Northwest Arkansas Democrat-Gazette
Trade war’s shadow covers globe
U.S., overseas factories lose confidence; investors jittery
President Donald Trump’s protectionism is taking its toll on confidence, with companies around the world getting more worried about the damage a full-blown trade war could do to business.
Reports on Monday showed optimism at euro-area factories fell to the lowest in 2½ years in June, while sentiment at Japan’s large manufacturers cooled for a second quarter. In China, a measure of factory activity fell last month, as did similar gauges for the euro area and its two largest economies, Germany and France.
In the U.S., tariffs and a variety of transportation issues are dogging American manufacturers, extending lead times for production materials. While the U.S. Institute for Supply Management’s gauge of manufacturing jumped in June, the increase was largely because of a spike in the group’s supplier-deliveries gauge, which was the second-highest since 1979 and indicated slower performance.
“Demand remains robust, but the nation’s employment resources and supply chains continue to struggle,” Timothy Fiore, chairman of the Institute for Supply Management manufacturing survey committee, said in a statement Monday. “Respondents are overwhelmingly concerned about how tariff-related activity is and will continue to affect their business.”
Stocks around the world fell on Monday, a negative start to a week that’s set to see the U.S. president’s tariffs on $34 billion worth of Chinese goods take effect. While the global economy is still forecast to grow close to the pace recorded in 2017, a trade war — along with higher oil prices and tighter monetary policy — could exacerbate the slowdown that’s being observed in Europe and elsewhere.
Barring a last-minute breakthrough, the Trump administration on Friday will start imposing tariffs on $34 billion in Chinese imports. China says it will promptly strike back with tariffs on an equal amount of U.S. exports.
The tariff measures announced so far may be manageable, but the key question is whether the protectionism goes further.
“The actual tariff is not a big problem to companies planning for their future,” said Nobel laureate Christopher Pissarides, who teaches at the London School of Economics. “The problem is that you don’t know what’s coming next. Uncertainty and instability in policy is the worst thing for an investor looking where to invest, the worst thing for companies.”
In the eurozone, IHS Markit’s monthly Purchasing Managers’ Index report showed new orders rose the least in almost two years in June. It said exporters are “increasingly concerned about the potential impact of tariffs and other trade restrictions.”
A Purchasing Managers’ Index for China released on Saturday showed a gauge of export demand tumbling into contraction in June.
“There’s no beating around the bush — the trade war is a serious risk and we need to take it into consideration,”
Burkhard Varnholt, Credit Suisse deputy chief investment officer, said on Bloomberg Television.
While Varnholt said Trump’s tactics could be aimed at midterm elections later this year and things could cool after that, IHS Markit’s view is that firms are “bracing themselves for the potential for further export losses.”
But trade isn’t the only concern, with oil prices and higher input costs cited in many of IHS Markit’s manufacturing reports. In Germany, supply constraints and a tight labor market are other impediments to continued solid expansion. The latter has also been highlighted by Japanese companies.
In the meantime, a U.S. threat of tariffs on cars has already hit some of Europe’s biggest automakers. Volkswagen shares have fallen about 12 percent in the past month, while BMW is down 9 percent. The Stoxx Europe 600 index has slipped only 2.7 percent in that period.
“In May, the global trade dispute seemed to be easing but in recent weeks it has flared up again with a series of threats and counter-threats,” said Adam Slater, an economist at Oxford Economics in London. “The global spillovers
from an escalation of current trade disputes, especially the U.S.-China battle, would be considerable.”
Trump offered a veiled threat to the World Trade Organization on Monday, warning during a meeting with Dutch Prime Minister Mark Rutte that if the WTO doesn’t treat the U.S. “properly, we will be doing something.”
Trump again denied plans to withdraw the U.S. from the WTO but told reporters in the Oval Office that the trade organization needed to change its ways. The comments came as he conferred with Rutte on trade and security ahead of next week’s NATO summit in Brussels.
The Netherlands is part of the European Union, which has been involved in a trade dispute with Trump over the automobile imports. Trump has requested his Commerce Department study whether to impose additional tariffs on cars, trucks and auto parts imported from Europe and other foreign markets, prompting a warning from the EU that such an action could lead to retaliation involving some $300 billion in U.S. goods.
During the meeting with Rutte, Trump said he was “very close” to reaching a number of
trade deals, describing them as “fair trade deals for our taxpayers, and for our workers and for our farmers.” He said the U.S. would continue meeting with the EU about the trade issue, saying, “If we do work it out, that will be positive, and if we don’t, it will be positive also.”