U.S. manufacturing slumps as damage from trade war lingers

WASHINGTON — American manufacturing activity contracted last month more than it had in a decade, data released Friday showed, a sign that economic damage from President Donald Trump’s trade war could linger even after the United States and China sign an initial trade deal.

An index published by the Institute for Supply Management dropped to 47.2 in December, the lowest reading since June 2009 and the fifth straight month of contraction. A reading below 50 indicates the manufacturing sector is contracting.

The lackluster manufacturing data came amid growing concerns that Trump’s recent truce with China may only partly relieve economic damage from a prolonged trade war. Trump said Tuesday that the United States and China would sign an initial trade deal at the White House on Jan. 15, and that talks for a second-phase deal would begin “at a later date.”

The agreement will provide some relief to manufacturers and other businesses rocked by trade uncertainty, but it leaves the vast majority of Trump’s tariffs on Chinese goods in place. As a result, American manufacturers and other businesses that import parts and components from China will continue to pay higher costs to procure them.

Trump has called reviving domestic manufacturing his central economic mission, and the president embarked on a global trade war to help rewrite deals that he says put American workers at a disadvantage. Over the past two years, Trump has imposed tariffs on $360 billion worth of Chinese goods and placed levies on foreign steel and aluminum, washing machines, and solar panels.

But American manufacturing has stalled, damaged by the trade war, global economic weakness and a strong dollar, which makes American goods more expensive to purchase overseas. Since late 2018, U.S. factory output has slumped and new employment in the sector has leveled off.

Economists had hoped that the sector might rebound after the trade truce with China and the resolution of a major strike at General Motors in October. But the manufacturers that responded to ISM’s December survey said that export orders remained weak last month and that uncertainty on the trade front had discouraged companies from increasing their production.

“The manufacturing recession continues,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note to clients. “The trade war is the only realistic explanation.”