The Trade-War Growth Slowdown

Wall Street Journal ^ | July 26, 2019

[reaganaut1]

...

Business investment has been cool since last year’s third quarter when the President revved up his trade brawl with China. Executives have reported delaying investment decisions since they don’t know the impact of his multifront trade war on cross-border supply chains. Foreign investment in the U.S. has been declining with capital flows from China falling 87.9% between 2016 and 2018.

Trade uncertainty increased last quarter after negotiations with China collapsed in May. Then the President threatened tariffs on Mexico as a cudgel to curb immigration from Central America. Around the same time, the Trump Administration blindsided businesses with a ban on U.S. exports to Huawei. Although the President said he’d rescind the ban for some products, nobody knows which.

Farmers have continued to struggle amid low commodity prices as Chinese tariffs have dampened demand for U.S. pork, soy and beef, and the historic flooding across the Midwest this spring exacerbated the trade damage. Some have delayed equipment purchases, which is another way the trade war has rippled out to manufacturers.

According to the Federal Reserve Bank of Boston beige book, manufacturers reported that “tariffs and foreign retaliation had weakened demand for their products” and “investment demand had slowed because firms were delaying capital expenditure plans.” An electronics manufacturer in the Northeast reported moving an assembly line to Germany to avoid U.S. tariffs on Chinese components.

Any wonder then that U.S. exports are declining? Exports subtracted 0.63-percentage points from second-quarter growth after pumping up the first-quarter numbers as businesses raced to avoid Chinese tariffs. Declining exports mainly reflect a slowdown in global growth. The International Monetary Fund has cut its growth forecast for the world economy this year to 3.2% from 3.6% last year.

[GOPJ]

What?

The Wall Street Journal thinks we should have let China rip us off forever because standing up to them might ‘cost’ us in the short run?

I guess they would tell their children to hand over their lunch money to the school bully too...

[datura]

Typical free traitor article that you post.

[deadrock]

You are an America Second proponent. Disgusting.

[Enlightened1]

The WSJ would sell their own mothers out.

China has been at a 20 year Trade war with us. All President Trump wants is reciprocal trade, and that WSJ has a melt down over it.

Guess they want communist China to continue to screw the U.S.A. over.

Sorry WSJ.... Go pound sand!

[oincobx]

This obviously fake news, as we have been assured that “trade wars are good, and easy to win.”

[Grampa Dave]

The WSJ would sell their own mothers out.

The constant poster of the bs fake news, is worse.

He is selling out his country with each post!

[nathanbedford]

It is impossible from reading that portion of the Wall Street Journal article available to me to say how much of the slowdown was alleged to be attributable to the tariff war and how much to other factors also cited in the article such as:

1. "Tariffs on Mexico" (now lifted)

2. "exports to Huawei" (now partially lifted)

3. "historic flooding across the Midwest" (these floods not expected to recede?)

4. "Declining exports mainly reflect a slowdown in global growth." ("Mainly"? How much of the slowdown is attributable to the trade war and how much is attributable to other factors?)

5. "capital flows from China falling 87.9% " (my understanding from back of the envelope arithmetic tells me that the bulk of capital inflows reduction from all nations is due to loss of Chinese investment-an inevitable reaction of any adversary of any war)

6. Unmentioned as a potential cause of slowdown in business investment is the very serious issue of Federal Reserve interest rate hikes in this period.

Finally, the really bad news is the slowdown in the economy below 3%, a figure I think Donald Trump believes is the minimum necessary to avoid being absolutely swamped by deficits and debt. Remember his campaign plan for the economy was designed to grow our way out of these deficits.

This slowdown, however, is more likely the result of interest rates than these trade wars, but this article (or the portion available to me) does not help us understand the cause.

[reaganaut1]

Imposing tariffs or threatening to do so and then backing off still has a disruptive effect on business.

[nathanbedford]

Imposing tariffs or threatening to do so and then backing off still has a disruptive effect on business.

Granted, but how much?

Even weather reports have disruptive effect on business. Every guru's opinion on CNBC or FOXBusiness affects business. Every opaque utterance from the Fed affects business.

The point is, how damaging are these tariffs, it seems incumbent on the Wall Street Journal which is notoriously offended by tariffs, to quantify these assertions.

[BeauBo]

Big changes are happening, and they move at different speeds.

Quarter to quarter, the effects will be mixed.

In Q2, inventory replenishment was slow, so it will have to catch up later. What was a drag this quarter, can produce a rebound boost in the next (at least part of this quarters slowdown was borrowed last quarter, as businesses stocked up ahead of tariffs though).

Also, in Q2 the trade balance was a drag, as China rapidly slowed purchases of American agricultural products. They can coordinate fast moves like that, because power is so centralized there. The reality of the trade situation however, is that the US tariff actions will have several times the impact, but will spread over a longer time. So again, the same factor that was a drag last quarter, will likely provide a boost in future quarters.

The bottom line is that we won’t see straight line progress quarter to quarter, or even year to year. The imbalances were developed over more than a quarter century, with mountains of investment capital sunk, and concrete poured.

[oincobx]

>>>Remember his campaign plan for the economy was designed to grow our way out of these deficits

Yes, but I didn’t think the growth was supposed to be driven by government spending.

From 2011 through 2016 there were repeated threats of a debt default due to House Republican opposition to raising the debt ceiling, and budget sequestration that helped bring on a three percentage point decline in federal spending’s share of GDP. Coupled with belt-tightening at the state and local level, this resulted in an impact on real GDP growth of negative 0.5 percentage points a year, according to the quarterly fiscal impact calculations of the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy.

Since Trump took office, fiscal policy has by contrast contributed an average of 0.3 percentage points a year to GDP growth. That represents a 0.8 percentage point shift. Meanwhile, the average real GDP growth rate has risen from 2.1% a year during those six years to 2.8% since the beginning of 2017, a difference of 0.7 percentage points.