WASHINGTON (Reuters) – While US President Donald Trump and Chinese Deputy Prime Minister Liu prepare to sign a “Phase 1” trade agreement, new data shows that Trump’s trade war costs They are proving more widespread, deeper and more durable than previously believed. .
FILE PHOTO: The President of the United States, Donald Trump, the Secretary of State of the United States, Mike Pompeo, the National Security Advisor to the President of the United States, Donald Trump, John Bolton, and the President of China, Xi Jinping, attend a working dinner after the G20 leaders summit in Buenos Aires, Argentina, December 1, 2018. REUTERS / Kevin Lamarque / File photo
The US Federal Reserve investigation UU. And other important economists show that the US tariffs. UU. On the Chinese industrial components and materials, which will not be largely eliminated by the agreement, they are proving particularly detrimental to US manufacturing and competitiveness.
The White House has scheduled a signing ceremony on Wednesday for what Trump is promoting as “the largest and largest” trade agreement ever made, and China is expected to commit to increasing US export purchases by $ 200 billion in two years, including $ 80 billion more in manufactured goods, $ 32 billion more in agricultural products and $ 50 billion more in energy.
China has also promised to open its financial services market, improve intellectual property protection and prohibit the forced transfer of technology to Chinese companies. But Beijing has a history of promises of reforms that do not happen, and many believe that the purchase goals are not realistic.
The agreement puts an end to years of US tensions with China that turned into a trade war 18 months ago, when Trump imposed new tariffs on China’s goods worth $ 370 billion. Beijing responded with retaliatory tariffs of more than $ 100 billion in US exports.
The most immediate effect of the trade war has been a drag on world economic production. Last week, the World Bank reduced its global growth forecasts for 2020 and 2021 due to a slower than expected trade recovery.
Early predictions that Trump’s tariffs could cause a recession in the United States have proved unfounded, in part due to the nature of the consumer-driven US economy. The Trump administration’s 2017 tax cuts package and three Fed interest rate cuts in 2019 also helped stimulate activity.
U.S. tariffs UU. A China focused on industrial goods, components, semiconductors and machinery. The main tariffs on consumer goods, such as cell phones, laptops and toys, went into effect last month, but the Phase 1 agreement suspended them indefinitely.
The trade wars were a key factor in a wide slowdown in US manufacturing activity last year. US manufacturing production UU. It fell in seven of 11 months, with an annualized drop of 3.3% in the second quarter, the largest since the second quarter of 2009, when the economy was in recession, according to data compiled by the US central bank. UU.
Aluminum, electrical lighting, furniture, semiconductors and steel mills obtained the greatest benefit from tariff protections, while companies that stamp, falsify and otherwise process steel and aluminum in components and final products were the ones that more suffered the higher costs of inputs.
US companies have paid $ 46 billion in tariffs since Trump, who adopted a “America First” trade policy to revitalize the manufacturing sector, began restructuring relations with Washington’s main trading partners.
The tariffs that will remain on China’s products after the Phase 1 trade agreement are a big problem for the US economy in the future, said Mary Lovely, a commercial economist at Syracuse University in the state of New York.
“You are taxing the things that our businesses need to be competitive and yet you are saying that the point is to support manufacturing,” said Lovely about Trump’s tariff actions. “But it seems very clear now that the data points in that direction, that these (tariffs) are having a negative effect on manufacturing.”
Net loss of work
A new Fed document published on December 23 analyzes the effect of all new tariffs imposed in 2018 and 2019, including global steel and aluminum tariffs, on industries that are most exposed to tariffs and those that benefit most from them. He estimates that tariffs caused more losses in manufacturing jobs than were obtained during those years.
“For employment in manufacturing, a small boost in the effects of import protection tariffs is more than offset by greater reductions in the effects of increased input costs and retaliation fees,” they wrote. Fed investigators Aaron Flaaen and Justin Pierce.
US tariffs on China’s bicycles and components have led Arnold Kamler, president and CEO of Kent International, an importer of bicycles made in China sold at Walmart Inc and other large retailers, to lay off almost 50 employees and leave aside plans to start building bicycles at home.
Trump’s tariffs on China’s steel and other goods have cost the company many millions of dollars, Kamler told Reuters, adding that these are not addressed in the Phase 1 agreement.
RAILWAY TRAFFIC, DROP OF EXPORTS
As 2019 came to an end, rail freight traffic, a key manufacturing indicator, declined dramatically. Total car loads recently reached a record low, and decreased by more than 30% over last year’s levels for the weeks beginning December 30 and January 6, according to the American Railroad Association.
(GRAPH: Rail freight traffic has sunk into the commercial war, here)
The less volatile three-month average of the annual change was reduced by almost 10%, a slowdown in freight rail exceeded only once more since the last financial crisis, during the shale oil fall of 2015-2016.
The manufacturing recession has been accompanied by a slowdown in exports of US goods. UU., Which have fallen 1% since 2018 levels due in part to retaliatory tariffs on US goods. UU.
Another study www.nber.org/papers/w26611 published last week by Federal Reserve researchers, the US Census Bureau. UU. And the University of Michigan found that manufacturing companies that pay tariffs saw a greater drop in exports, which shows that import tariffs play a role in exports.
Higher supply chain costs have reduced exports by approximately 2% for products that are highly exposed to input tariffs, compared to exporters who are not exposed.
The study also found that Trump’s tariffs are affecting a wide range of US companies, and almost a third now pays them 46.5% of their purchases.
These companies employ 32% of all private nonfarm employees in the country. Companies are trying to move supply chains out of China to avoid tariffs, but this has proved costly, according to a survey conducted by Cowen and Co. Doing it “can be complicated, expensive and harmful to the business,” analysts said. of the company. .
The agreement signed on Wednesday suspends Trump’s plans to impose tariffs in December on $ 156 billion in Chinese consumer goods, including cell phones, laptops and toys. It also halves the tariff rate to 7.5% on a list of Chinese imports of $ 120 billion, from Bluetooth headphones and flat-screen TVs to footwear.
But it leaves 25% tariffs in place on a list of $ 250 billion of Chinese industrial machinery and components, including auto parts, semiconductors, printed circuit boards, furniture and lighting products.
Even if Trump’s remaining tariffs in China disappear in the coming months with a “Phase 2” agreement, US exports may not recover.
US companies affected by Mexican and Canadian tariffs that ended last year are discovering that the market for their products does not open again after the end of the trade war, said Daniel Anthony, vice president of The Trade Partnership, a consulting firm that recently analyzed data from the United States Department of Commerce.
(See the table of affected exports with retaliatory tariffs here here
Mexico and Canada impose retaliatory tariffs on more than $ 15 billion in US goods, including bourbon whiskey, ketchup and apples after Trump imposed tariffs on its steel and aluminum exports.
Buyers of these American products may have found new suppliers abroad or at home, decided they didn’t need the product, or found that the demand for their product ran out, Anthony said.
While Trump is preparing to sign the long-awaited agreement with China, economists are likely to question whether the result was worth it.
“Was it really worth what we got with the hammer used? Frankly, it looks like pretty small potatoes, ”said Loverly of Syracuse.
Reports by David Lawder, Andrea Shalal, Howard Schneider and Heather Timmons; Edition of Heather Timmons, Dan Burns and Paul Simao