U.S. Manufacturing 2019 Recession

Defying fears and predictions, the U.S. economy is still shrugging off Donald Trump’s trade conflicts. Employers added 266,000 jobs in November, and unemployment matched a 50-year low of 3.5% all while the Trump administration is waging a punishing trade war with China and other trading partners.

Still, farmers are suffering. Manufacturers are mired in a slump. Business investment is down because managers don’t know when the trade hostilities will end. What’s more, a new round of Trump tariffs import taxes on $160 billion more in Chinese goods is set to hit December 15. Those tariffs would strike directly at American consumers, who are driving the economic expansion and have so far been largely spared the worst of the pain from Trump’s trade fights.

Can the U.S. economy, which has grown steadily if tepidly for over a decade, withstand the manufacturing slump and the Trump trade war?

Here are some questions and answers:

Q: How has the U.S. economy weathered the threats?

A: So far, the U.S. impact of Trump’s trade wars has been confined largely to farms and factories. And trade, farming and manufacturing constitute a surprisingly small portion of the American economy.

Q. How are U.S. manufacturers holding up?

A. They’re clearly struggling. According to the Institute for Supply Management’s manufacturing index, factory output has fallen for four straight months. Factory hiring has slowed, too. Last year, manufacturers added an average of 22,000 jobs a month, the strongest pace since 1997. This year so far? A meager 5,100 a month.

The Trump administration’s trade conflicts account for much of the manufacturing sector’s woes. The tariffs have paralyzed business investment, which fell in the April-June and July-September quarters after having surged in 2018 and early this year. Many manufacturers have suspended decisions on where to situate factories, choose suppliers or pursue sales until more predictability returns to global commerce.

Q. What’s next?

A. The business world is waiting to see if Trump proceeds on Dec. 15 with plans to impose tariffs on an additional $160 billion in Chinese imports, a move that would extend his import taxes to just about everything China ships to the United States. Those tariffs would bring the trade war home to American consumers, whose spending accounts for about 70% of U.S. economic activity. The first tariffs on Chinese goods, begun last year, were designed to largely spare ordinary households. They affected mainly industrial products. By contrast, the Dec. 15 tariffs would hit toys, smartphones and other electronics and would likely lead many retailers to raise prices for consumers.

Services industries like retail are starting to look vulnerable. Though it continues to signal growth, ISM’s services index has weakened substantially over the past year.

U.S. and Chinese negotiators are trying to finish work on a modest preliminary trade agreement. And Trump might agree to cancel or postpone the December 15 tariffs if they do. But even a so-called Phase 1 deal would hardly resolve the U.S.-China conflict. The world’s two largest economies must still confront widespread allegations that Beijing steals technology, forces foreign companies to hand over trade secrets and unfairly subsidizes Chinese companies.

“It is critical that the president come to some arrangement with China,” said Mark Zandi, chief economist at Moody’s Analytics. “If instead the president escalates the war, the economic damage will become serious and recession next year likely.″

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