than-expected rollout of coronavirus vaccines by warning hospitals on Monday that they would reduce future allocations to those that fail to dispense shots quickly enough. In New York, hospitals must administer vaccines within a week of receiving them or face a fine and loss of future supplies, Governor Andrew Cuomo said. "I don't want the vaccine in a fridge or a freezer, I want it in somebody's arm," the governor said
By Michael Holden LONDON (Reuters) - A British judge ruled on Monday that WikiLeaks founder Julian Assange should not be extradited to the United States to face criminal charges including breaking a spying law, saying his mental health problems meant he would be at risk of suicide. U.S. authorities accuse Australian-born Assange, 49, of 18 counts relating to the release by WikiLeaks of vast troves of confidential U.S
By Steve Holland and Aziz El Yaakoubi WASHINGTON/RIYADH (Reuters) -A breakthrough has been reached in Qatar's three-year-old dispute with Saudi Arabia and three other Arab countries and an agreement aimed at ending their rift is to be signed in Saudi Arabia on Tuesday, a senior Trump administration official said. The development is the latest in a series of Middle East deals sought by Washington - the others involving Israel and Arab states - aimed at building a united front against Iran. As part of the deal, Saudi Arabia will reopen its airspace and land and sea border to Qatar as of Monday, Kuwaiti Foreign Minister Ahmad Nasser al-Sabah said on Kuwait TV ahead of a Gulf Arab summit in Saudi Arabia on Tuesday.