Cracks widen in US economy due to Donald Trump trade wars
Opinion / 11 December 2019, 1:30pm / Matthew A Winkler
JOHANNESBURG – As resilient as the US is with unemployment at a 50-year low of 3.5 percent and personal income up 15 percent since 2017, cracks are widening in the longest expansion in modern times.
Deteriorating business investment, manufacturing, shipping, trucking, logistics and the historically robust trade surplus can all be attributed to the tariffs threatened and imposed by Donald Trump since he became president.
Almost everything Americans now buy from China is penalised or targeted for tariffs.
Instead of fortifying the economy, Trump’s trade wars taxed chief executives (and farmers) with so much financial and geographical disruption on products from medical devices to soybeans that it has made companies eschew new American plants and equipment.
Even the Trump tax cut that was supposed to invigorate animal spirits was reduced to insignificance by the chaos created by the tariffs. That’s why Real Private Non-residential Fixed Investment calculated by the US Bureau of Economic Analysis is down more than 2.5 percent in the third quarter.
Since Trump took office, the best month in US manufacturing production was September 2018, when it increased 3.5 percent over the previous year. Then it began to shrink this year.
The most recent reading: manufacturing production declined 1.5 percent in October from a year ago. This drop in the growth rate in 13 months is the sharpest since September 2011.
Trump is the first president since the Great Depression to assail globalisation, which benefits corporate America with an overwhelming 56 percent share of the market value of the world’s 500 biggest companies.
Global trade, measured by the five-year average of exports, fell 2.6 percent to $17.6 trillion (R257.57 trillion) after reaching the high of $18 trillion in 2015 – the first decline since 1969 when such data was collected.
The retreat in global exports hasn’t marked a turning point for China, Trump’s nemesis on trade.
America’s post-World War II transition from industrial superpower to the biggest net exporter of services – such as intellectual property, travel and transport, computers, finance, insurance, healthcare, higher education and businesses associated with academia – climaxed with a record monthly trade balance of $21.9 billion at the end of 2015.
But this vital measure of the advanced US economy has fallen almost 3 percent, to $21.1bn since then, according to recent data.
The trade-weighted dollar’s 6.7 percent rally since 2016 can explain some of the weakness undermining US leadership in the global services economy, where high wages and skilled labour are dominant.
But the dollar appreciated 21.5 percent between 2012 and 2015, when the trade balance for services increased 21.6 percent. The diminishing services surplus coincides with the first drop in enrolled international students since the height of the US wars in Iraq and Afghanistan between 2003 and 2006.
The 2.1 percent decline to 872 214 enrolled foreign students between 2018 and 2019 followed a 1.3 percent decline during the previous academic year, when Trump pursued his ban on immigrants from seven countries, five of them with Muslim majorities.
Trump tariffs and retaliatory penalties from China and elsewhere are essentially taxes on American businesses, farmers and consumers.
They also hurt American shippers. Containers sent to Asia from North America, where the US is the biggest exporter, declined in eight of 11 quarters since 2017.
Winkler is the co-founder and former editor-in-chief of Bloomberg News.